INTL FCStone 2014 Annual Report Download - page 95

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INTL FCSTONE INC. Form 10K 79
PART II
ITEM 8 Financial Statements and Supplementary Data
For the purposes of the maturity schedule, mortgage-backed
securities, which are not due at a single maturity date, have been
allocated over maturity groupings based on the expected maturity
of the underlying collateral. Mortgage-backed securities may
mature earlier than their stated contractual maturities because
of accelerated principal repayments of the underlying loans.
NOTE 4 Financial Instruments with Off-Balance Sheet Risk and Concentrations
of Credit Risk
e Company is party to certain financial instruments with
off-balance sheet risk in the normal course of its business.
e Company has sold financial instruments that it does not
currently own and will therefore be obliged to purchase such
financial instruments at a future date. e Company has recorded
these obligations in the consolidated financial statements as of
September 30, 2014 at the fair values of the related financial
instruments. e Company will incur losses if the fair value
of the underlying financial instruments increases subsequent
to September 30, 2014. e total of $264.0 million as of
September 30, 2014 includes $84.4 million for derivative
contracts, which represent a liability to the Company based on
their fair values as of September 30, 2014.
Derivatives
e Company utilizes derivative products in its trading capacity
as a dealer in order to satisfy client needs and mitigate risk.
e Company manages 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 the Company’s other trading activities. e majority of the
Company’s derivative positions are included in the consolidating
balance sheets in ‘financial instruments owned, at fair value’,
‘deposits and receivables from exchange-clearing organizations’
and ‘financial instruments sold, not yet purchased, at fair value’.
Listed below are the fair values of the Company’s derivative assets
and liabilities as of September 30, 2014 and 2013. Assets represent
net unrealized gains and liabilities represent net unrealized losses.
(in millions)
September 30, 2014
September 30, 2013
Assets(1) Liabilities(1) Assets(1) Liabilities(1)
Derivative contracts not accounted for as hedges:
Exchange-traded commodity derivatives $ 3,777.7 $ 3,255.4 $ 2,036.6 $ 2,046.3
OTC commodity derivatives 1,852.3 1,842.9 481.4 484.9
Exchange-traded foreign exchange derivatives 93.5 90.2 89.3 104.2
OTC foreign exchange derivatives 808.0 741.8 132.3 162.3
Exchange-traded interest rate derivatives 13.4 10.2 4.3 36.0
Equity index derivatives 61.9 114.0 135.5 141.7
Gross fair value of derivative contracts 6,606.8 6,054.5 2,879.4 2,975.4
Impact of netting and collateral (6,837.5) (5,970.1) (2,940.4) (2,944.7)
Total fair value included in ‘Deposits and receivables from
exchange-clearing organizations’ $ (273.9) $ (69.8)
Total fair value included in ‘Deposits and receivables from
broker-dealers, clearing organizations and counterparties’ $ (1.1) $ (13.1)
Total fair value included in ‘Financial instruments owned,
at fair value’ $ 44.3 $ 21.9
Fair value included in ‘Financial instruments sold, not yet
purchased, at fair value’ $ 84.4 $ 30.7
(1) As of September 30, 2014 and 2013, the Company’s derivative contract volume for open positions was approximately 4.5 million and 4.1 million contracts,
respectively.
e Company’s derivative contracts are principally held in its
Commodities and Risk Management Services (“Commercial
Hedging”) segment. e Company assists its Commercial
Hedging segment customers in protecting the value of their
future production by entering into option or forward agreements
with them on an OTC basis. e Company also provides its
Commercial Hedging segment customers with option products,
including combinations of buying and selling puts and calls. e
Company mitigates its risk by generally offsetting the customer’s
transaction simultaneously with one of the Company’s trading
counterparties or will offset that transaction with a similar but
not identical position on the exchange. e risk mitigation of
these offsetting trades is not within the documented hedging
designation requirements of the Derivatives and Hedging Topic
of the ASC. ese derivative contracts are traded along with cash
transactions because of the integrated nature of the markets for
these products. e Company manages the risks associated with
derivatives on an aggregate basis along with the risks associated