INTL FCStone 2014 Annual Report Download - page 79

Download and view the complete annual report

Please find page 79 of the 2014 INTL FCStone annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 140

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140

INTL FCSTONE INC. Form 10K 63
PART II
ITEM 8 Financial Statements and Supplementary Data
Cash and Cash Equivalents
e Company considers cash held at banks and all highly liquid
investments, including certificates of deposit, which may be
withdrawn at any time at the discretion of the Company without
penalty, to be cash and cash equivalents. Cash and cash equivalents
consist of cash, foreign currency, money market funds and certificates
of deposit not deposited with or pledged to exchange-clearing
organizations, broker-dealers, clearing organizations or counterparties.
e money market funds are valued at period-end at the net asset
value provided by the fund’s administrator, which approximates fair
value. Certificates of deposit are stated at cost plus accrued interest,
which approximates fair value. e Company has an investment
policy, which limits the maximum amount placed in any one fund
and with any one institution in order to reduce credit risk. e
Company does not believe that it is exposed to significant risk on
cash and cash equivalents.
Cash, Securities and Other Assets Segregated
under Federal and other Regulations
Pursuant to requirements of the Commodity Exchange Act in
the U.S. and similarly in the United Kingdom (“UK”), pursuant
to the Markets in Financial Instruments Implementing Directive
2006/73/EC underpinning the Client Asset or ‘CASS’ rules in the
Financial Services Authority (“FSA”) handbook, funds deposited
by customers relating to futures and options on futures contracts
in regulated commodities must be carried in separate accounts
which are designated as segregated customer accounts. e deposits
in segregated customer accounts are not commingled with the
funds of the Company. Under the FSA’s rules, certain categories of
clients may choose to opt-out of segregation. As of September 30,
2014 and 2013, cash, securities and other assets segregated under
federal and other regulations consisted of cash held at banks
and money market funds of approximately $432.1 million and
$416.8 million, respectively, U.S. government securities and
federal agency obligations of approximately $0.5 million and
$19.5 million, respectively, and commodities warehouse receipts
of approximately $14.8 million and $13.1 million, respectively
(see fair value measurements discussion in Note 3).
Deposits and Receivables from Exchange-
Clearing Organizations, Broker-dealers,
Clearing Organizations and Counterparties,
and Payables to Broker-dealers, Clearing
Organizations and Counterparties
As required by the regulations of the U.S. Commodity Futures
Trading Commission (“CFTC”) and the Markets in Financial
Instruments Implementing Directive 2006/73/EC underpinning
the CASS rules in the FSA handbook, customer funds received to
margin, guarantee, and/or secure commodity futures transactions
are segregated and accounted for separately from the general
assets of the Company. Under the FSA’s rules, certain categories
of clients may choose to opt-out of segregation. Deposits with
exchange-clearing organizations, broker-dealers and counterparties
pertain primarily to deposits made to satisfy margin requirements
on customer and proprietary open futures and options on
futures positions and to satisfy the requirements set by clearing
exchanges for clearing membership. e Company also pledges
margin deposit with various counterparties for OTC derivative
contracts, and these deposits are also included in deposits and
receivables from broker-dealers and counterparties. Deposits
with and receivables from exchange-clearing organizations and
broker-dealers and counterparties are reported gross, except where
a right of offset exists. As of September 30, 2014 and 2013,
the Company had cash and cash equivalents on deposit with
or pledged to exchange-clearing organizations, broker-dealers
and counterparties of $1.3 billion and $1.0 billion, respectively.
ese balances also include securities pledged by the Company
on behalf of customers and customer-owned securities that are
pledged. It is the Company’s practice to include customer owned
securities on its consolidated balance sheets, as the rights to those
securities have been transferred to the Company under the terms
of the futures trading agreement. Securities pledged include
U.S. Treasury bills and instruments backed by U.S. government
sponsored entities and government-sponsored enterprise backed
mortgage-backed securities (“mortgage-backed securities”). e
securities that are not customer-owned are adjusted to fair value
with associated changes in unrealized gains or losses recorded
in OCI, net of tax, until realized, a component of stockholders’
equity. For customer owned securities, the change in fair value is
offset against the payable to customers with no impact recognized
on the consolidated income statements.
e securities, primarily U.S. Government obligations and
mortgage-backed securities, held by FCStone LLC (“FCStone”),
a subsidiary of INTL, as collateral or as margin have been
deposited with exchange-clearing organizations, broker-dealers
or other counterparties. e fair value of these securities was
approximately $0.7 billion and $0.6 billion as of September 30,
2014 and 2013, respectively.
Management has considered guidance required by the Transfers
and Servicing Topic of the ASC as it relates to securities pledged
by customers to margin their accounts. Based on a review of
the agreements with the customer, management believes the
transferor surrenders control over those assets because: (a) the
transferred assets have been isolated from the transferor—put
presumptively beyond the reach of the transferor and its creditors,
even in bankruptcy or other receivership, (b) each transferee has
the right to pledge or exchange the assets (or beneficial interests)
it received, and no condition both constrains the transferee (or
holder) from taking advantage of its right to pledge or exchange
and provides more than a trivial benefit to the transferor and
(c) the transferor does not maintain effective control over the
transferred assets through either (1) an agreement that both
entitles and obligates the transferor to repurchase or redeem
them before their maturity or (2) the ability to unilaterally cause