INTL FCStone 2014 Annual Report Download - page 80

INTL FCSTONE INC.  Form 10K64
PART II
ITEM 8 Financial Statements and Supplementary Data
the holder to return specific assets, other than through a cleanup
call. Under this guidance, the Company reflects the customer
collateral assets and corresponding liabilities in the Company’s
consolidated balance sheets as of September 30, 2014 and 2013.
In addition to margin, deposits with exchange-clearing
organizations include guaranty deposits. e guaranty deposits
are held by the clearing organization for use in potential default
situations by one or more members of the clearing organization.
e guaranty deposits may be applied to the Company’s obligations
to the clearing organization, or to the clearing organization’s
obligations to other clearing members or third parties.
e Company maintains customer omnibus and proprietary
accounts with other counterparties, and the equity balances in
those accounts along with any margin cash or securities deposited
with the carrying broker are included in deposits and receivables
from broker-dealers and counterparties.
Receivables from and payables to exchange-clearing organizations
are also comprised of amounts due from or due to exchange-
clearing organizations for daily variation settlements on open
futures and options on futures positions. e variation settlements
due from or due to exchange-clearing organizations are paid in
cash on the following business day.
Deposits and receivables with exchange-clearing organizations
also includes the unrealized gains and losses associated with
the customers’ options on futures contracts. See discussion in
the Financial Instruments and Derivatives section below for
additional information on the treatment of derivative contracts.
For customer owned derivative contracts, the fair value is offset
against the payable to customers with no impact recognized on
the consolidated income statements.
Receivable from and Payable to Customers
Receivable from customers, net of the allowance for doubtful
accounts, include the total of net deficits in individual exchange-
traded and OTC trading accounts carried by the Company.
Customer deficits arise from realized and unrealized trading losses
on futures, options on futures, swaps and forwards and amounts
due on cash and margin transactions. Customer deficit accounts
are reported gross of customer accounts that contain net credit or
positive balances, except where a right of offset exists. Net deficits
in individual exchange-traded and OTC trading accounts include
both secured and unsecured deficit balances due from customers
as of the balance sheet date. Secured deficit amounts are backed by
U.S. Treasury bills and notes and commodity warehouse receipts.
ese U.S Treasury bills and notes and commodity warehouse
receipts are not netted against the secured deficit amounts, as the
conditions for right of setoff have not been met.
Payable to customers represent the total of customer accounts with
credit or positive balances. Customer accounts are used primarily
in connection with commodity transactions and include gains
and losses on open commodity trades as well as securities and
other deposits made as required by the Company, the exchange-
clearing organizations or other clearing organizations. Customer
accounts with credit or positive balances are reported gross of
customer deficit accounts, except where a right of offset exists.
For regulatory purposes, certain customers, which would include
persons who are affiliated with the Company or are principals,
such as an officer or director, and any person who is materially
involved in the management of the Company, are identified as
noncustomers. A noncustomer account may not be carried as a
customer account due to an affiliation with the Company. In a
liquidation event, amounts owed to noncustomers are paid in
the same priority as amounts owed to general creditors of the
Company. ese accounts are also referred to as proprietary
accounts. e amounts related to noncustomer accounts are
included in ‘payable to customers’ on the consolidated balance
sheets.
e future collectability of the receivable from customers can
be impacted by the Company’s collection efforts, the financial
stability of its customers, and the general economic climate
in which it operates. e Company evaluates accounts that it
believes may become uncollectible on a specific identification
basis, through reviewing daily margin deficit reports, the historical
daily aging of the receivables, and by monitoring the financial
strength of its customers. e Company may unilaterally close
customer trading positions in certain circumstances. In addition,
to evaluate customer margining and collateral requirements,
customer positions are stress tested regularly and monitored for
excessive concentration levels relative to the overall market size.
e Company generally charges off an outstanding receivable
balance when all economically sensible means of recovery have
been exhausted. at determination considers information
such as the occurrence of significant changes in the customer’s
financial position such that the customer can no longer pay
the obligation, or that the proceeds from collateral will not be
sufficient to pay the balance.
Notes Receivable
e Company originates short-term notes receivable from customers
with the outstanding balances being insured 90% to 98% by a
third party, including accrued interest. e Company may sell the
insured portion of the notes through non-recourse participation
agreements with other third parties. See discussion of notes
receivable related to commodity repurchase agreements below.
Accrual of commodity financing income on any note is
discontinued when, in the opinion of management, there is
reasonable doubt as to the timely collectability of interest or
principal. Nonaccrual notes are returned to an accrual status
when, in the opinion of management, the financial position of
the borrower indicates there is no longer any reasonable doubt as
to the timely payment of principal and interest. e Company
records a charge against earnings for notes receivable losses when
management believes that collectability of the principal is unlikely.