INTL FCStone 2014 Annual Report Download - page 68

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INTL FCSTONE INC. Form 10K52
PART II
ITEM 7A Quantitative and Qualitative Disclosures about Market Risk
ITEM 7A Quantitative and Qualitative Disclosures
about Market Risk
See also Note 4 to the Consolidated Financial Statements, ‘Financial Instruments with Off-Balance Sheet Risk and Concentrations
of Credit Risk’.
Market Risk
We conduct our market-making and trading activities
predominantly as a principal, which subjects our capital to
significant risks. ese risks include, but are not limited to,
absolute and relative price movements, price volatility and
changes in liquidity, over which we have virtually no control.
Our exposure to market risk varies in accordance with the
volume of client-driven market-making transactions, the size
of the proprietary positions and the volatility of the financial
instruments traded.
We seek to mitigate exposure to market risk by utilizing a variety
of qualitative and quantitative techniques:
•Diversification of business activities and instruments;
•Limitations on positions;
•
Allocation of capital and limits based on estimated weighted
risks; and
•
Daily monitoring of positions and mark-to-market profitability.
We utilize derivative products in a trading capacity as a dealer to
satisfy client needs and mitigate risk. We manage risks from both
derivatives and non-derivative cash instruments on a consolidated
basis. e risks of derivatives should not be viewed in isolation,
but in aggregate with our other trading activities.
Management believes that the volatility of revenues is a key
indicator of the effectiveness of its risk management techniques.
e graph below summarizes volatility of our daily revenue, determined on a marked-to-market basis, during the year ended
September 30, 2014.
Market-to-Market Revenues
Days
Daily Revenues ($000’s)
0
$0
to
$500
$500
to
$1,000
$1,000
to
$1,500
$1,500
to
$2,000
$2,000
to
$2,500
$2,500
to
$3,000
$3,000
to
$3,500
$3,500
to
$4,000
$4,000
to
$4,500
7
20
57
100
54
14
1
51
20
40
60
80
100
120
In our Securities market-making and trading activities, we
maintain inventories of equity and debt securities. In our
Physical Commodities segment, our positions include physical
inventories, forwards, futures and options on futures. Our
commodity trading activities are managed as one consolidated
book for each commodity encompassing both cash positions
and derivative instruments.We monitor the aggregate position
for each commodity in equivalent physical ounces, metric tons,
or other relevant unit.