StoneX Group Inc. - FORM 10-K - December 11, 2019

Attached files

file	filename
EX-32.2 - EXHIBIT 32.2 - StoneX Group Inc.	intlexhibit3229302019.htm
EX-32.1 - EXHIBIT 32.1 - StoneX Group Inc.	intlexhibit3219302019.htm
EX-31.2 - EXHIBIT 31.2 - StoneX Group Inc.	intlexhibit3129302019.htm
EX-31.1 - EXHIBIT 31.1 - StoneX Group Inc.	intlexhibit3119302019.htm
EX-23.1 - EXHIBIT 23.1 - StoneX Group Inc.	intlexhibit239302019.htm
EX-21 - EXHIBIT 21 - StoneX Group Inc.	intlexhibit219302019.htm
EX-10.23 - EXHIBIT 10.23 - StoneX Group Inc.	exhibit1023.htm
EX-10.22 - EXHIBIT 10.22 - StoneX Group Inc.	exhibit1022.htm
EX-10.20 - EXHIBIT 10.20 - StoneX Group Inc.	exhibit1020.htm
EX-10.19 - EXHIBIT 10.19 - StoneX Group Inc.	exhibit1019.htm
EX-10.17 - EXHIBIT 10.17 - StoneX Group Inc.	exhibit1017.htm
EX-10.13 - EXHIBIT 10.13 - StoneX Group Inc.	exhibit1013.htm
EX-10.12 - EXHIBIT 10.12 - StoneX Group Inc.	exhibit1012.htm
EX-4.5 - EXHIBIT 4.5 - StoneX Group Inc.	exhibit45.htm

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

ACT OF 1934

For the Fiscal Year Ended September 30, 2019

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 000-23554

INTL FCStone Inc.

(Exact name of registrant as specified in its charter)



Delaware		59-2921318
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

155 East 44th Street, Suite 900

New York, NY 10017

(Address of principal executive offices) (Zip Code)

(212) 485-3500

(Registrant’s telephone number, including area code)

Securities registered under Section 12(b) of the Act:



Title of Each Class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.01 par value	INTL	The Nasdaq Stock Market LLC

Securities registered under Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	o		Accelerated filer	x

Non-accelerated filer	o	(Do not check if a smaller reporting company)	Smaller reporting company	o

			Emerging growth company	o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of March 31, 2019, the aggregate market value of the common stock held by non-affiliates of the registrant was approximately $453.7 million.

As of December 9, 2019, there were 19,110,585 shares of the registrant’s common stock outstanding.

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Document Incorporated by Reference

Certain portions of the definitive Proxy Statement for the Registrant’s Annual Meeting of Stockholders to be held on February 26, 2020 are incorporated by reference into Part III of this Annual Report on Form 10-K.

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INTL FCStone Inc.

Annual Report on Form 10-K for the Fiscal Year Ended September 30, 2019

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		Page
PART I

Item 1.	Business	3

Item 1A.	Risk Factors	13

Item 1B.	Unresolved Staff Comments	26

Item 2.	Properties	26

Item 3.	Legal Proceedings	26

Item 4.	Mine Safety Disclosures	26


PART II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	27

Item 6.	Selected Financial Data	29

Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30

Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	61

Item 8.	Financial Statements and Supplementary Data	63

Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	126

Item 9A.	Controls and Procedures	126

Item 9B.	Other Information	127


PART III

Item 10.	Directors, Executive Officers and Corporate Governance	128

Item 11.	Executive Compensation	128

Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	128

Item 13.	Certain Relationships and Related Transactions, and Director Independence	128

Item 14.	Principal Accountant Fees and Services	128


PART IV

Item 15.	Exhibits and Financial Statement Schedules	129

Signatures		131

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Cautionary Statement about Forward-Looking Statements

Certain statements in this report, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. A detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in the section entitled “Risk Factors” (refer to Part I, Item 1A). We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

PART I

Item 1. Business

Overview of Business and Strategy

We are a diversified global brokerage and financial services firm providing execution, risk management and advisory services, market intelligence and clearing services across asset classes and markets around the world. We help our clients to access market liquidity, maximize profits and manage risk. Our revenues are derived primarily from financial products and advisory services intended to fulfill our clients’ commercial needs and provide bottom-line benefits to their businesses. Our businesses are supported by our global infrastructure of regulated operating subsidiaries, our advanced technology platform and our team of more than 2,000 employees as of September 30, 2019. We believe our client-first approach differentiates us from large banking institutions, engenders trust and has enabled us to establish leadership positions in a number of complex fields in financial markets around the world.

We offer a vertically integrated product suite, including high-touch execution, electronic access through a wide variety of technology platforms in a number of important global markets, and insightful market intelligence and advice, as well as post-trade settlement, clearing and custody services. We believe this is a unique product suite offering outside of bulge bracket banks, which creates sticky relationships with our clients. Our business model has created a revenue stream that is diversified by asset class, client type and geography, with a significant portion of recurring revenue derived from monetizing non-trading client activity including consistent and predictable interest and fee earnings on client balances, while also earning both commissions and spreads as clients execute transactions across our financial network.

We currently serve more than 20,000 commercial and institutional clients, located in more than 130 countries. We believe we are the third largest independent, non-bank futures commission merchant (“FCM”) in the United States (“U.S.”) as measured by our $2.2 billion in required client segregated assets at our U.S. FCM as of September 30, 2019, and one of the top ranked market makers in foreign securities by dollar volume as determined through the three-year period ended December 31, 2018, making markets in approximately 5,000 different foreign securities. We are one of only nine Category One ring dealing members of the London Metals Exchange (the “LME”). Our clients include commercial entities, asset managers, regional, national and introducing broker-dealers, insurance companies, brokers, institutional investors and professional traders, commercial and investment banks and government and non-governmental organizations (“NGOs”). We believe our clients value us for our attention to their needs, our expertise and flexibility, our global reach, our ability to provide access to liquidity in hard to reach markets and opportunities, and our status as a well-capitalized and regulatory-compliant organization. Our correspondent clearing and independent wealth management businesses include approximately 70 correspondent clearing relationships representing more than 80,000 underlying individual securities accounts as of September 30, 2019.

We engage in direct sales efforts to seek new clients, with a strategy of extending our services to potential clients that are similar in size and operations to our existing client base. In executing this strategy, we intend to both target new geographic locations and expand the services offered in geographic locations in which we currently operate where there is an unmet demand for our services. In addition, we selectively pursue small- to medium-sized acquisitions, focusing primarily on targets that satisfy specified criteria, including client-centric organizations that may help us expand into new asset classes, client segments and geographies where we currently have a small or limited market presence.

We believe we are well positioned to capitalize on key trends impacting the financial services sector. Among others, these trends include the impact of increased regulation on banking institutions and other financial services providers; increased consolidation, especially of smaller sub-scale financial services providers and independent securities clearing firms; the growing importance and complexity of conducting secure cross-border transactions; and the demand among financial institutions to transact with well-capitalized counterparties.

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We focus on mitigating exposure to market risk, ensuring adequate liquidity to maintain our daily operations and making non-interest expenses variable, to the greatest extent possible. Our strategy is to utilize a centralized and disciplined process for capital allocation, risk management and cost control, while delegating the execution of strategic objectives and day-to-day management to experienced individuals. This requires high quality managers, a clear communication of performance objectives and strong financial and compliance controls. We believe this strategy will enable us to build a more scalable and significantly larger organization that embraces an entrepreneurial approach to business, supported and underpinned by strong centralized financial and compliance controls.

INTL FCStone Inc. is a Delaware corporation formed in October 1987.

Available Information

Our internet address is www.intlfcstone.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, statements of changes in beneficial ownership and press releases are available free of charge in the Investor Relations section of this website. Our website also includes information regarding our corporate governance, including our Code of Ethics, which governs our directors, officers and employees.

Capabilities

We provide our clients access to financial markets and liquidity sources globally to enable them to efficiently hedge their risk and/or gain exposure. Our financial network connects over 20,000 commercial and institutional clients and over 80,000 retail clients to 36 derivatives exchanges, most global securities exchanges and a multitude of bilateral liquidity sources.

Execution

We provide execution services to our clients, both high-touch as well as electronically through a wide variety of technology platforms across the global marketplace. Asset and product types include listed futures and options on futures, equities, mutual funds, equity options, corporate, government and municipal bonds and unit investment trusts.

Clearing

We provide competitive and efficient clearing on all major futures exchanges globally. In addition, we act as an independent full-service provider of clearing, custody, research and security-based lending products in the global securities markets. We provide multi-asset prime brokerage, outsourced trading and custody, as well as self-clearing and introduced clearing services for hedge funds, mutual funds and family offices. We provide prime brokerage services in major foreign currency pairs and swap transactions to institutional clients. Additionally, we provide clearing of foreign exchange transactions, in addition to clearing of a wide range of over-the-counter “(OTC”) products.

Global Payments

We have built a scalable platform to provide end-to-end global payment solutions to banks and commercial businesses, as well as charities, NGOs and government organizations. We offer payments services in approximately 140 currencies. In this business, we primarily act as a principal in buying and selling foreign currencies on a spot basis deriving revenue from the difference between the purchase and sale prices. Through our comprehensive platform and our commitment to client service, we provide simple and fast execution, delivering funds in any of these countries quickly through our global network of more than 325 correspondent banking relationships.

Advisory Services

We provide value-added advisory services and high-touch trade execution across a variety of financial markets, including commodities, foreign currencies, interest rates, institutional asset management and independent wealth management. For commercial clients with exposure to commodities, foreign currencies and interest rates, we work through our proprietary Integrated Risk Management Program (“IRMP®”) to systematically identify and quantify their risks and then develop strategic plans to effectively manage these risks with a view to protecting their margins and ultimately improving their bottom lines.

We also participate in the underwriting and trading of municipal securities in domestic markets as well as asset-backed securities in our Argentinian operations. Through our asset management activities, we leverage our specialist expertise in niche markets to provide institutional investors with tailored investment products. Through our independent wealth management business, we provide advisory services to the growing retail investor market.

Physical Trading

We act as a principal to support the needs of our clients in a variety of physical commodities, primarily precious metals, as well as across the commodity complex, including energy commodities, grains, oil seeds, cotton, coffee, cocoa, edible oils and feed products. Through these activities, we have the ability to offer a simplified risk management approach to our commercial clients by embedding more complex hedging structures as part of each physical contract to provide clients with enhanced price risk mitigation. We also offer clients efficient off-take or supply services, as well as logistics management.

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OTC / Market-Making

We offer clients access to the OTC markets for a broad range of traded commodities, foreign currencies and interest rates, as well as to global securities markets. For clients with commodity price and financial risk, our customized and tailored OTC structures help mitigate those risks by integrating the processes of product design, execution of the underlying components of the structured risk product, transaction reporting and valuation.

We provide market-making and execution in a variety of financial products including commodity derivatives, unlisted American Depository Receipts (“ADRs”) and Global Depository Receipts (“GDRs”), foreign ordinary shares, and foreign currencies. In addition, we are an institutional dealer in fixed income securities including U.S. Treasury, U.S. government agency, agency mortgage-backed, asset-backed, corporate, emerging market, and high-yield securities.

Operating Segments

Our business activities are managed as operating segments and organized into reportable segments as follows:

Commercial Client Focused Operating Segments

Commercial Hedging

We serve our commercial clients through our team of risk management consultants, providing a high-value-added service that we believe differentiates us from our competitors and maximizes the opportunity to retain our clients. Our risk management consulting services are designed to quantify and monitor commercial entities’ exposure to commodity and financial risk. Upon assessing this exposure, we develop a plan to control and hedge these risks with post-trade reporting against specific client objectives. Our clients are assisted in the execution of their hedging strategies through a wide range of products from listed exchange-traded futures and options, to basic OTC instruments that offer greater flexibility, to structured OTC products designed for customized solutions.

Our services span virtually all traded commodity markets, with the largest concentrations in agricultural and energy commodities (consisting primarily of grains, energy and renewable fuels, coffee, sugar, cotton, and food service) and base metals products listed on the LME. Our base metals business includes a position as a Category One ring dealing member of the LME, providing execution, clearing and advisory services in exchange-traded futures and OTC products. We also provide execution of foreign currency forwards and options and interest rate swaps as well as a wide range of structured product solutions to our commercial clients who are seeking cost-effective hedging strategies. Generally, our clients direct their own trading activity, and our risk management consultants do not have discretionary authority to transact trades on behalf of our clients.

Within this segment, our risk management consultants organize their marketing efforts into client industry product lines, and currently serve clients in the following areas:


•	Financial Agricultural (“Ag”) & Energy


◦	Agricultural -


▪	Grain elevator operators, grain merchandisers, traders, processors, manufacturers and end-users.


▪	Livestock production, feeding and processing, dairy and users of agricultural commodities in the food industry.


▪	Coffee, sugar and cocoa producers, processors and end-users.


▪	Global fiber, textile and apparel industry.


◦	Energy and renewable fuels -


▪	Producers, refiners, wholesalers, transportation companies, convenience store chains, automobile and truck fleet operators, industrial companies, railroads, and municipalities.


▪	Consumers of natural gas including some of the largest natural gas consumers in North America, including municipalities and large manufacturing firms, as well as major utilities.


▪	Ethanol and biodiesel producers and end-users.


◦	Other -


▪	Lumber mills, wholesalers, distributors and end-users.


▪	Commercial entities seeking to hedge their interest rate and foreign exchange exposures.

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•	LME Metals


◦	Commercial -


▪	Producers, consumers and merchants of copper, aluminum, zinc, lead, nickel, tin and other ferrous products.


◦	Institutional -


▪	Commodity trading advisors and hedge funds seeking clearing and execution of LME and NYMEX/COMEX base metal products.

Physical Commodities

The Physical Commodities segment consists of our Precious Metals trading and Physical Ag and Energy commodity businesses. In Precious Metals, we provide a full range of trading and hedging capabilities, including OTC products, to select producers, consumers, and investors. Through our websites we provide clients the ability to purchase physical gold and other precious metals, in multiple forms, and in denominations of their choice. In our trading activities, we act as a principal, committing our own capital to buy and sell precious metals on a spot and forward basis.

In our Physical Ag & Energy commodity business, we act as a principal to facilitate financing, structured pricing and logistics services to clients across the commodity complex, including energy commodities, grains, oil seeds, cotton, coffee, cocoa, edible oils and feed products. We provide financing to commercial commodity-related companies against physical inventories. We use sale and repurchase agreements to purchase commodities evidenced by warehouse receipts, subject to a simultaneous agreement to sell such commodities back to the original seller at a later date.

We generally mitigate the price risk associated with commodities held in inventory through the use of derivatives. We do not elect hedge accounting under accounting principles generally accepted in the United States of America (“U.S. GAAP”) in accounting for this price risk mitigation.

Institutional Client Focused Operating Segments

Clearing and Execution Services (“CES”)

We provide competitive and efficient clearing and execution in all major futures and securities exchanges globally as well as prime brokerage in equities and major foreign currency pairs and swap transactions. Through our platform, client orders are accepted and directed to the appropriate exchange for execution. We then facilitate the clearing of clients’ transactions. Clearing involves the matching of clients’ trades with the exchange, the collection and management of client margin deposits to support the transactions, and the accounting and reporting of the transactions to clients.

As of September 30, 2019, our U.S. FCM held $2.2 billion in required client segregated assets, which we believe makes us the third largest independent, non-bank FCM in the U.S., as measured by required client segregated assets. We seek to leverage our capabilities and capacity by offering facilities management or outsourcing solutions to other FCM’s.

We are an independent full-service provider to introducing broker-dealers (“IBD’s”) of clearing, custody, research, syndicated and security-based lending products and services, including a proprietary technology platform which offers seamless connectivity to ensure a positive client experience through the clearing and settlement process. Our independent wealth management business, which offers a comprehensive product suite to retail clients nationwide, clears through this platform. We believe we are one of the leading mid-market clearers in the securities industry, with approximately 70 correspondent clearing relationships with over $16 billion in assets under management or administration as of September 30, 2019.

We provide prime brokerage foreign exchange (“FX”) services to financial institutions and professional traders. We provide our clients with the full range of OTC products, including 24-hour a day execution of spot, forwards and options as well as non-deliverable forwards in both liquid and exotic currencies. We also operate a proprietary FX desk that arbitrages the exchange-traded foreign exchange markets with the cash markets.

Through our London-based Europe, Middle East and Africa (“EMEA”) oil voice brokerage business, we provide brokerage services across the fuel, crude and middle distillates markets to commercial and institutional clients throughout EMEA.

Securities

We provide value-added solutions that facilitate cross-border trading and believe our clients value our ability to manage complex transactions, including foreign exchange, utilizing our local understanding of market convention, liquidity and settlement protocols around the world. Our clients include U.S.-based regional and national broker-dealers and institutions investing or executing client transactions in international markets and foreign institutions seeking access to the U.S. securities markets. We are one of the leading market makers in foreign securities, making markets in over 5,000 ADRs, GDRs and foreign ordinary shares, of which over 3,600 trade in the OTC market. In addition, we will, on request, make prices in more

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than 10,000 unlisted foreign securities. We are also a broker-dealer in Argentina and Brazil where we are active in providing institutional executions in the local capital markets.

We act as an institutional dealer in fixed income securities, including U.S. Treasury, U.S. government agency, agency mortgage-backed and asset-backed securities as well as investment grade, high yield, convertible and emerging market debt to a client base including asset managers, commercial bank trust and investment departments, broker-dealers and insurance companies.

We originate, structure and place debt instruments in the international and domestic capital markets. These instruments include complex asset-backed securities (primarily in Argentina) and domestic municipal securities. On occasion, we may invest our own capital in debt instruments before selling them. We also actively trade in a variety of international debt instruments as well as operate an asset management business in which we earn fees, commissions and other revenues for management of third party assets and investment gains or losses on our investments in funds and proprietary accounts managed either by our investment managers or by independent investment managers.

Payments Operating Segment

Global Payments

We provide customized foreign exchange and treasury services to banks and commercial businesses as well as charities and non-governmental and government organizations. We provide transparent pricing and offer payments services in more than 170 countries and 140 currencies, which we believe is more than any other payments solutions provider.

Our proprietary FXecute global payments platform is integrated with a financial information exchange (“FIX”) protocol. This FIX protocol is an electronic communication method for the real-time exchange of information, and we believe it represents one of the first FIX offerings for cross-border payments in exotic currencies. FIX functionality allows clients to view real time market rates for various currencies, execute and manage orders in real-time, and view the status of their payments through the easy-to-use portal.

Additionally, as a member of the Society for Worldwide Interbank Financial Telecommunication (“SWIFT”), we are able to offer our services to large money center and global banks seeking more competitive international payments services. In addition, we operate a fully accredited SWIFT Service Bureau which facilitates cross-border payments and acceptance transactions for financial institutions, trade networks and corporations.

Through this single comprehensive platform and our commitment to client service, we believe we are able to provide simple and fast execution, ensuring delivery of funds in local currency to any of these countries quickly through our global network of approximately 325 correspondent banks. In this business, we primarily act as a principal in buying and selling foreign currencies on a spot basis. We derive revenue from the difference between the purchase and sale prices.

We believe our clients value our ability to provide exchange rates that are significantly more competitive than those offered by large international banks, a competitive advantage that stems from our years of foreign exchange expertise focused on smaller, less liquid currencies.

Acquisitions during Fiscal Year 2019

Carl Kliem S.A.

On November 30, 2018, we acquired the entire issued and outstanding share capital of Carl Kliem S.A. Carl Kliem S.A. is an independent interdealer broker based in Luxembourg, providing foreign exchange, interest rate and fixed income products to institutional clients across the European Union (“E.U.”). Carl Kliem S.A. employs approximately 40 people and has more than 400 active institutional clients. This acquisition provides us with access to additional European institutional clients that can benefit from our full suite of financial services and an E.U.-based entity in anticipation of the United Kingdom’s (“U.K.”) planned exit from the E.U. The purchase price was $2.1 million of cash consideration, and was equal to the net tangible book value on the closing date less restructuring costs. We subsequently renamed Carl Kliem S.A. to INTL FCStone Europe S.A.

GMP Securities, LLC

On January 14, 2019 we acquired 100% of the U.S.-based broker-dealer GMP Securities, LLC (“GMP”), formerly known as Miller Tabak Securities, LLC, an independent, Securities and Exchange Commission (“SEC”)-registered broker-dealer and Financial Industry Regulatory Authority, Inc. (“FINRA”) member. GMP has an institutional fixed-income trading business dealing in high yield, convertible and emerging market debt securities and makes markets in certain equity securities. This acquisition allows us to expand our fixed income product offerings to clients and adds new institutional clients who can benefit from our full suite of financial services.

The purchase price was $8.2 million of cash consideration, and was equal to the final net tangible book value determined as of the acquisition date less $2.0 million. The fair value of the net assets acquired exceeded the aggregate cash purchase price, and

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accordingly we recorded a bargain purchase gain of $5.4 million during the year ended September 30, 2019, which is presented within ‘other gains’ in the Consolidated Income Statement.

During the year ended September 30, 2019, GMP was merged into our wholly owned regulated U.S. subsidiary, INTL FCStone Financial Inc. (“INTL FCStone Financial”).

Akshay Financeware, Inc.

On February 13, 2019, we paid $0.2 million to purchase the remaining interest of a joint venture originally acquired in connection with the acquisition of INTL Technology Services, LLC in September 2018. As a result of this transaction, we recorded $2.7 million of indefinite life intangibles for SWIFT licenses held by the joint venture.

CoinInvest GmbH and European Precious Metal Trading GmbH

On April 1, 2019, our wholly owned subsidiary INTL FCStone (Netherlands) B.V. acquired 100% of the outstanding shares of CoinInvest GmbH and European Precious Metal Trading GmbH. Through the websites coininvest.com and silver-to go.com, CoinInvest GmbH and European Precious Metal Trading GmbH are leading European online providers of gold, silver, platinum, and palladium products to retail investors, institutional investors, and financial advisors. The addition of CoinInvest GmbH and European Precious Metal Trading GmbH to our global product suite expands our offering, providing clients the ability to purchase physical gold and other precious metals, in multiple forms, and in denominations of their choice, to add to their investment portfolios.

The purchase price consisted of cash consideration of $22.0 million, including $11.2 million for the purchase of shareholders loans outstanding with the acquired entities. Cash consideration transferred exceeds the fair value of the tangible net assets acquired by $6.8 million.

Fillmore Advisors, LLC

On September 1, 2019, we acquired 100% of the U.S.-based trading firm Fillmore Advisors, LLC (“Fillmore”). Fillmore is an independent, SEC-registered broker-dealer firm and FINRA member firm and a leading provider of outsourced trading solutions and operational consulting to institutional asset managers. The firm, headquartered in Park City, Utah, is composed of traders that specialize in global buy-side and sell-side experience. Institutional clients can benefit from Fillmore’s comprehensive product coverage offering for equities, equity-linked, foreign exchange, credit, rates, and commodities. Fillmore will become an extension of the newly established prime brokerage division of our Securities reportable segment.

The purchase price included $1.4 million of cash consideration and includes a contingent earn-out with payments over the eight quarters following acquisition. The contingent earn-out payments are variable in nature and are equal to 50% of Segment Income, as defined in the SPA, for each quarterly period. The consideration due to the sellers is estimated at $1.8 million as of the closing date.

Subsequent Acquisition

UOB Bullion and Futures Limited

On March 19, 2019, our subsidiary INTL FCStone Pte. Ltd executed an asset purchase agreement to acquire the futures and options brokerage and clearing business of UOB Bullion and Futures Limited, a subsidiary of United Overseas Bank Limited. Closing was conditional upon receiving regulatory approval by the Monetary Authority of Singapore (“MAS”). The acquisition provides us access to an established institutional client base and also augments our global service capabilities in Singapore. The purchase price for the acquired assets is $5.0 million of which $2.5 million was due upon the execution of the asset purchase agreement and is included in ‘other assets’ on the Consolidated Balance Sheet as of September 30, 2019. The remaining $2.5 million was paid to the seller at closing of the acquisition, which occurred on October 7, 2019.

Acquisition during Fiscal Year 2018

PayCommerce Financial Solutions, LLC

During September 2018, we acquired all of the outstanding membership interests of PayCommerce Financial Solutions, LLC. PayCommerce Financial Solutions, LLC is a fully accredited SWIFT Service Bureau provider. The acquisition enables us to act as a SWIFT Service Bureau for our 300-plus correspondent banking network, thus providing another important service for delivering local currency, cross-border payments to the developing world. The purchase price was approximately $3.8 million and was not material to us. We renamed PayCommerce Financial Solutions, LLC to INTL Technology Services LLC.

Acquisition during Fiscal Year 2017

ICAP’s EMEA Oils Broking Business

During October 2016, our wholly owned subsidiary, INTL FCStone Ltd (“IFL”), acquired the London-based EMEA oils voice brokerage business of ICAP plc. The business provides brokerage services across the fuel, crude, and middle distillates markets

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to commercial and institutional clients throughout EMEA. The purchase price included cash consideration of $6.0 million paid directly to ICAP as well as incentive amounts payable to employees acquired based upon their continued employment.

Competition

The international commodities and financial markets are highly competitive and rapidly evolving. In addition, these markets are dominated by firms with significant capital and personnel resources that are not matched by our resources. We expect these competitive conditions to continue in the future, although the nature of the competition may change as a result of ongoing changes in the regulatory environment. We believe that we can compete successfully with other commodities and financial intermediaries in the markets we seek to serve, based on our expertise, products and quality of consulting and execution services.

We compete with a large number of firms in the exchange-traded futures and options on futures execution sector and in the OTC derivatives sector. We compete primarily on the basis of diversity and value of services offered, and to a lesser extent on price. Our competitors in the exchange-traded futures and options sector include international, national and regional brokerage firms as well as local introducing brokers, with competition driven by price level and quality of service. Many of these competitors also offer OTC trading programs. In addition, there are a number of financial firms and physical commodities firms that participate in the OTC markets, both directly in competition with us and indirectly through firms like us. We compete in the OTC market by making specialized OTC transactions available to our clients in contract sizes that are smaller than those usually available from major counterparties.

Investor interest in the markets we serve impact and will continue to impact our activities. The instruments traded in these markets compete with a wide range of alternative investment instruments. We seek to counterbalance changes in demand in specified markets by diversifying our business activities into multiple uncorrelated markets.

Technology has increased competitive pressures on commodities and financial intermediaries by improving dissemination of information, making markets more transparent and facilitating the development of alternative execution mechanisms. In certain instances, we compete by providing technology-based solutions to facilitate client transactions and solidify client relationships.

Administration and Operations

We employ operations personnel to supervise and, for certain products, complete the clearing and settlement of transactions.

INTL FCStone Financial is a self-clearing broker-dealer which holds client funds and maintains deposits with the National Securities Clearing Corporation, Inc. (“NSCC”), MBS Clearing Corporation, Inc., Depository Trust & Clearing Corporation, Inc. (“DTCC”) and the Options Clearing Corporation (“OCC”). In addition, it clears a portion of its securities transactions through Broadcort, a division of Merrill Lynch, Pierce, Fenner & Smith, Inc and Pershing LLC, a subsidiary of The Bank of New York Mellon.

INTL FCStone DTVM Ltda., our broker-dealer subsidiary based in Brazil, clears its securities transactions through BM&F Bovespa.

We utilize front-end electronic trading, back office and accounting systems to process transactions on a daily basis. In some cases these systems are integrated. The systems provide record keeping, trade reporting to exchange clearing organizations, internal risk controls, and reporting to government and regulatory entities, corporate managers, risk managers and clients. A third-party service bureau located in Hopkins, MN maintains our futures and options back office system. It has a disaster recovery site in Salem, NH.

We hold client funds in relation to certain of our activities. In regulated entities, these client funds are segregated, but in unregulated entities they are not. For a further discussion of client segregated funds in our regulated entities, please see the “Client Segregated Assets” discussion below.

Our administrative staff manages our internal financial controls, accounting functions, office services and compliance with regulatory requirements.

Governmental Regulation and Exchange Membership

Our activities are subject to significant governmental regulation, both in the U.S. and overseas. Failure to comply with regulatory requirements could result in administrative or court proceedings, censure, fines, issuance of cease-and-desist orders, or suspension or disqualification of the regulated entity, its officers, supervisors or representatives. The regulatory environment in which we operate is subject to frequent change and these changes directly impact our business and operating results.

The commodities industry in the U.S. is subject to extensive regulation under federal law. We are required to comply with a wide range of requirements imposed by the Commodity Futures Trading Commission (the “CFTC”), the National Futures Association (the “NFA”) and the Chicago Mercantile Exchange, which is our designated self-regulatory organization. We are also a member of the Chicago Mercantile Exchange’s divisions: the Chicago Board of Trade, the New York Mercantile

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Exchange and COMEX, InterContinental Exchange, Inc. (“ICE”) Futures US, ICE Europe Ltd, the New Zealand Exchange and the Minneapolis Grain Exchange. These regulatory bodies protect clients by imposing requirements relating to capital adequacy, licensing of personnel, conduct of business, protection of client assets, record-keeping, trade-reporting and other matters.

The securities industry in the U.S. is subject to extensive regulation under federal and state securities laws. We must comply with a wide range of requirements imposed by the SEC, state securities commissions, the Municipal Securities Rulemaking Board (“MSRB”) and FINRA. These regulatory bodies safeguard the integrity of the financial markets and protect the interests of investors in these markets. They also impose minimum capital requirements on regulated entities. In connection with our wealth management business, one of our subsidiaries, SA Stone Investment Advisors Inc., is registered with, and subject to oversight by, the SEC as an investment adviser. As such, in its relations with its advisory clients, SA Stone Investment Advisers Inc. is subject to the fiduciary and other obligations imposed on investment advisers under the Investment Advisers Act of 1940 and the rules and regulations promulgated thereunder, as well as various state securities laws. These laws and regulations include obligations relating to, among other things, custody and management of client assets, marketing activities, self-dealing and full disclosure of material conflicts of interest, and generally grant the SEC and other supervisory bodies administrative powers to address non-compliance. Failure to comply with these requirements could result in a variety of sanctions, including, but not limited to, revocation of an advisory firm’s registration, restrictions or limitations on its ability to carry on its investment advisory business or the types of clients with which it can deal, suspensions of individual employees and significant fines.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) created a comprehensive new regulatory regime governing swaps and further regulations on listed derivatives. The Dodd-Frank Act also created a registration regime for new categories of market participants, such as “swap dealers”, among others. Our wholly owned subsidiary, INTL FCStone Markets, LLC is a CFTC provisionally registered swap dealer, whose business is overseen by the National Futures Association (“NFA”), the self-regulatory organization for the U.S. derivatives industry.

The Dodd-Frank Act generally introduced a framework for (i) swap data reporting and record keeping on counterparties and data repositories; (ii) centralized clearing for swaps, with limited exceptions for end-users; (iii) the requirement to execute swaps on regulated swap execution facilities; (iv) imposition on swap dealers to exchange margin on uncleared swaps with counterparties; and (v) the requirement to comply with new capital rules.

During 2016, CFTC 23.154, Calculation of Initial Margin rules came into effect, imposing new requirements on registered swap dealers (such as our subsidiary, INTL FCStone Markets, LLC) and certain counterparties to exchange initial margin, with phased-in compliance dates, with INTL FCStone Markets, LLC falling in the final compliance date tier of September 2021. We will continue to monitor all applicable developments in the ongoing implementation of the Dodd-Frank Act. The legislation and implementing regulations affect not only us, but also our clients and counterparties.

The USA PATRIOT Act contains anti-money laundering and financial transparency laws and mandates the implementation of various regulations applicable to broker-dealers and other financial services companies. The USA PATRIOT Act seeks to promote cooperation among financial institutions, regulators and law enforcement entities in identifying parties that may be involved in terrorism or money laundering. Anti-money laundering laws outside of the U.S. contain similar provisions. We believe that we have implemented, and that we maintain, appropriate internal practices, procedures and controls to enable us to comply with the provisions of the USA PATRIOT Act and other anti-money laundering laws.

The U.S. maintains various economic sanctions programs administered by the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”). The OFAC administered sanctions take many forms, but generally prohibit or restrict trade and investment in and with sanctions targets, and in some cases require blocking of the target’s assets. Violations of any of the OFAC-administered sanctions are punishable by civil fines, criminal fines, and imprisonment. We established policies and procedures designed to comply with applicable OFAC requirements. Although we believe that our policies and procedures are effective, there can be no assurance that our policies and procedures will effectively prevent us from violating the OFAC-administered sanctions in every transaction in which we may engage.

The Financial Conduct Authority (“FCA”), the regulator of the financial services industry in the U.K., regulates our subsidiary, INTL FCStone Ltd, as a Markets in Financial Instruments Directive (“MiFID”) investment firm under part IV of the Financial Services and Markets Act 2000. The regulations impose regulatory capital, as well as conduct of business, governance, and other requirements. The conduct of business rules include those that govern the treatment of client money and other assets which, under certain circumstances for certain classes of clients must be segregated from the firm’s own assets. INTL FCStone Ltd is a member of the LME, ICE Europe Ltd, Euronext Amsterdam, Euronext Paris, the European Energy Exchange, Eurex and Norexco ASA.

The European Markets Infrastructure Regulation (“EMIR”) is the European regulation on OTC derivatives, central counterparties and trade repositories. The Markets in Financial Instruments Regulation and a revision of MiFID (together, “MiFID II”) generally took effect on January 3, 2018, and introduced comprehensive, new trading and market infrastructure

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reforms in the E.U. Principal areas of impact related to these regulatory provisions involve the emergence and oversight of organized trade facilities (“OTF’s”) for trading OTC non-equity products, client categorization, enhanced investor protection, conflicts of interest and execution policies, transparency obligations and extended transaction reporting requirements. We have made changes to our operations, including systems and controls, in order to be in compliance with MiFID II. We will continue to monitor all applicable regulatory developments.

Net Capital Requirements

INTL FCStone Financial is a dually registered broker-dealer/FCM and is subject to minimum capital requirements under Section 4(f)(b) of the Commodity Exchange Act, Part 1.17 of the rules and regulations of the CFTC and the SEC Uniform Net Capital Rule 15c3-1 under the Securities Exchange Act of 1934 (“the Exchange Act”). These rules specify the minimum amount of capital that must be available to support our clients’ open trading positions, including the amount of assets that INTL FCStone Financial must maintain in relatively liquid form, and are designed to measure general financial integrity and liquidity. Net capital and the related net capital requirement may fluctuate on a daily basis. Compliance with minimum capital requirements may limit our operations if we cannot maintain the required levels of capital and restrict the ability of INTL FCStone Financial to make distributions to us. Moreover, any change in these rules or the imposition of new rules affecting the scope, coverage, calculation or amount of capital we are required to maintain could restrict our ability to operate our business and adversely affect our operations.

SA Stone Wealth Management Inc. (formerly Sterne Agee Financial Services, Inc.) is subject to the SEC Uniform Net Capital Rule 15c3-1 under the Exchange Act.

INTL FCStone Ltd, a financial services firm regulated by the FCA is subject to a net capital requirement.

INTL FCStone Pty Ltd is regulated by the Australian Securities and Investment Commission, and is subject to a net tangible asset capital requirement.

INTL FCStone DTVM Ltda. (“INTL FCStone DTVM”) and INTL FCStone Banco de Cambio S.A. are regulated by the Brazilian Central Bank and Securities and Exchange Commission of Brazil. They are a registered broker-dealer and registered foreign exchange bank, respectively, and are subject to capital adequacy requirements.

INTL Gainvest S.A. and INTL CIBSA S.A. are regulated by the Comision Nacional de Valores, and they are subject to net capital and capital adequacy requirements. INTL Capital, S.A., is regulated by the Rosario Futures Exchange and the General Inspector of Justice, and is subject to a capital adequacy requirement.

Certain of our other non-U.S. subsidiaries are also subject to capital adequacy requirements promulgated by authorities of the countries in which they operate.

Our subsidiaries are in compliance with all of their capital regulatory requirements as of September 30, 2019. Additional information on our subsidiaries subject to significant net capital and minimum net capital requirements can be found in Note 13 to the Consolidated Financial Statements.

Segregated Client Assets

INTL FCStone Financial maintains client segregated deposits from its clients relating to their trading of futures and options on futures on U.S. commodities exchanges held with INTL FCStone Financial, making it subject to CFTC regulation 1.20, which specifies that such funds must be held in segregation and not commingled with the firm’s own assets. INTL FCStone Financial maintains acknowledgment letters from each depository at which it maintains client segregated deposits in which the depository acknowledges the nature of funds on deposit in the account. In addition, CFTC regulations require filing of a daily segregation calculation which compares the assets held in clients segregated depositories (“segregated assets”) to the firm’s total segregated assets held on deposit from clients (“segregated liabilities”). The amount of client segregated assets must be in excess of the segregated liabilities owed to clients and any shortfall in such assets must be immediately communicated to the CFTC. As of September 30, 2019, INTL FCStone Financial maintained $56.6 million in segregated assets in excess of its segregated liabilities.

In addition, INTL FCStone Financial is subject to CFTC regulation 1.25, which governs the acceptable investment of client segregated assets. This regulation allows for the investment of client segregated assets in readily marketable instruments including U.S. Treasury securities, municipal securities, government sponsored enterprise securities, certificates of deposit, commercial paper and corporate notes or bonds which are guaranteed by the U.S. under the Temporary Liquidity Guarantee Program, interest in money market mutual funds, and repurchase transactions with unaffiliated entities in otherwise allowable securities. INTL FCStone Financial predominately invests its client segregated assets in U.S. Treasury securities and interest-bearing bank deposits.

In addition, INTL FCStone Financial in its capacity as a securities clearing broker-dealer, clears transactions for clients and certain proprietary accounts of broker-dealers (“PABs”). In accordance with Rule 15c3-3 of the Securities Exchange Act of

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1934 (“Rule 15c3-3”), the Company maintains special reserve bank accounts (“SRBAs”) for the exclusive benefit of securities clients and PABs. As of September 30, 2019, we prepared reserve computations for the clients accounts and PAB accounts in accordance with the client reserve computation guidelines set forth in Rule 15c3-3. Based upon these computations, the customer reserve requirement was $19.4 million as of September 30, 2019. Additional deposits of $21.4 million were made to the customer SRBA in the week subsequent to September 30, 2019 to meet the customer segregation and segregated deposit timing requirements of Rule 15c3-3. The PAB reserve requirement was $2.6 million as of September 30, 2019. Additional deposits of $3.6 million were made to the PAB SRBA in the week subsequent to September 30, 2019 to meet the PAB segregation and segregated deposit timing requirements of Rule 15c3-3.

INTL FCStone Ltd is subject to certain business rules, including those that govern the treatment of client money and other assets which under certain circumstances for certain classes of client must be segregated from the firm’s own assets. As of September 30, 2019, INTL FCStone Ltd was in compliance with the applicable segregated funds requirements.

Secured Client Assets

INTL FCStone Financial maintains client secured deposits from its clients funds relating to their trading of futures and options on futures traded on, or subject to the rules of, a foreign board of trade held with INTL FCStone Financial, making it subject to CFTC Regulation 30.7, which requires that such funds must be carried in separate accounts in an amount sufficient to satisfy all of INTL FCStone Financial’s current obligations to clients trading foreign futures and foreign options on foreign commodity exchanges or boards of trade, which are designated as secured clients’ accounts. As of September 30, 2019, INTL FCStone Financial maintained $12.5 million in secured assets in excess of its secured liabilities.

Foreign Operations

We operate in a number of foreign jurisdictions, including Canada, Ireland, the United Kingdom, Luxembourg, Germany, Spain, Argentina, Brazil, Colombia, Uruguay, Paraguay, Mexico, Nigeria, Dubai, China, India, Hong Kong, Australia and Singapore. We established wholly owned subsidiaries in Uruguay and Nigeria but do not have offices or employees in those countries.

In the U.K., INTL FCStone Ltd is subject to regulation by the FCA.

In Argentina, INTL Gainvest S.A. and INTL CIBSA S.A. are subject to regulation by the Comision Nacional de Valores and INTL Capital, S.A. is subject to regulation by the Rosario Futures Exchange and the General Inspector of Justice.

In Brazil, FCStone do Brasil Ltda. is subject to regulation by BM&F Bovespa, and INTL FCStone DTVM Ltda. and INTL FCStone Banco de Cambio S.A. are regulated by the Brazilian Central Bank and Securities and Exchange Commission of Brazil.

In Canada, INTL FCStone Financial (Canada) Inc. is subject to regulation by the Investment Industry Regulatory Organization of Canada.

In Dubai, INTL Commodities DMCC is subject to regulation by the Dubai Multi Commodities Centre.

In Singapore, INTL FCStone Pte. Ltd. is subject to regulation by the Monetary Authority of Singapore.

In Australia, INTL FCStone Pty Ltd. is subject to regulation by the Australian Securities and Investments Commission.

In Hong Kong, INTL FCStone (Hong Kong) Limited holds a type 2 derivatives license and is subject to regulation by the Securities & Futures Commission of Hong Kong.

In Luxembourg, INTL FCStone Europe S.A. (formerly Carl Kliem S.A.) is subject to regulation by the Commission de Surveillance du Secteur Financier.

Business Risks

We seek to mitigate the market and credit risks arising from our financial trading activities through an active risk management program. The principal objective of this program is to limit trading risk to an acceptable level while maximizing the return generated on the risk assumed.

We have a defined risk policy administered by our risk management committee, which reports to the risk committee of our board of directors. We established specific exposure limits for inventory positions in every business, as well as specific issuer limits and counterparty limits. We designed these limits to ensure that in a situation of unexpectedly large or rapid movements or disruptions in one or more markets, systemic financial distress, and the failure of a counterparty or the default of an issuer, the potential estimated loss will remain within acceptable levels. The risk committee of our board of directors reviews the performance of the risk management committee on a quarterly basis to monitor compliance with the established risk policy.

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Employees

As of September 30, 2019, we employed 2,012 people globally: 1,194 in the U.S., 302 in the U.K., 167 in Brazil, 80 in Argentina, 76 in India, 65 in Singapore, 47 in Luxembourg, 14 in Canada 11 in Dubai, 11 in Paraguay, 10 in the Republic of Ireland, 9 in Australia, 9 in China, 7 in Mexico, 6 in Germany and 4 in Hong Kong. None of our employees operate under a collective bargaining agreement, and we have not suffered any work stoppages or labor disputes. Many of our employees are subject to employment agreements, certain of which contain non-competition provisions.

Item 1A. Risk Factors

We face a variety of risks that could adversely impact our financial condition and results of operations, including the following:

Our ability to achieve consistent profitability is subject to uncertainty due to the nature of our businesses and the markets in which we operate. During the fiscal year ended September 30, 2019 we recorded net income of $85.1 million, compared to net income of $55.5 million in fiscal 2018 and $6.4 million in fiscal 2017.

Our revenues and operating results may fluctuate significantly in the future because of the following factors:


•	market conditions, such as price levels and volatility in the commodities, securities and foreign exchange markets in which we operate;


•	changes in the volume of our market-making and trading activities;


•	changes in the value of our financial instruments, currency and commodities positions and our ability to manage related risks;


•	the level and volatility of interest rates;


•	the availability and cost of funding and capital;


•	our ability to manage personnel, overhead and other expenses;


•	changes in execution and clearing fees;


•	the addition or loss of sales or trading professionals;


•	reduction in fee revenues from client trading and wealth management services;


•	changes in legal and regulatory requirements; and


•	general economic and political conditions.

Although we continue our efforts to diversify the sources of our revenues, it is likely that our revenues and operating results will continue to fluctuate substantially in the future and such fluctuations could result in losses. These losses could have a material adverse effect on our business, financial condition and operating results.

The manner in which we account for certain of our precious metals and energy commodities inventory may increase the volatility of our reported earnings. Our net income is subject to volatility due to the manner in which we report our precious metals and energy commodities inventory held by subsidiaries that are not broker-dealers. Our precious metals and energy inventory held in subsidiaries which are not broker-dealers is stated at the lower of cost or net realizable value. We generally mitigate the price risk associated with our commodities inventory through the use of derivatives. We do not elect hedge accounting under U.S. GAAP for this price risk mitigation. In such situations, any unrealized gains in our precious metals and energy inventory in our non-broker-dealer subsidiaries are not recognized under U.S. GAAP, but unrealized gains and losses in related derivative positions are recognized under U.S. GAAP. As a result, our reported earnings from these business segments are subject to greater volatility than the earnings from our other business segments.

Our level of indebtedness could adversely affect our financial condition. As of September 30, 2019, our total consolidated indebtedness, before the netting of debt issuance costs, was $370.7 million, and we may increase our indebtedness in the future as we continue to expand our business. Our indebtedness could have important consequences and significant effects on our business, including:


•	increasing our vulnerability to general adverse economic and industry conditions;


•	requiring that a portion of our cash flow from operations be used for the payment of interest on our indebtedness, thereby reducing our ability to use our cash flow to fund working capital, capital expenditures, acquisitions, investments and general corporate requirements;


•	making it difficult for us to optimally manage the cash flow for our businesses;


•	limiting our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions, investments and general corporate requirements;


•	limiting our flexibility in planning for, or reacting to, changes in our business and the markets in which we operate; and


•	subjecting us to a number of restrictive covenants that, among other things, limit our ability to pay dividends and make distributions, make acquisitions and dispositions, borrow additional funds and make capital expenditures and other investments.

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We may be able to incur additional indebtedness in the future, including secured indebtedness. If new indebtedness is added to our current indebtedness levels, the related risks that we now face could intensify.

Committed credit facilities currently available to us might not be renewed. We currently have four committed credit facilities under which we may borrow up to $743.9 million, consisting of:


•	a $386.4 million facility available to the Company, for general working capital requirements, committed until February 22, 2022.


•	a $75.0 million facility available to INTL FCStone Financial, for short-term funding of margin to commodity exchanges, committed until April 3, 2020.


•	a $232.5 million committed facility available to our wholly owned subsidiary, FCStone Merchant Services, LLC, for financing traditional commodity financing arrangements and commodity repurchase agreements, committed until February 1, 2020.


•	a $50.0 million facility available to our wholly owned subsidiary, INTL FCStone Ltd, for short-term funding of margin to commodity exchanges, committed until January 31, 2020.

Of our committed credit facilities, $357.5 million are scheduled to expire during the 12-month period beginning with the filing date of this Annual Report on Form 10-K. There is no guarantee that we will be successful in renewing, extending or rearranging these facilities.

The Company’s business requires substantial cash to support its operating activities. Our business involves the establishment and carrying of substantial open positions for clients on futures exchanges and in the OTC derivatives markets. We are required to post and maintain margin or credit support for these positions. Although we collect margin or other deposits from our clients for these positions, significant adverse price movements can occur which will require us to post margin or other deposits on short notice, whether or not we are able to collect additional margin or credit support from our clients. We have systems in place to collect margin and other deposits from clients on a same-day basis; however, there can be no assurance that these facilities and systems will be adequate to eliminate the risk of margin calls in the event of severe adverse price movements affecting open positions of our clients. As such, the Company may be dependent on its lines of credit and other financing facilities in order to fund margin calls and other operating activities.

It is possible that these facilities might not be renewed at the end of their commitment periods and that we will be unable to replace them with other facilities on terms favorable to us or at all. If our credit facilities are unavailable or insufficient to support future levels of business activities, we may need to raise additional funds externally, either in the form of debt or equity. If we cannot raise additional funds on acceptable terms, we may not be able to develop or enhance our business, take advantage of future opportunities or respond to competitive pressure or unanticipated requirements, leading to reduced profitability.

Our failure to successfully integrate the operations of businesses acquired could have a material adverse effect on our business, financial condition and operating results. From time to time, we may seek to expand our product offerings and /or geographic presence through acquisitions of complementary businesses, technologies or services. Our ability to engage in suitable acquisitions will depend on our ability to identify opportunities for potential acquisitions that fit within our business model, enter into the agreements necessary to take advantage of these potential opportunities and obtain any necessary financing. We may not be able to do so successfully. We are regularly evaluating potential acquisition opportunities.

We will need to meet challenges to realize the expected benefits and synergies of these acquisitions, including:


•	integrating the management teams, strategies, cultures, technologies and operations of the acquired companies;


•	retaining and assimilating the key personnel of acquired companies;


•	retaining existing clients of the acquired companies;


•	creating uniform standards, controls, procedures, policies and information systems; and


•	achieving revenue growth because of risks involving (1) the ability to retain clients, (2) the ability to sell the services and products of the acquired companies to the existing clients of our other business segments, and (3) the ability to sell the services and products of our other business segments to the existing clients of the acquired companies.

The accomplishment of these objectives will involve considerable risk, including:


•	the potential disruption of each company’s ongoing business and distraction of their respective management teams;


•	unanticipated expenses related to technology integration; and


•	potential unknown liabilities associated with the acquisitions.

It is possible that the integration process could result in the loss of the technical skills and management expertise of key employees, the disruption of the ongoing businesses or inconsistencies in standards, controls, procedures and policies due to possible cultural conflicts or differences of opinions on technical decisions and product road maps that adversely affect our ability to maintain relationships with clients, counterparties, and employees or to achieve the anticipated benefits of the acquisition.

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We face risks associated with our market-making and trading activities. We conduct our market-making and trading activities predominantly as a principal, which subjects our capital to significant risks. These activities involve the purchase, sale or short sale for clients and for our own account of financial instruments, including equity and debt securities, commodities and foreign exchange. These activities are subject to a number of risks, including risks of price fluctuations, rapid changes in the liquidity of markets and counterparty creditworthiness.

These risks may limit our ability to either resell financial instruments we purchased or to repurchase securities we sold in these transactions. In addition, we may experience difficulty borrowing financial instruments to make delivery to purchasers to whom we sold short, or lenders from whom we have borrowed. From time to time, we have large position concentrations in securities of a single issuer or issuers in specific countries and markets. This concentration could result in higher trading losses than would occur if our positions and activities were less concentrated.

The success of our market-making activities depends on:


•	the price volatility of specific financial instruments, currencies and commodities,


•	our ability to attract order flow;


•	the skill of our personnel;


•	the availability of capital; and


•	general market conditions.

To attract market-trading, market-making and trading business, we must be competitive in:


•	providing enhanced liquidity to our clients;


•	the efficiency of our order execution;


•	the sophistication of our trading technology; and


•	the quality of our client service.

In our role as a market maker and trader, we attempt to derive a profit from the difference between the prices at which we buy and sell financial instruments, currencies and commodities. However, competitive forces often require us to:


•	match the quotes other market makers display; and


•	hold varying amounts of financial instruments, currencies and commodities in inventory.

By having to maintain inventory positions, we are subject to a high degree of risk. We cannot ensure that we will be able to manage our inventory risk successfully or that we will not experience significant losses, either of which could materially adversely affect our business, financial condition and operating results.

Fluctuations in currency exchange rates could negatively impact our earnings. A significant portion of our international business is conducted in currencies other than the U.S. dollar, and changes in foreign exchange rates relative to the U.S. dollar can therefore affect the value of our non‑U.S. dollar net assets, revenues and expenses. Although we closely monitor potential exposures as a result of these fluctuations in currencies and adopt strategies designed to reduce the impact of these fluctuations on our financial performance, there can be no assurance that we will be successful in managing our foreign exchange risk. Our exposure to currency exchange rate fluctuations will grow if the relative contribution of our operations outside the U.S. increases. Any material fluctuations in currencies could have a material effect on our financial condition, results of operations and cash flows.

We are exposed to certain risks as a result of operating in countries with high levels of inflation. We are exposed to risks as a result of operating in countries with high levels of inflation. These risks include the risk that the rate of price increases will not keep pace with the cost of inflation, adverse economic conditions may discourage business growth which could affect demand for our services, the devaluation of the currency may exceed the rate of inflation and reported U.S. dollar revenues and profits may decline, and these countries may be deemed “highly inflationary” for U.S. GAAP purposes.

For example, we have wholly owned subsidiaries in Argentina which employed 80 people as of September 30, 2019, and primarily conduct debt trading and asset management business activities for clients. The Argentinian economy was determined to be highly inflationary. For U.S. GAAP purposes, a highly inflationary economy is one where the cumulative inflation rate for the three years preceding the beginning of the reporting period, including interim reporting periods, is in excess of 100 percent. Argentina’s inflation rate reached this threshold during the quarterly period ended June 30, 2018. For periods up until June 30, 2018, the functional currency for certain of our subsidiaries was the Argentinian peso, the local currency of these subsidiaries. In accordance with this designation, effective July 1, 2018 we reported the financial results of the subsidiaries in Argentina at the functional currency of their parent, which is the U.S. dollar. Going forward, fluctuations in the Argentinian peso to U.S. dollar exchange rate could negatively impact our earnings.

We operate as a principal in the OTC derivatives markets which involves the risks associated with commodity derivative instruments. We offer OTC derivatives to our clients in which we act as a principal counterparty. We endeavor to simultaneously offset the underlying risk of the instruments, such as commodity price risk, by establishing corresponding offsetting positions with commodity counterparties, or alternatively we may offset those transactions with similar but not

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identical positions on an exchange. To the extent that we are unable to simultaneously offset an open position or the offsetting transaction is not effective to fully eliminate the derivative risk, we have market risk exposure on these unmatched transactions. Our exposure varies based on the size of the overall positions, the terms and liquidity of the instruments brokered, and the amount of time the positions remain open.

To the extent an unhedged position is not disposed of intra-day, adverse movements in the reference assets or rates underlying these positions or a downturn or disruption in the markets for these positions could result in a substantial loss. In addition, any principal gains and losses resulting from these positions could on occasion have a disproportionate effect, positive or negative, on our financial condition and results of operations for any particular reporting period.

Transactions involving OTC derivative contracts may be adversely affected by fluctuations in the level, volatility, correlation or relationship between market prices, rates, indices and/or other factors. These types of instruments may also suffer from illiquidity in the market or in a related market.

OTC derivative transactions are subject to unique risks. OTC derivative transactions are subject to the risk that, as a result of mismatches or delays in the timing of cash flows due from or to counterparties in OTC derivative transactions or related hedging, trading, collateral or other transactions, we or our counterparty may not have adequate cash available to fund our or its current obligations.

We could incur material losses pursuant to OTC derivative transactions because of inadequacies in or failures of our internal systems and controls for monitoring and quantifying the risk and contractual obligations associated with OTC derivative transactions and related transactions or for detecting human error, systems failure or management failure.

OTC derivative transactions may generally only be modified or terminated only by mutual consent of the parties to any such transaction (other than in certain limited default and other specified situations (e.g., market disruption events)) and subject to agreement on individually negotiated terms. Accordingly, it may not be possible to modify, terminate or offset obligations or exposure to the risk associated with a transaction prior to its scheduled termination date.

In addition, we note that as a result of rules recently adopted by U.S. regulators concerning certain financial contracts (including OTC derivatives) entered into with our counterparties that have been designated as global systemically important banking organizations, we may be restricted in our ability to terminate such contracts following the occurrence of certain insolvency-related default events. The rules are being progressively implemented between January 1, 2019 and January 1, 2020.

Changes to the U.S. corporate tax system could have an adverse effect on our business, cash flows, income and financial condition. Additionally, changes have had and may in the future continue to result in additional U.S. corporate tax liabilities on unremitted earnings from deemed repatriation of earnings of our foreign subsidiaries. The recent reform of the U.S. tax system included changes to corporate tax rates, and will affect subsequent fiscal years, including, but not limited to, (1) elimination of the corporate alternative minimum tax, (2) a new provision designed to tax global intangible low-taxed income, (3) limitations on the utilization of net operating losses incurred in tax years beginning after September 30, 2018 to 80% of taxable income per tax year, (4) the creation of the base erosion anti-abuse tax, (5) a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries, and (6) limitations on the deductibility of interest expense and certain executive compensation.

Changes in applicable U.S. state, federal or foreign tax laws and regulations, or their interpretations and application, could materially affect our tax expense and profitability. Most state and local income tax jurisdictions have updated their conformity or issued guidance on their level of conformity with the U.S. federal income tax changes as of September 30, 2019. We are able to calculate the impact of the reduction in corporate rate and the deemed repatriation transition tax for state and local income tax purposes and the impact on tax expense is immaterial.

We may have difficulty managing our growth. We have experienced significant growth in our business. Our operating revenues grew from $624.3 million in fiscal 2015 to $1,106.1 million in fiscal 2019. This growth may continue, including as a result of any acquisitions we have recently undertaken or may undertake in the future.

This growth required, and will continue to require, us to increase our investment in management personnel, financial and management systems and controls, and facilities. In the absence of continued revenue growth, or if growth is at a rate lower than our expectations, the costs associated with our expected growth would cause our operating margins to decline from current levels. In addition, as is common in the financial industry, we are and will continue to be highly dependent on the effective and reliable operation of our communications and information systems.

The scope of procedures for assuring compliance with applicable rules and regulations changes as the size and complexity of our business increases. In response, we have implemented and continue to revise formal compliance procedures; however, there can be no assurances that such procedures will be effective.

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It is possible that we will not be able to manage our growth successfully. Our inability to do so could have a material adverse effect on our business, financial condition and operating results.

Lapses in disclosure controls and procedures or internal control over financial reporting could materially and adversely affect our operations, profitability or reputation. As an SEC reporting company, we are required to maintain a system of effective internal control over financial reporting and disclosure controls and procedures. Nevertheless, lapses or deficiencies in disclosure controls and procedures or in our internal control over financial reporting may occur from time to time.

There can be no assurance that our disclosure controls and procedures will be effective in the future or that a material weakness in internal control over financial reporting will not exist. Any such lapses or deficiencies may materially and adversely affect our business and results of operations or financial condition, require us to expend significant resources to correct the lapses or deficiencies, expose us to regulatory or legal proceedings, subject us to fines, penalties, judgments or losses not covered by insurance, harm our reputation, or otherwise cause a decline in investor confidence.

Our risk management policies and procedures may leave us exposed to unidentified or unanticipated risk, which could harm our business. We have devoted significant resources to develop our risk management policies and procedures and expect to continue to do so in the future. However, our risk management policies and procedures may not be fully effective in mitigating our risk exposure in all market environments or against all types of risk, including risks that are unidentified or unanticipated. Our risk management policies and procedures require, among other things, that we properly record and verify many thousands of transactions and events each day, and that we continuously monitor and evaluate the size and nature of our or our clients’ and counterparties’ positions and the associated risks. In light of the high volume of transactions, it is impossible for us to review and assess every single transaction or to monitor at every moment in time our or our clients’ and counterparties’ positions and the associated risks.

Our policies and procedures used to identify, monitor and mitigate a variety of risks, including risks related to human error, client defaults, market movements, fraud and money-laundering, are established and reviewed by the Risk Committee of our Board of Directors. Some of our methods for managing risk are discretionary by nature and are based on internally developed controls and observed historical market behavior, and also involve reliance on standard industry practices. These methods may not adequately prevent losses, particularly as they relate to extreme market movements, which may be significantly greater than historical fluctuations in the market. Our risk management policies and procedures also may not adequately prevent losses due to technical errors if our testing and quality control practices are not effective in preventing software or hardware failures. In addition, we may elect to adjust our risk management policies and procedures to allow for an increase in risk tolerance, which could expose us to the risk of greater losses. Our risk management policies and procedures rely on a combination of technical and human controls and supervision that are subject to error and failure. These policies and procedures may not protect us against all risks or may protect us less than anticipated, in which case our business, financial condition and results of operations and cash flows may be materially adversely affected.

We are exposed to the credit risk of our clients and counterparties and their failure to meet their financial obligations could adversely affect our business. We have substantial credit risk in both our securities and commodities businesses. As a market maker of OTC and listed securities and a dealer in fixed income securities, we conduct the majority of our securities transactions as principal with institutional counterparties. We clear the majority of our principal securities transactions through unaffiliated clearing brokers or banks, who also are the custodian of the majority of our principal equity and debt securities. In these transactions, we may suffer losses as a result of a counterparty’s failure to fulfill its contractual obligations. We borrow securities from, and lend securities to, other broker-dealers, and may also enter into agreements to repurchase and agreements to resell securities. Adverse changes in market conditions related to securities utilized in these transactions may result in losses if counterparties to these transactions fail to honor their commitments.

In our correspondent securities clearing and independent wealth management businesses, we permit clients to purchase securities on margin, subject to various regulatory and internal margin requirements. During periods of significant price declines, the value of collateral securing the client’s margin loan may decline below the client’s obligation to us. In the event, the client is unable to deposit additional collateral for these margin loans, we may incur credit losses on these transactions or additional costs in attempting to secure additional collateral. While introducing broker-dealers and independent representatives are generally responsible for the credit losses of their clients, we may incur losses if they do not fulfill their obligations.

As a clearing broker in futures and option transactions, we act on behalf of our clients for all trades consummated on exchanges. We must pay initial and variation margin to the exchanges before we receive the required payments from our clients. Accordingly, we are responsible for our clients’ obligations with respect to these transactions, including margin payments, which exposes us to significant credit risk. Client positions which represent a significant percentage of open positions in a given market or concentrations in illiquid markets may expose us to the risk that we are not able to liquidate a client’s position in a manner which does not result in a deficit in that clients account. A substantial part of our working capital is at risk if clients default on their obligations to us and their account balances and security deposits are insufficient to meet all of their obligations.

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We act as a principal for OTC derivative transactions (including commodity, foreign exchange and interest rate transaction), which exposes us to both the credit risk of our clients and the counterparties with which we offset the client’s position. As with exchange-traded transactions, our OTC transactions require that we meet initial and variation margin payments on behalf of our clients before we receive the required payment from our clients. In addition, with OTC transactions, there is a risk that a counterparty will fail to meet its obligations when due. We would then be exposed to the risk that a settlement of a transaction which is due a client will not be collected from the respective counterparty with which the transaction was offset. Clients and counterparties that owe us money, securities or other assets may default on their obligations to us due to bankruptcy, lack of liquidity, operational failure or other reasons.

We act as a principal in our physical commodities trading activities which exposes us to the credit risk of our counterparties and clients in these activities.

Although we have procedures for reviewing credit exposures to specific clients and counterparties to address present credit concerns, default risk may arise from events or circumstances that are difficult to detect or foresee, including rapid changes in securities, commodity and foreign exchange price levels. Some of our risk management methods depend upon the evaluation of information regarding markets, clients or other matters that are publicly available or otherwise accessible by us. That information may not, in all cases, be accurate, complete, up-to-date or properly evaluated. In addition, concerns about, or a default by, one institution could lead to significant liquidity problems, losses or defaults by other institutions, which in turn could adversely affect us. We may be materially and adversely affected in the event of a significant default by our clients and counterparties.

In our securities, commodities and derivatives trading businesses we rely on the ability of our clearing brokers and banks to adequately discharge their obligations on a timely basis. We also depend on the solvency of our clearing brokers and custodians. Any failure by a clearing broker or bank to adequately discharge its obligations on a timely basis, or insolvency of a clearing broker or custodian, or any event adversely affecting our clearing brokers or custodians, could have a material adverse effect on our business, financial condition and operating results.

As a clearing member firm of clearing houses in the U.S. and abroad, we are also exposed to clearing member credit risk. Clearing houses require member firms to deposit cash and/or government securities to a clearing fund. If a clearing member defaults in its obligations to the clearing house in an amount larger than its own margin and clearing fund deposits, the shortfall is absorbed pro rata from the deposits of the other clearing members of the applicable clearing house. Several clearing houses of which we are members also have the authority to assess their members for additional funds if the clearing fund is depleted. A large clearing member default could result in a substantial cost to us if we are required to pay such assessments.

Our net operating revenues may decrease due to changes in market volume, prices or liquidity. Declines in the volume of securities, commodities and derivative transactions and in market liquidity generally may result in lower revenues from market-making and trading activities. Changes in price levels of securities and commodities and other assets, and interest and foreign exchange rates also may result in reduced trading activity and reduce our revenues from market-making transactions. Changed price levels also can result in losses from changes in the fair value of securities, commodities and other assets held in inventory. Sudden sharp changes in fair values of securities, commodities and other assets can result in:


•	illiquid markets;


•	fair value losses arising from positions held by us;


•	the failure of buyers and sellers of securities, commodities and other assets to fulfill their settlement obligations;


•	redemptions from funds managed in our asset management business segment and consequent reductions in management fees;


•	reductions in accrued performance fees in our asset management business segment; and


•	increases in claims and litigation.

Any change in market volume, price or liquidity or any other of these factors could have a material adverse effect on our business, financial condition and operating results.

Our net operating revenues may decrease due to changes in client trading volumes which are dependent in large part on commodity prices and commodity price volatility. Client trading volumes are largely driven by the degree of volatility—the magnitude and frequency of fluctuations—in prices of commodities. Higher volatility increases the need to hedge contractual price risk and creates opportunities for arbitrage trading. Energy and agricultural commodities markets periodically experience significant price volatility. In addition to price volatility, increases in commodity prices generally lead to increased trading volume. As prices of commodities rise, especially energy prices, new participants enter the markets to address their growing risk-management needs or to take advantage of greater trading opportunities. Sustained periods of stability in the prices of commodities or generally lower prices could result in lower trading volumes and, potentially, lower revenues. Lower volatility and lower volumes could lead to lower client balances held on deposit, which in turn may reduce the amount of interest revenue and account fees based on these deposits.

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Factors that are particularly likely to affect price volatility and price levels of commodities include:


•	supply and demand of commodities;


•	weather conditions affecting certain commodities;


•	national and international economic and political conditions;


•	perceived stability of commodities and financial markets;


•	the level and volatility of interest rates and inflation; and


•	financial strength of market participants.

Any one or more of these factors may reduce price volatility or price levels in the markets for commodities trading, which in turn could reduce trading activity in those markets. Moreover, any reduction in trading activity could reduce liquidity which in turn could further discourage existing and potential market participants and thus accelerate any decline in the level of trading activity in these markets.

Our net operating revenues may be impacted by diminished market activity due to adverse economic, political and market conditions. The amount of our revenues depends in part on the level of activity in the securities, foreign exchange and commodities markets in which we conduct business. The level of activity in these markets is directly affected by numerous national and international factors that are beyond our control, including:


•	economic, political and market conditions;


•	the availability of short-term and long-term funding and capital;


•	the level and volatility of interest rates;


•	legislative and regulatory changes; and


•	currency values and inflation.

Any one or more of these factors may reduce the level of activity in any of these markets in which we conduct business, which could result in lower revenues from our market-making and trading activities. Any reduction in revenues or any loss resulting from these factors could have a material adverse effect on our business, financial condition and operating results.

We depend on our management team. Our future success depends, in large part, upon our management team who possess extensive knowledge and management skills with respect to securities, commodities and foreign exchange businesses we operate. The unexpected loss of services of any of our executive officers could adversely affect our ability to manage our business effectively or execute our business strategy. Although some of these officers have employment contracts with us, they are generally not required to remain with us for a specified period of time.

We depend on our ability to attract and retain key personnel. Competition for key personnel and other highly qualified management, sales, trading, compliance and technical personnel is significant. It is possible that we will be unable to retain our key personnel and to attract, assimilate or retain other highly qualified personnel in the future. The loss of the services of any of our key personnel or the inability to identify, hire, train and retain other qualified personnel in the future could have a material adverse effect on our business, financial condition and operating results.

From time to time, other companies in the financial sector have experienced losses of sales and trading professionals. The level of competition to attract these professionals is intense. It is possible that we will lose professionals due to increased competition or other factors in the future. The loss of a sales and trading professional, particularly a senior professional with broad industry expertise, could have a material adverse effect on our business, financial condition and operating results.

In the event of employee misconduct or error, our business may be harmed. There have been a number of highly publicized cases involving fraud or other misconduct by employees of financial services firms in recent years. Employee misconduct or error could subject us to legal liability, financial losses and regulatory sanctions and could seriously harm our reputation and negatively affect our business. Misconduct by employees could include engaging in improper or unauthorized transactions or activities, failing to properly supervise other employees or improperly using confidential information. Employee errors, including mistakes in executing, recording or processing transactions for clients, could cause us to enter into transactions that clients may disavow and refuse to settle, which could expose us to the risk of material losses even if the errors are detected and the transactions are unwound or reversed. If our clients are not able to settle their transactions on a timely basis due to employee error, our risk of material loss could be increased. The risk of employee error or miscommunication may be greater for products that are new or have non-standardized terms. It is not always possible to deter employee misconduct or error, and the precautions we take to detect and prevent this activity may not be effective in all cases.

Internal or third party computer and communications systems failures, capacity constraints and breaches of security could increase our operating costs and/or credit losses, decrease net operating revenues and cause us to lose clients. We are heavily dependent on the capacity and reliability of the computer and communications systems supporting our operations, whether owned and operated internally or by third parties, including those used for execution and clearance of our client’s trades and our market-making activities. We receive and process a large portion of our trade orders through electronic means, such as through public and private communications networks. These computer and communications systems and networks are subject to performance degradation or failure from any number of reasons, including loss of power, acts of war or terrorism,

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human error, natural disasters, fire, sabotage, hardware or software malfunctions or defects, computer viruses, intentional acts of vandalism, client error or misuse, lack of proper maintenance or monitoring and similar events. Our systems, or those of our third party providers, may fail or operate slowly, causing one or more of the following:


•	unanticipated disruptions in service to our clients;


•	slower response times;


•	delays in our clients’ trade execution;


•	failed settlement of trades;


•	decreased client satisfaction with our services;


•	incomplete, untimely or inaccurate accounting, recording, reporting or processing of trades;


•	financial losses;


•	litigation or other client claims; and


•	regulatory sanctions.

In addition, in connection with our business, we collect and retain personally identifiable information of our clients. The continued occurrence of high-profile data breaches provides evidence of the serious threats to information security. Our clients expect that we will adequately protect their personal information, and the regulatory environment surrounding information security and privacy is increasingly demanding. Protecting against security breaches, including cyber-security attacks, is an increasing challenge, and penetrated or compromised data systems or the intentional, inadvertent or negligent release or disclosure of data could result in theft, loss or fraudulent or unlawful use of client or company data. It is possible that our security controls over personally identifiable information, our training of employees on data security and other practices we follow may not prevent the improper disclosure of personally identifiable information that we store and manage.

Cybersecurity attacks across industries, including ours, are increasing in sophistication and frequency and may range from uncoordinated individual attempts to measures targeted specifically at us. These attacks include but are not limited to, malicious software or viruses, attempts to gain unauthorized access to, or otherwise disrupt, our information systems, attempts to gain unauthorized access to proprietary information, and other electronic security breaches that could lead to disruptions in critical systems, unauthorized release of confidential or otherwise protected information and corruption of data. Cybersecurity failures may be caused by employee error, malfeasance, system errors or vulnerabilities, including vulnerabilities of our vendors, suppliers, and their products. We have been subject to cybersecurity attacks in the past, including breaches of our information technology systems, and may experience them in the future, potentially with more frequency or sophistication.

The occurrence of degradation or failure of the communications and computer systems on which we rely, or the significant theft, loss or fraudulent use of client information, may lead to financial losses, litigation or arbitration claims filed by or on behalf of our clients and regulatory investigations and sanctions, including by the CFTC, which require that our trade execution and communications systems be able to handle anticipated present and future peak trading volumes. Any such degradation or failure, or theft, loss or fraudulent use of client information, could also have a negative effect on our reputation, which in turn could cause us to lose existing clients to our competitors or make it more difficult for us to attract new clients in the future. Further, any financial loss that we suffer as a result of such degradations or failures in the performance of our computer and communications systems and networks could be magnified by price movements of contracts involved in transactions impacted by the degradation or failure, and we may be unable to take corrective action to mitigate any losses we suffer.

We are subject to extensive government regulation. The securities and derivatives industries are subject to extensive regulation under federal, state and foreign laws. In addition, the SEC, the CFTC, FINRA, the MSRB, the FCA, the NFA, the CME Group, Inc. and other self-regulatory organizations (commonly referred to as SROs), state securities commissions, and foreign securities regulators require compliance with their respective rules and regulations. These regulatory bodies are responsible for safeguarding the integrity of the financial markets and protecting the interests of participants in those markets.

As participants in various financial markets and exchanges, we may be subject to regulation concerning certain aspects of our business, including without limitation:


•	risk management;


•	trade practices;


•	the way we communicate with, market our products and services to, and disclose risks to, clients;


•	financial, transaction and other reporting requirements and practices;


•	client identification and anti-money laundering requirements;


•	capital structure;


•	record creation and retention;


•	safeguarding and management of client assets and personal information;


•	conflicts of interest; and


•	the conduct of our directors, officers and employees.

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Failure to comply with any of these laws, rules or regulations could result in adverse consequences. We and certain of our officers and employees have been subject to claims arising from acts that regulators asserted were in contravention of these laws, rules and regulations. These claims resulted in the payment of fines and/or other settlement terms (including requiring us to rectify any deficiencies identified by the applicable regulator - for example, amending our policies and procedures). It is possible that we, our officers and other employees will be subject to similar claims in the future. An adverse ruling against us or our officers and other employees could result in our or our officers and other employees being required to pay a substantial fine and/or other settlement terms and could result in a suspension or revocation of required registrations or memberships. Such sanctions could have a material adverse effect on our business, financial condition and operating results.

The regulatory environment in which we operate is subject to change. Any rule changes, additional legislation or regulations (including changes required under the Dodd-Frank Act) and any new or revised regulation by the SEC, the CFTC, other U.S. or foreign governmental regulatory authorities, SROs, MSRB, NFA or FINRA could have a material adverse effect on our business, financial condition and operating results. Changes in the interpretation or enforcement of existing laws and rules by these governmental authorities, SROs, MSRB, NFA and FINRA could also have a material adverse effect on our business, financial condition and operating results. Failure to comply with current or future legislation or regulations that apply to our operations could subject us to fines, penalties or material restrictions on our business in the future.

Additional regulation, changes in existing laws and rules, or changes in interpretations or enforcement of existing laws and rules often directly affect financial services firms. We cannot predict what effect any such changes might have on our business. Our business, financial condition and operating results may be materially affected by both regulations that are directly applicable to us and/or our counterparties and regulations of general application. Our level of trading and market-making activities can be affected not only by such legislation or regulations of general applicability, but also by industry-specific legislation or regulations.

We have incurred significant additional operational and compliance costs to meet regulatory requirements. These requirements have significantly affected our business and will continue to do so in the future. The Dodd-Frank Act was signed into law on July 21, 2010, creating a comprehensive change to financial regulation in the U.S., and affects virtually every area of the capital markets, including, among other things, centralized clearing of standardized derivatives (with certain stated exceptions), the trading of clearable derivatives on swap execution facilities or exchanges, and registration and comprehensive regulation of market participants such as “swap dealers”. Implementation of the Dodd-Frank Act has required, and will continue to require, many lengthy rulemaking processes resulting in the adoption of a multitude of new regulations applicable to entities which transact business in the U.S. or with U.S. persons outside the U.S. The Dodd-Frank Act affects many aspects, in the U.S. and internationally, of our business, including OTC derivatives and other financial activities, and will have an effect on our revenues and profitability, limit our ability to pursue certain business opportunities, impact the value of assets that we hold, require us to change certain business practices, impose additional costs on us and otherwise adversely affect our business.

The Dodd-Frank Act granted regulatory authorities, such as the CFTC and the SEC, broad rule-making authority to implement various provisions of the Dodd-Frank Act, including comprehensive regulation of the OTC derivatives market. A substantial majority of the OTC derivatives transactions in which our subsidiaries and affiliates engage are subject to regulation by the CFTC, which has finalized and implemented most of the rules required under the Dodd-Frank Act. However, because the regulatory program for OTC derivatives is comparatively new, it is difficult to predict the extent to which we and our subsidiaries and affiliates will be affected by these implementing regulations as they come into effect. Accordingly, we cannot provide assurance that new legislation and regulation will not eventually have an adverse effect on our business, results of operations, cash flows and financial condition.

We have incurred and expect to continue to incur significant costs to comply with these regulatory requirements. We have also incurred and expect to continue to incur significant costs related to the development, operation and continued enhancement of our technology relating to many facets of our business, including trade execution, trade reporting, surveillance, record keeping and data reporting obligations, compliance and back-up and disaster recovery plans designed to meet the requirements of the regulators.

Changes that have been, and that will continue to be made to, our OTC and clearing businesses in order to comply with our regulatory obligations have impacted the way we conduct these businesses and may adversely impact our current and future results of operations. As a result of the increased financial regulation (including as a result of the Dodd-Frank Act), the markets for cleared and non-cleared swaps may become less robust, there may be less volume and liquidity in these markets and there may be less demand for our services. This may occur as a result of, for example, certain banks and other large institutions being limited in their conduct of proprietary trading and being limited or prohibited from trading in certain derivatives. These rules, including the restrictions and limitations on the trading activities of certain banks and large institutions, may impact transaction volumes and liquidity in the markets in which we operate and our revenues would be adversely impacted as a result.

These changes to our OTC derivatives and clearing businesses may also adversely impact our cash flows and financial condition. Registration requirements have and will continue to impose substantial regulatory requirements upon certain of our

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entities including, among other things, capital and margin requirements, business conduct standards, initial and variation margin requirements, and record keeping and data reporting obligations. Increased regulatory oversight has also imposed administrative burdens on us related to, among other things, responding to regulatory examinations or investigations. Effective September 2016, CFTC margin rules came into effect, imposing new requirements on registered swap dealers (such as our subsidiary, INTL FCStone Markets, LLC) and certain of their counterparties to exchange initial and variation margin, with an implementation period ending in September 2020.

The EMIR is the European regulation on OTC derivatives, central counterparties and trade repositories. The Markets in Financial Instruments Regulation and a revision of the Markets in Financial Instruments Directive (together, “MiFID II”) generally took effect on January 3, 2018, and introduced comprehensive, new trading and market infrastructure reforms in the E.U. Principal areas of impact related to these regulatory provisions involve the emergence and oversight of OTF’s for trading OTC non-equity products, client categorization, enhanced investor protection, conflicts of interest and execution policies, transparency obligations and extended transaction reporting requirements. We have made changes to our operations, including systems and controls, in order to be in compliance with MiFID II. We will continue to monitor all applicable regulatory developments.

The increased costs associated with compliance, and the changes that will be required in our OTC and clearing businesses, may adversely impact our results of operations, cash flows, and/or financial condition.

We are subject to net capital requirements. The SEC, FINRA and the CFTC require our dually registered broker-dealer/FCM subsidiary, INTL FCStone Financial, to maintain specific levels of net capital. Failure to maintain the required net capital may subject this subsidiary to suspension or revocation of registration by the SEC, and suspension or expulsion by FINRA and other regulatory bodies and may subject this subsidiary to limitations on its activities, including suspension or revocation of its registration by the CFTC and suspension or expulsion by the NFA and various exchanges of which it is a member.

SA Stone Wealth Management Inc. (formerly Sterne Agee Financial Services, Inc.) is subject to the SEC Uniform Net Capital Rule 15c3-1 under the Securities Exchange Act of 1934.

The FCA requires our U.K. subsidiary, INTL FCStone Ltd to maintain specific levels of net capital. Failure to maintain the required net capital may subject INTL FCStone Ltd to suspension or revocation of its registration by the FCA.

The Australian Securities and Investment Commission regulates INTL FCStone Pty. Ltd. It is subject to a net tangible asset capital requirement.

The Brazilian Central Bank and Securities and Exchange Commission of Brazil regulate INTL FCStone DTVM Ltda. and INTL FCStone Banco de Cambio S.A. They are a registered broker-dealer and registered foreign exchange bank, respectively, and are subject to capital adequacy requirements.

INTL FCStone Europe S.A. (formerly Carl Kliem S.A.) is subject to regulation by the Commission de Surveillance du Secteur Financier.

The Comision Nacional de Valores regulates INTL Gainvest S.A. and INTL CIBSA S.A., and they are subject to net capital and capital adequacy requirements. The Rosario Futures Exchange and the General Inspector of Justice regulate INTL Capital, S.A. It is subject to a capital adequacy requirement.

Certain of our other non-U.S. subsidiaries are also subject to capital adequacy requirements promulgated by authorities of the countries in which they operate.

The CFTC has also proposed capital requirements requiring registered swap dealers (such as our subsidiary, INTL FCStone Markets, LLC) to maintain specific levels of net capital. If implemented as proposed, failure to maintain the required net capital may result in suspension or revocation of registration by the CFTC and suspension or expulsion by the NFA and various exchanges of which it is a member.

Ultimately, any failure to meet capital requirements by our dually registered broker-dealer/FCM subsidiary, or our other broker-dealer subsidiaries, could result in liquidation of the subsidiary. Failure to comply with the net capital rules could have material and adverse consequences such as limiting their operations, or restricting us from withdrawing capital from these subsidiaries.

Furthermore, a change in the net capital rules, the imposition of new rules or any unusually large charge against net capital could limit our operations that require the intensive use of capital. They could also restrict our ability to withdraw capital from these subsidiaries. Any limitation on our ability to withdraw capital could limit our ability to pay cash dividends, repay debt and repurchase shares of our outstanding stock. A significant operating loss or any unusually large charge against net capital could adversely affect our ability to expand or even maintain our present levels of business, which could have an adverse effect on our business, financial condition and operating results.

In addition to the net capital requirements, INTL FCStone Financial Inc. is subject to the deposit and/or collateral requirements of the clearing houses in which it participates (such as The Depository Trust & Clearing Corporation and The Options Clearing

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Corporation). These requirements may fluctuate significantly from time to time based upon the nature and size of client trading activity. Failure to meet such requirements could result in our inability to continue to participate in the clearing house, which would have a material adverse effect on the Company’s results of operation and financial condition.

We are subject to margin funding requirements on short notice. Our business involves establishment and carrying of substantial open positions for clients on futures exchanges and in the OTC derivatives markets. We are required to post and maintain margin or credit support for these positions. Although we collect margin or other deposits from our clients for these positions, significant adverse price movements can occur which will require us to post margin or other deposits on short notice, whether or not we are able to collect additional margin or credit support from our clients. We maintain borrowing facilities for the purpose of funding margin and credit support and have systems to endeavor to collect margin and other deposits from clients on a same-day basis; however, there can be no assurance that these facilities and systems will be adequate to eliminate the risk of margin calls in the event of severe adverse price movements affecting open positions of our clients. Generally, if a client is unable to meet its margin call, we promptly liquidate the client’s account. However, there can be no assurance that in each case the liquidation of the account will not result in a loss to us or that liquidation will be feasible, given market conditions, size of the account and tenor of the positions.

Low short-term interest rates negatively impact our profitability. The level of prevailing short-term interest rates affects our profitability because we derive a portion of our revenue from interest earned from the investment of funds deposited with us by our clients. As of September 30, 2019, our U.S. FCM had $2.3 billion of funds in segregated accounts, the majority of which are generally invested in U.S. Treasury securities. In addition, in our correspondent securities clearing business, we earn fee income in lieu of interest income on client cash held in money market mutual funds and FDIC sweep accounts. Our financial performance generally benefits from rising interest rates. Higher interest rates increase the amount of interest income earned from these client deposits. If short-term interest rates remain low or start to decline further, our revenues derived from interest will correspondingly decline which would negatively impact our profitability.

Short-term interest rates are highly sensitive to factors that are beyond our control, including general economic conditions and the policies of various governmental and regulatory authorities. In particular, decreases in the federal funds rate by the Board of Governors of the Federal Reserve System usually lead to decreasing interest rates in the U.S., which generally lead to a decrease in short-term interest rates.

We may issue additional equity securities. The issuance of additional common stock or securities convertible into our common stock could result in dilution of the ownership interest in us held by existing stockholders. We are authorized to issue, without stockholder approval, a significant number of additional shares of our common stock and securities convertible into either common stock or preferred stock.

We are subject to risks relating to litigation and potential securities, commodities and derivatives law liability. We face significant legal risks in our businesses, including risks related to currently pending litigation involving us. Many aspects of our business involve substantial risks of liability, including liability under federal and state securities, commodities and derivatives laws, other federal, state and foreign laws and court decisions, as well as rules and regulations promulgated by the SEC, the CFTC, FINRA, the MSRB, the NFA, the FCA and other regulatory bodies. Substantial legal liability or significant regulatory action against us and our subsidiaries could have adverse financial effects or cause significant reputational harm to us, which in turn could seriously harm our business prospects. Any such litigation could lead to more volatility of our stock price.

For a further discussion of litigation risks, see Item 3—Legal Proceedings below and Note 12 - Commitments and Contingencies in the Consolidated Financial Statements.

We are subject to intense competition. We derive a significant portion of our revenues from market-making and trading activities involving securities, commodities and foreign exchange. The market for these services, particularly market-making services through electronic communications gateways, is rapidly evolving and intensely competitive. We expect competition to continue and intensify in the future. We compete primarily with wholesale, national, and regional broker-dealers and FCMs, as well as electronic communications networks. We compete primarily on the basis of our expertise and quality of service.

We also derive a significant portion of our revenues from commodities risk management services. The commodity risk management industry is very competitive and we expect competition to continue to intensify in the future. Our primary competitors in this industry include both large, diversified financial institutions and commodity-oriented businesses, smaller firms that focus on specific products or regional markets and independent FCMs.

A number of our competitors have significantly greater financial, technical, marketing and other resources than we have. Some of them may:


•	offer alternative forms of financial intermediation as a result of superior technology and greater availability of information;


•	offer a wider range of services and products than we offer;


•	be larger and better capitalized;

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•	have greater name recognition; and


•	have more extensive client bases.

These competitors may be able to respond more quickly to new or evolving opportunities and client requirements. They may also be able to undertake more extensive promotional activities and offer more attractive terms to clients. Recent advances in computing and communications technology are substantially changing the means by which market-making services are delivered, including more direct access on-line to a wide variety of services and information. This has created demand for more sophisticated levels of client service. Providing these services may entail considerable cost without an offsetting increase in revenues. In addition, current and potential competitors have established or may establish cooperative relationships or may consolidate to enhance their services and products. New competitors or alliances among competitors may emerge and they may acquire significant market share.

We cannot assure you that we will be able to compete effectively with current or future competitors or that the competitive pressures we face will not have an adverse effect on our business, financial condition and operating results.

Our business could be adversely affected if we are unable to retain our existing clients or attract new clients. The success of our business depends, in part, on our ability to maintain and increase our client base. Clients in our market are sensitive to, among other things, the costs of using our services, the quality of the services we offer, the speed and reliability of order execution and the breadth of our service offerings and the products and markets to which we offer access. We may not be able to continue to offer the pricing, service, speed and reliability of order execution or the service, product and market breadth that clients desire. In addition, once our risk management consulting clients have become better educated with regard to sources of risk and the tools available to facilitate the management of this risk and we have provided them with recommended hedging strategies, they may no longer continue paying monthly fees for these services. Furthermore, our existing clients, including IRMP clients, are not generally obligated to use our services and can switch providers of clearing and execution services or decrease their trading activity conducted through us at any time. As a result, we may fail to retain existing clients or be unable to attract new clients. Our failure to maintain or attract clients could have an adverse effect on our business, financial condition and operating results.

We rely on relationships with introducing brokers for obtaining some of our clients. The failure to maintain and develop additional relationships with introducing brokers could adversely affect our business. We have relationships with introducing brokers who assist us in establishing new client relationships and provide marketing and client service functions for some of our clients. These introducing brokers receive compensation for introducing clients to us. Many of our relationships with introducing brokers are non-exclusive or may be canceled on relatively short notice. In addition, our introducing brokers have no obligation to provide new client relationships or minimum levels of transaction volume. Our failure to maintain these relationships with these introducing brokers, to develop new relationships with introducing brokers or the failure of these introducing brokers to establish and maintain client relationships would result in a loss of revenues, which could adversely affect our business.

Certain provisions of Delaware law and our charter may adversely affect the rights of holders of our common stock and make a takeover of us more difficult. We are organized under the laws of the State of Delaware. Certain provisions of Delaware law may have the effect of delaying or preventing a change in control. In addition, certain provisions of our certificate of incorporation may have anti-takeover effects and may delay, defer or prevent a takeover attempt that a stockholder might consider in its best interest. Our certificate of incorporation authorizes the board to determine the terms of our unissued series of preferred stock and to fix the number of shares of any series of preferred stock without any vote or action by our stockholders. As a result, the board can authorize and issue shares of preferred stock with voting or conversion rights that could adversely affect the voting or other rights of holders of our common stock. In addition, the issuance of preferred stock may have the effect of delaying or preventing a change of control, because the rights given to the holders of a series of preferred stock may prohibit a merger, reorganization, sale, liquidation or other extraordinary corporate transaction.

Our stock price is subject to volatility. The market price of our common stock has been and can be expected to be subject to fluctuation as a result of a variety of factors, many of which are beyond our control, including:


•	actual or anticipated variations in our results of operations;


•	announcements of new products by us or our competitors;


•	technological innovations by us or our competitors;


•	changes in earnings estimates or buy/sell recommendations by financial analysts;


•	the operating and stock price performance of other companies;


•	general market conditions or conditions specific in specific markets;


•	conditions or trends affecting our industry or the economy generally;


•	announcements relating to strategic relationships or acquisitions; and


•	risk factors and uncertainties set forth elsewhere in this Form 10-K.

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Because of this volatility, we may fail to meet the expectations of our stockholders or of securities analysts, and the trading prices of our common stock could decline as a result. In addition, any negative change in the public perception of the securities industry could depress our stock price regardless of our operating results.

Future sales by existing stockholders could depress the market price of our common stock. If our stockholders sell substantial amounts of our common stock in the public market, the market price of our common stock could fall. Such sales also might make it more difficult for us to sell equity securities in the future at a time and price that we deem appropriate.

Our international operations involve special challenges that we may not be able to meet, which could adversely affect our financial results. We engage in a significant amount of business with clients in the international markets. Certain additional risks are inherent in doing business in international markets, particularly in a regulated industry. These risks include:


•	the inability to manage and coordinate the various regulatory requirements of multiple jurisdictions that are constantly evolving and subject to unexpected change;


•	tariffs and other trade barriers;


•	difficulties in recruiting and retaining personnel, and managing international operations;


•	difficulties of debt collection in foreign jurisdictions;


•	potentially adverse tax consequences; and


•	reduced protection for intellectual property rights.

Our operations are subject to the political, legal and economic risks associated with politically unstable and less developed regions of the world, including the risk of war and other international conflicts and actions by governmental authorities, insurgent groups, terrorists and others. We are exposed to risks and uncertainties inherent in doing business in international markets. We may conduct business in countries that are the subject of actual or threatened war, terrorist activity, political instability, civil strife and other geopolitical uncertainty, economic and financial instability, unexpected changes in regulatory requirements, tariffs and other trade barriers, exchange rate fluctuations, applicable currency controls, the imposition of restrictions on currency conversion or the transfer of funds and difficulties in staffing and managing foreign operations, including reliance on local experts. As a result of these and other factors, the currencies of these countries may be unstable. Future instability in such currencies or the imposition of governmental or regulatory restrictions on such currencies or on business in such countries could impede our foreign business.

Our operations are required to comply with the laws and regulations of foreign governmental and regulatory authorities of each country in which we conduct business, and if we violate these regulations, we may be subject to significant penalties. The financial services industry is subject to extensive laws, rules and regulations in every country in which we operate. Firms that engage in commodity futures brokerage, securities and derivatives trading and investment banking must comply with the laws, rules and regulations imposed by the governing country, state, regulatory bodies and self-regulatory bodies with governing authority over such activities. Such laws, rules and regulations cover all aspects of the financial services business, including, but not limited to, sales and trading methods, trade practices, use and safekeeping of clients’ funds and securities, capital structure, anti-money laundering and anti-bribery and corruption efforts, recordkeeping and the conduct of directors, officers and employees.

Each of our regulators supervises our business activities to monitor compliance with such laws, rules and regulations in the relevant jurisdiction. In addition, if there are instances in which our regulators question our compliance with laws, rules, and regulations, they may investigate the facts and circumstances to determine whether we have complied. At any moment in time, we may be subject to one or more such investigation or similar reviews. There can be no assurance that, in the future, the operations of our businesses will not violate such laws, rules, and regulations and that related investigations and similar reviews could result in adverse regulatory requirements, regulatory enforcement actions and/or fines.

Additional legislation, changes in rules, changes in the interpretation or enforcement of existing laws and rules, or the entering into businesses that subject us to new rules and regulations may directly affect our business, results of operations and financial condition.

Our operations are required to comply with U.S. laws and regulations applicable to companies conducting business internationally, and if we violate these laws and regulations, it could adversely affect our business and subject us to broader liability. Our international business operations are subject to various anti-corruption laws and regulations, including restrictions imposed by the Foreign Corrupt Practices Act (the “FCPA”) and trade sanctions administered by the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”). The FCPA is intended to prohibit bribery of foreign officials and requires companies whose securities are listed in the U.S. to keep books and records that accurately and fairly reflect those companies’ transactions and to devise and maintain an adequate system of internal accounting controls. OFAC administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals against designated foreign states, organizations and individuals. Though we have policies in place designed to comply with applicable OFAC sanctions, rules and regulations as well as the FCPA and equivalent laws and rules of other jurisdictions, there can be no assurance that, in the future, the operations of

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our businesses will not violate these laws and regulations, and we could be exposed to claims for damages, financial penalties, reputational harm, incarceration of employees and restrictions on our operations and cash flows.

The U.K.’s proposed withdrawal from the European Union could have an adverse effect on our business and financial results. On March 29, 2017, the U.K. government triggered the Article 50 of the Treaty on European Union (“Brexit”). This officially confirmed the U.K.’s intention to withdraw its membership to the E.U. and the start for a two year negotiation process where the U.K. and the E.U. needed to agree the terms of the withdrawal and potentially give consideration to the future of the relationship between the parties. The timing of the proposed exit was recently extended and is now scheduled for January 31, 2020.

Current uncertainty over whether the U.K. will ultimately leave the E.U., as well as the final outcome of the negotiations between the U.K. and E.U., could have an adverse effect on our business and financial results. The long-term effects of Brexit will depend on the terms negotiated between the U.K. and the E.U., which may take years to complete. Our operations in the U.K. as well as our global operations could be impacted by the global economic uncertainty caused by Brexit or the actual withdrawal by the U.K. from the E.U. If we are unable to manage any of these risks effectively, our business could be adversely affected.

Item 1B. Unresolved Staff Comments

We have received no written comments regarding our periodic or current reports from the staff of the SEC that were issued 180 days or more preceding the end of our fiscal year 2019 that remain unresolved.

Item 2. Properties

The Company maintains offices in New York, New York; Winter Park, Florida; West Des Moines, Iowa; Chicago, Illinois; Kansas City, Missouri; Omaha, Nebraska; Bloomfield, Nebraska; Minneapolis, Minnesota; Champaign, Illinois; Miami, Florida; Indianapolis, Indiana; Lawrence, Kansas; Mobile, Alabama; Boca Raton, Florida; Fort Lauderdale, FL; Twin Falls, Idaho; Bowling Green, Ohio; Birmingham, Alabama; Gadsden, Alabama; Charlotte, North Carolina; Atlanta, Georgia; Houston, Texas; Dallas, Texas; Los Angeles, California; Park City, Utah; Seattle, Washington; Stamford, Connecticut; Mexico City, Mexico; Buenos Aires, Argentina; Campinas, Brazil; Sao Paulo, Brazil; Maringa, Brazil; Passo Fundo, Brazil; Goiania, Brazil; Recife, Brazil; Sorriso, Brazil; Patrocinio, Brazil; Campo Grande, Brazil; Primavera do Leste, Brazil; Asuncion and Ciudad del Este, Paraguay; Bogota, Colombia; London, United Kingdom; Dublin, Ireland; Dubai, United Arab Emirates; Singapore, Singapore; Beijing and Shanghai, China; Hong Kong; Bangalore, India; Toronto, Canada; Montreal, Canada; Sydney, Australia; Luxembourg, Luxembourg; and Frankfurt, Germany. All of our offices and other principal business properties are leased, except for a portion of our space in Buenos Aires, which we own. We believe that our leased and owned facilities are adequate to meet anticipated requirements for our current lines of business.

Item 3. Legal Proceedings

For information regarding certain legal proceedings to which we are currently a party, see Note 12, “Commitments and Contingencies - Legal and Regulatory Proceedings” in the notes to our Consolidated Financial Statements included in this Annual Report on Form 10-K.

Item 4. Mine Safety Disclosures

Not applicable.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is listed on The NASDAQ Stock Market LLC (“NASDAQ”) under the symbol ‘INTL’. Our common stock trades on the NASDAQ Global Select Market. As of September 30, 2019, there were approximately 320 registered holders of record of our common stock. The high and low sales prices per share of our common stock for each full quarterly period during fiscal 2019 and 2018 were as follows:



		Price Range
		High		Low
2019:
	Fourth Quarter	$	45.02	$	35.02
	Third Quarter	$	42.39	$	34.10
	Second Quarter	$	44.57	$	35.73
	First Quarter	$	49.74	$	35.07
2018:
	Fourth Quarter	$	57.00	$	48.06
	Third Quarter	$	53.57	$	41.14
	Second Quarter	$	46.96	$	38.58
	First Quarter	$	44.91	$	38.14

We have never declared any cash dividends on our common stock, and do not currently have any plans to pay dividends on our common stock. The payment of cash dividends in the future is subject to the discretion of our Board of Directors and will depend on our earnings, financial condition, capital requirements, contractual restrictions and other relevant factors. Our credit agreements currently prohibit the payment of cash dividends by us.

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On August 13, 2019, our Board of Directors authorized the repurchase of up to 1.5 million shares of our outstanding common stock from time to time in open market purchases and private transactions, commencing on August 14, 2019 and ending on September 30, 2020. The repurchases are subject to the discretion of the senior management team to implement our stock repurchase plan, and subject to market conditions and as permitted by securities laws and other legal, regulatory and contractual requirements and covenants.

Our common stock repurchase program activity for the three months ended September 30, 2019 was as follows:



Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program	Maximum Number of Shares Remaining to be Purchased Under the Program
July 1, 2019 to July 31, 2019	—	$	—	—	1,500,000
August 1, 2019 to August 31, 2019	76,052	37.55		76,052	1,423,948
September 1, 2019 to September 30, 2019	23,948	38.68		23,948	1,400,000
Total	100,000	$	37.82	100,000

Information relating to compensation plans under which our equity securities are authorized for issuance is set forth in Part III, Item 12 of our Annual Report on Form 10-K.

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Item 6. Selected Financial Data

The following selected financial and operating data are derived from our consolidated financial statements and should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in Item 7 and our Consolidated Financial Statements included in Item 8.

Selected Summary Financial Information



	Year Ended September 30,
(in millions, except share and per share amounts)	2019			2018			2017			2016			2015
Revenues:
Sales of physical commodities	$	31,830.3		$	26,682.4		$	28,673.3		$	14,112.0		$	34,089.9
Principal gains, net	415.8			354.1			297.0			312.2			317.7
Commissions and clearing fees	372.4			391.8			318.6			233.3			203.4
Consulting, management and account fees	79.6			71.1			65.0			42.2			42.8
Interest income	198.9			123.3			69.7			55.2			39.4
Total revenues	32,897.0			27,622.7			29,423.6			14,754.9			34,693.2
Cost of sales of physical commodities	31,790.9			26,646.9			28,639.6			14,083.9			34,068.9
Operating revenues	1,106.1			975.8			784.0			671.0			624.3
Transaction-based clearing expenses	183.5			179.7			136.3			129.9			122.7
Introducing broker commissions	114.7			133.8			113.0			68.9			52.7
Interest expense	154.7			80.7			42.1			28.3			17.1
Net operating revenues	653.2			581.6			492.6			443.9			431.8
Compensation and other expenses:
Compensation and benefits	393.1			337.7			295.7			263.9			251.1
Trading systems and market information	38.8			34.7			34.4			28.0			23.5
Occupancy and equipment rental	19.4			16.5			15.2			13.3			13.5
Professional fees	21.0			18.1			15.2			14.0			12.5
Travel and business development	16.2			13.8			13.3			11.5			10.5
Non-trading technology and support	20.1			13.9			11.6			7.1			4.7
Depreciation and amortization	14.0			11.6			9.8			8.2			7.2
Communications	6.6			5.4			5.0			4.7			4.6
Bad debts	2.5			3.1			4.3			4.4			7.3
(Recovery) bad debt on physical coal	(12.4		)	1.0			47.0			—			—
Other	28.4			26.3			25.9			22.3			18.8
Total compensation and other expenses	547.7			482.1			477.4			377.4			353.7
Other gains	5.5			2.0			—			6.2			—
Income from continuing operations, before tax	111.0			101.5			15.2			72.7			78.1
Income tax expense	25.9			46.0			8.8			18.0			22.4
Net income	$	85.1		$	55.5		$	6.4		$	54.7		$	55.7
Earnings per share:
Basic	$	4.46		$	2.93		$	0.32		$	2.94		$	2.94
Diluted	$	4.39		$	2.87		$	0.31		$	2.90		$	2.87
Number of shares:
Basic	18,738,905			18,549,011			18,395,987			18,410,561			18,525,374
Diluted	19,014,395			18,934,830			18,687,354			18,625,372			18,932,235

Other Data:
Return on average stockholders’ equity	15.5		%	11.6		%	1.5		%	13.2		%	15.0		%
Employees, end of period	2,012			1,701			1,607			1,464			1,231
Compensation and benefits as a percentage of operating revenues	35.5		%	34.6		%	37.7		%	39.3		%	40.2		%

Selected Balance Sheet Information:	September 30, 2019			September 30, 2018			September 30, 2017			September 30, 2016			September 30, 2015
Total assets	$	9,936.1		$	7,824.7		$	6,243.4		$	5,950.3		$	5,070.0
Lenders under loans	$	202.3		$	355.2		$	230.2		$	182.8		$	41.6
Senior secured term loan, net	$	167.6		$	—		$	—		$	—		$	—
Senior unsecured notes, net	$	—		$	—		$	—		$	44.5		$	45.5
Stockholders’ equity	$	594.2		$	505.3		$	449.9		$	433.8		$	397.1

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read together with the Consolidated Financial Statements and Notes thereto appearing elsewhere in this Annual Report on Form 10-K. Certain statements in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are forward-looking statements that involve known and unknown risks and uncertainties, many of which are beyond our control. Words such as “may”, “will”, “should”, “would”, “anticipates”, “expects”, “intends”, “plans”, “believes”, “seeks”, “estimates” and similar expressions identify such forward-looking statements. The forward-looking statements contained herein are based on current expectations and entail various risks and uncertainties that could cause actual results to differ materially from those expressed in such forward-looking statements. Factors that might cause such a difference include, among other things, those set forth under “Risk Factors” and those appearing elsewhere in this Form 10-K. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date hereof. We assume no obligation to update these forward-looking statements to reflect actual results or changes in factors or assumptions affecting forward-looking statements. Readers are cautioned that any forward-looking statements are not guarantees of future performance.

Overview

We are a diversified global brokerage and financial services firm providing execution, risk management and advisory services, market intelligence and clearing post-trade services across asset classes and markets around the world. We help our clients to access market liquidity, maximize profits and manage risk. Our revenues are derived primarily from financial products and advisory services intended to fulfill our clients’ commercial needs and provide bottom-line benefits to their businesses. Our businesses are supported by our global infrastructure of regulated operating subsidiaries, our advanced technology platform and our team of more than 2,000 employees as of September 30, 2019. We believe our client-first approach differentiates us from large banking institutions, engenders trust and has enabled us to establish leadership positions in a number of complex fields in financial markets around the world.

We report our operating segments based on services provided to clients. Our business activities are managed as operating segments and organized into five reportable segments, including Commercial Hedging and Physical Commodities, which are commercial client focused; Clearing & Execution Services (“CES”) and Securities, which are institutional client focused; and Global Payments. See Segment Information for a listing of our operating segment components.

OptionSellers

During the week ended November 16, 2018, balances in approximately 300 accounts of the futures commission merchant (“FCM”) division of our wholly owned subsidiary, INTL FCStone Financial Inc. (“INTL FCStone Financial”), declined below required maintenance margin levels, primarily as a result of significant and unexpected price fluctuations in the natural gas markets. All positions in these accounts, which were managed by OptionSellers.com Inc. (“OptionSellers”), an independent Commodity Trading Advisor (“CTA”), were liquidated in accordance with the INTL FCStone Financial’s client agreements and obligations under market regulation standards.

A CTA is registered with the U.S. Commodity Futures Trading Commission (“CFTC”) and a member of, and subject to audit by, the National Futures Association (“NFA”). OptionSellers is registered under a CFTC Rule 4.7 exemption for “qualified eligible persons,” which requires the account holders authorizing OptionSellers to act as their CTA to meet or exceed certain minimum financial requirements. OptionSellers, in its role as a CTA, had been granted by each of its clients full discretionary authority to manage the trading in the client accounts, while INTL FCStone Financial acted solely as the clearing firm in its role as the FCM.

INTL FCStone Financial’s client agreements hold account holders liable for all losses in their accounts and obligate the account holders to reimburse INTL FCStone Financial for any account deficits in their accounts. As of September 30, 2019, the aggregate receivable from these client accounts, net of collections and other allowable deductions, was $29.2 million, with no individual account receivable exceeding $1.4 million. INTL FCStone Financial continues to pursue collection of these receivables and intends both to enforce and to defend its rights aggressively, and to claim interest and costs of collection where applicable.

We have been named in arbitrations brought by clients seeking damages relating to the trading losses in these accounts. We believe that such cases are without merit and intend to defend them vigorously. At the same time, we have initiated numerous arbitration proceedings against clients to recover deficit balances in their accounts. We believe we have a valid claim against our clients, based on the express language of the client contracts and legal precedent, and intend to pursue collection of these claims vigorously.

We have done an assessment of the collectability of these accounts, considered the status of arbitration proceedings, and have concluded that we do not have a sufficient basis to record an allowance against these uncollected balances. As we move

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through the collection and arbitration processes and additional information becomes available, we will continue to consider the need for an allowance against the carrying value of these uncollected balances. Depending on future collections and arbitration proceedings, any provisions for bad debts and actual losses ultimately may or may not be material to our financial results. Currently, we do not believe that any potential losses related to this matter would impact our ability to comply with our ongoing liquidity, capital, and regulatory requirements.

Effects of the Tax Cuts and Jobs Act

On December 22, 2017, the President of the United States (“U.S.”) signed and enacted into law H.R. 1, the Tax Cuts and Jobs Act (“the Tax Reform”). Among the significant changes to the U.S. Internal Revenue Code, the Tax Reform lowered the U.S. federal corporate income tax rate from 35% to 21%, effective January 1, 2018. We computed our income tax expense for the fiscal 2019 using a U.S. statutory tax rate of 21%. We computed income tax expense for fiscal 2018 using a U.S. statutory tax rate of 24.5%. See Note 19 of the Consolidated Financial Statements for additional information.

For fiscal 2018, we recorded tax expense of $8.6 million related to the remeasurement of deferred tax assets and liabilities. The Tax Reform also included a mandatory repatriation transition tax on previously untaxed accumulated and current earnings and profits (“E&P”) of certain of our foreign subsidiaries. For fiscal 2018, we recorded a transition tax obligation of $11.2 million. The accounting for the remeasurement of the deferred tax assets and liabilities, as well as the accounting for the mandatory repatriation transition tax on previously untaxed accumulated and current E&P of certain of our foreign subsidiaries is complete.

Fiscal 2019 Highlights


•	Realized records in both operating revenues of $1,106.1 million and net income of $85.1 million.


•	Achieved a return on average stockholders’ equity of 15.5%, exceeding our internal target of 15%.


•	Executed an asset purchase agreement to acquire the futures and options brokerage and clearing business of UOB Bullion and Futures Limited.


•	Acquired GMP Securities, LLC, expanding our institutional fixed-income trading offerings into high yield, convertible and emerging market debt securities, as well as adding new institutional clients to benefit from our full suite of financial services.


•	Acquired Carl Kliem S.A., an independent inter-dealer broker based in Luxembourg, providing us with a strong European client base, and an E.U. based footprint for us, post Brexit.


•	Acquired CoinInvest GmbH and European Precious Metal Trading GmbH, expanding our precious metals offering.

•

Launched a securities prime brokerage division, offering multi-asset prime brokerage, execution, outsourced trading, custody, and self-clearing and introduced clearing services for hedge funds, mutual funds and family offices. Subsequently, expanding this initiative with the acquisition of Fillmore Advisors, LLC, a leading provider of outsourced trading solutions and operational consulting to institutional asset managers.


•	Our wholly-owned subsidiary, INTL FCStone Financial (Canada) Inc., became a member of the Investment Industry Regulatory Organization of Canada (“IIROC”), allowing us to offer exchange-traded financial products throughout Canada.


•	Amended our senior secured credit facility, extending the maturity through February 2022 and increasing the size of the facility to its current commitment of $393.0 million.

Executive Summary

Our net income increased $29.6 million to $85.1 million in fiscal 2019 compared to $55.5 million in fiscal 2018. Diluted earnings per share were $4.39 for fiscal 2019 compared to $2.87 in fiscal 2018. The calculation of diluted earnings per share is detailed in Note 3 of the Consolidated Financial Statements. Net income in fiscal 2018 included discrete income tax charges of $19.8 million related to the enactment of the Tax Reform described above. Excluding the impact of Tax Reform, net income in fiscal 2018, was $75.3 million.

Overall segment income increased $43.8 million, or 17% versus the prior year, with our Physical Commodities and Securities segments adding $21.4 million and $6.6 million, respectively versus fiscal 2018. In addition, our Global Payments and Clearing & Execution Services (“CES”) added $6.3 million and $5.8 million, respectively. Finally, our Commercial Hedging segment increased segment income by $3.7 million over the prior year period.

Our largest segment, Commercial Hedging increased segment income by 4%, to $100.1 million as a result of growth in both exchange-traded and OTC revenues as well as a $6.3 million increase in interest income. This operating revenue growth was partially offset by a $2.0 million increase in non-variable direct expenses.

Global Payments segment income increased 11%, to $66.1 million, primarily as a result of the increase in operating revenues, driven by 8% growth in the number of payments made and a 4% increase in the average revenue per trade versus fiscal 2018.

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This operating revenue growth was partially offset by a $5.3 million increase in non-variable direct expenses related to the acquisition of PayCommerce Financial Solutions, LLC, as well as the addition of several new front office employees.

Segment income in our Securities segment increased 16%, to $47.4 million, primarily as a result of the $99.1 million increase in operating revenues versus the prior year. This growth was tempered by a $60.9 million increase in interest expense related to our securities lending and matched-book repurchase activities, as well as a $6.2 million increase in non-variable direct expenses. This non-variable direct expense growth was primarily related to the launch of our securities prime brokerage initiative as well as the acquisition of GMP Securities LLC.

Our Physical Commodities segment increased segment income by 129%, to $38.0 million versus the prior year. This increase was primarily driven by a $16.9 million increase in operating revenues, of which $13.9 million was attributable to our Precious Metals activities and $3.0 million to our Physical Ag & Energy business. In addition, during fiscal 2019 we recorded $12.4 million of recoveries on the bad debt on physical coal as detailed below in “Bad Debt and Recoveries on Physical Coal”. The prior year included $1.0 million of bad debt on physical coal related to our exit of the physical coal business.

Despite a 2% decline in operating revenues in our CES segment, segment income increased 12%, to $54.1 million, as a $21.0 million decline in operating revenues in our Exchange-Traded Futures & Options business was more than offset by lower related variable expenses. Our Correspondent Clearing, Independent Wealth Management and Derivative Voice Brokerage businesses each added operating revenues versus the prior year and contributed to the growth in segment income. Our FX Prime Brokerage business added $4.3 million in segment income versus the prior year as a result of an increase in operating revenues, as well as a $2.7 million settlement received related to the Barclays PLC ‘last look’ class action matter.

On the expense side, we continue to focus on maintaining our variable cost model and limiting the growth of our non-variable expenses. To that end, variable expenses were 61% of total expenses in the current period compared to 61% in the prior year period. Non-variable expenses increased $28.1 million, or 9%, year-over-year, primarily the result of our acquisitions of Carl Kliem S.A., PayCommerce Financial Solutions, LLC, CoinInvest GmbH, European Precious Metal Trading GmbH and GMP Securities LLC, as well as the launch of our securities prime brokerage initiative and our expansion efforts in Canada. While we view these acquisitions and expansion efforts as long-term strategic decisions, they resulted in a pre-tax net loss in fiscal 2019 of $10.3 million. Partially offsetting this loss, we recorded $5.5 million in ‘other gains’, related to bargain purchases among certain acquisitions in fiscal 2019. These gains are discussed further in Note 20 of the Consolidated Financial Statements.

Economic hedges in place against the effect of the devaluation of the Argentine peso on our Argentine operations resulted in a loss of operating revenues of $1.6 million in fiscal 2019, while the fiscal 2018 results included a $5.5 million gain in operating revenues, each presented in ‘principal gains, net’. The Argentine peso has historically served as our functional currency in the Argentine operations, and as such the revaluation of the net assets of our Argentine subsidiaries was recorded as a component of accumulated other comprehensive loss, net in the consolidated balance sheets. In fiscal 2018, the Argentinian economy was determined to be highly inflationary and as such, beginning July 1, 2018, the functional currency for our Argentine subsidiaries is the U.S. dollar and prospectively the corresponding revaluations of the net assets of these subsidiaries are recorded in earnings each quarter in the consolidated income statements while the highly inflationary designation continues.

Finally, during fiscal 2018 we recorded a $2.0 million gain related to a judgment received in final settlement of our claim in the Sentinel Management Group Inc. bankruptcy proceeding. See Note 12 of the Consolidated Financial Statements for additional information on the Sentinel litigation.

Bad Debt and Recoveries on Physical Coal

During fiscal 2017 and fiscal 2018, we recorded charges to earnings of $47.0 million and $1.0 million, respectively, to record an allowance for doubtful accounts related to a bad debt incurred in our physical coal business, conducted solely in our Singapore subsidiary, INTL Asia Pte. Ltd., with a coal supplier. Components of the bad debt on physical coal included allowances on amounts due to us from our supplier related to: coal paid for but not delivered to clients; reimbursement of demurrage claims, dead freight and other charges paid and payable by INTL Asia Pte. Ltd. to its clients; reimbursement due for deficiencies in the quality of coal delivered to clients; and losses incurred related to the cancellation of open sales contracts. During fiscal 2018, we completed our exit of the physical coal business.

During fiscal 2019, we reached settlements with clients, paying $8.4 million related to demurrage, dead freight, and other penalty charges regarding coal supplied during fiscal 2017. The settlement amounts paid were less than the accrued liability for the transactions recorded during fiscal 2017 and fiscal 2018, and accordingly we recorded a recovery on the bad debt on physical coal of $2.4 million. Additionally, in September 2019, we received $10.0 million through an insurance policy claim related to the physical coal matter, and recorded the insurance proceeds as an additional recovery. We have presented the bad debt on physical coal and subsequent recoveries separately as a component of income before tax in our consolidated income statements.

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Selected Summary Financial Information

Results of Operations

Set forth below is our discussion of the results of our operations, as viewed by management, for the fiscal years ended September 30, 2019, 2018, and 2017.

Financial Overview

The following table shows an overview of our financial results:



	Year Ended September 30,
(in millions)	2019			% Change		2018		% Change		2017
Revenues:
Sales of physical commodities	$	31,830.3		19	%	$	26,682.4	(7	)%	$	28,673.3
Principal gains, net	415.8			17	%	354.1		19	%	297.0
Commission and clearing fees	372.4			(5	)%	391.8		23	%	318.6
Consulting, management, and account fees	79.6			12	%	71.1		9	%	65.0
Interest income	198.9			61	%	123.3		77	%	69.7
Total revenues	32,897.0			19	%	27,622.7		(6	)%	29,423.6
Cost of sales of physical commodities	31,790.9			19	%	26,646.9		(7	)%	28,639.6
Operating revenues	1,106.1			13	%	975.8		24	%	784.0
Transaction-based clearing expenses	183.5			2	%	179.7		32	%	136.3
Introducing broker commissions	114.7			(14	)%	133.8		18	%	113.0
Interest expense	154.7			92	%	80.7		92	%	42.1
Net operating revenues	653.2			12	%	581.6		18	%	492.6
Compensation and benefits	393.1			16	%	337.7		14	%	295.7
Bad debts	2.5			(19	)%	3.1		(28	)%	4.3
(Recovery) bad debt on physical coal	(12.4		)	n/m		1.0		(98	)%	47.0
Other expenses	164.5			17	%	140.3		8	%	130.4
Total compensation and other expenses	547.7			14	%	482.1		1	%	477.4
Other gains	5.5			175	%	2.0		n/m		—
Income before tax	111.0			9	%	101.5		568	%	15.2
Income tax expense	25.9			(44	)%	46.0		423	%	8.8
Net income	$	85.1		53	%	$	55.5	767	%	$	6.4

The selected data table below reflects key operating metrics used by management in evaluating our product lines, for the periods indicated:



	Year Ended September 30,
	2019		% Change		2018		% Change		2017
Volumes and Other Data:
Exchange-traded - futures and options (contracts, 000’s)	128,897.5		—	%	129,486.5		31	%	99,148.4
OTC (contracts, 000’s)	1,772.0		12	%	1,582.9		12	%	1,410.0
Global Payments (# of payments, 000’s)	690.4		8	%	639.5		(1	)%	648.9
Gold equivalent ounces traded (000’s)	370,400.3		47	%	251,530.2		83	%	137,235.3
Equity Capital Markets (gross dollar volume, millions)	$	150,454.1	28	%	$	117,771.7	34	%	$	87,789.8
Debt Capital Markets (gross dollar volume, millions)	$	212,537.3	59	%	$	134,032.0	1	%	$	133,352.3
FX Prime Brokerage volume (U.S. notional, millions)	$	352,624.7	(12	)%	$	401,116.9	(35	)%	$	620,917.8
Average assets under management in Argentina (U.S. dollar, millions)	$	326.6	(23	)%	$	424.9	(25	)%	$	564.9
Average client equity - futures and options (millions)	$	2,072.5	(5	)%	$	2,180.4	8	%	$	2,015.9
Average money market / FDIC sweep client balances (millions)	$	790.9	(1	)%	$	802.3	(18	)%	$	974.1

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Operating Revenues

Year Ended September 30, 2019 Compared to Year Ended September 30, 2018

Operating revenues increased 13% to $1,106.1 million in fiscal 2019 compared to $975.8 million in fiscal 2018. All segments of our business achieved growth in operating revenues versus the prior year, with the exception of our Clearing and Execution Services segment which declined $6.3 million versus fiscal 2018. The largest growth came from our Securities segment which added $99.1 million in operating revenue versus fiscal 2018. Our Physical Commodities and Commercial Hedging segments added $16.9 million and $15.7 million in operating revenues, respectively. Finally, our Global Payments segment grew operating revenues by $13.6 million over fiscal 2018.

Operating revenues in our Securities segment increased 51% to $295.3 million in fiscal 2019 compared to fiscal 2018. The Equity Capital Markets business increased 51%, to $140.7 million, as the gross dollar volume traded increased 28% as a result of increased market volatility and market share as well as a $24.9 million increase in our conduit securities lending activities. Operating revenues in our Debt Capital Markets business increased 55%, to $147.3 million versus fiscal 2018, driven by an increase in interest income in our domestic institutional fixed income business and to a lesser extent the acquisition of GMP Securities LLC. These increases were partially offset by lower operating revenues in our Argentina and municipal securities businesses. Asset Management operating revenues declined 5%, to $7.3 million in fiscal 2019, as the average assets under management in Argentina declined 23%. Overall, the Securities segment operating revenues benefited from a $56.1 million increase in interest income, primarily in our domestic institutional fixed income and conduit securities lending activities.

Operating revenues in Commercial Hedging increased 5% to $302.4 million in fiscal 2019. Exchange-traded revenues increased $6.1 million as a results of a 1% increase in exchange-traded volumes as well as a 2% increase in the average rate per contract as compared to the prior year. OTC revenues were increased $2.7 million versus the prior year as a result of a 12% increase in OTC volumes, which was partially offset by an 8% decline in the average rate per contract. Interest income increased $6.3 million versus the prior year as a result of an increase in short term interest rates, while average client equity increased 1% over the prior year period.

Operating revenues in our Global Payments segment increased 14% in fiscal 2019 to $112.8 million, as a result of an 8% increase in the number of global payments made as well as a 4% increase in the average revenue per payment.

Our Physical Commodities segment operating revenues increased 30% to $73.8 million in fiscal 2019, as a result of a $13.9 million increase in Precious Metals operating revenues as well as a $3.0 million increase in Physical Ag & Energy operating revenues.

Operating revenues in our CES segment declined 2% to $326.1 million in fiscal 2019 compared to fiscal 2018. Exchange-Traded Futures & Options operating revenues declined 11% versus the prior year to $162.4 million, as exchange-traded volumes were relatively flat with fiscal 2018, however the average rate per contract declined 18%. The effect of the decline in average rate per contract was partially offset by a $10.0 million increase in interest income as compared to fiscal 2018. Our FX Prime Brokerage business added $4.7 million in operating revenues versus the prior year, primarily driven by a $2.7 million settlement received related to the Barclays PLC ‘last look’ class action matter. Our Derivative Voice Brokerage business added $0.5 million versus fiscal 2018, while the Correspondent Clearing and Independent Wealth Management businesses added $5.1 million and $4.4 million in operating revenues, respectively compared to fiscal 2018.

Interest income increased $75.6 million to $198.9 million in fiscal 2019 compared to fiscal 2018, primarily as a result of $56.1 million increase in interest income in our Securities segment. Average client equity in the Financial Ag & Energy and Exchange-Traded Futures & Options components of our Commercial Hedging and CES segments decreased 5% to $2.1 billion in fiscal 2019, however the increase in short-term interest rates resulted in an aggregate $13.4 million increase in interest income in these businesses.

See Segment Information below for additional information on activity in each of the segments.

Year Ended September 30, 2018 Compared to Year Ended September 30, 2017

Operating revenues increased 24% to $975.8 million in fiscal 2018 compared to $784.0 million in the prior year. All segments of our business achieved growth in operating revenues versus the prior year, with the largest growth coming in our CES segment which added $72.6 million in operating revenues. In addition, Commercial Hedging segment operating revenues increased $42.1 million, while operating revenues in our Securities segment added $44.5 million versus the prior year. Our Physical Commodities and Global Payment segments grew $12.1 million and $10.0 million, respectively.

Operating revenues for the prior year included a $5.9 million pre-tax unrealized loss on interest rate swaps and U.S. Treasury notes held as part of our interest rate management strategy, while fiscal 2018 includes no unrealized gain/losses on this program as all interest rate swaps and U.S. Treasury notes were liquidated during fiscal 2017. On a segment basis, these unrealized

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losses were reported in the Corporate unallocated segment, while the amortized earnings on these investments were included in the Commercial Hedging and CES segments.

Operating revenues in our CES segment increased 28% to $332.4 million in fiscal 2018, primarily as a result of 60% growth in Exchange-Traded Futures & Options revenues, to $183.4 million, driven by increases in contract volumes, the average rate per contract earned and a $11.6 million, or 138%, increase in interest income. Our Correspondent Clearing business added $2.1 million versus the prior year, while the Derivative Voice Brokerage and Independent Wealth Management businesses added $1.5 million and $1.0 million in operating revenues, respectively compared to the prior year. These increases were modestly offset by a $0.5 million decline in our FX Prime Brokerage business.

Operating revenues in Commercial Hedging increased 17% in fiscal 2018 to $286.7 million, as exchange-traded revenues increased $14.4 million and OTC revenues increased $17.6 million. Client exchange-traded volumes increased 16%, driven by increased activity from clients in the domestic grain and energy and renewable fuels markets, as well as an increase in exchange-traded revenues from omnibus relationships introduced by our commercial hedging employees. OTC revenues increased as a result of both a 12% increase in OTC volumes and a 10% increase in the average rate per contract compared to the prior year. These increases were driven by increased activity from Brazilian agricultural clients as well as increased activity in food service, dairy and soft commodity markets. In addition, interest income in this segment increased $9.5 million, or 71%, as a result of an increase in short term interest rates on relatively flat average client equity balances.

Operating revenues in our Global Payments segment increased 11% in fiscal 2018 to a record $99.2 million, as a result of a 13% increase in the average revenue per trade. The number of global payments made declined 1% as certain commercial clients switched from doing individual high volume but low value payments through our platform, to doing aggregated higher value funding payments on our platform. Irrespective of this, we experienced increased volumes of payments made by financial institutions, governmental and non-governmental organizations and other commercial clients versus the prior year.

Our Physical Commodity segment operating revenues increased 27% to $56.9 million in fiscal 2018, primarily as a result of an $8.3 million increase in Physical Ag & Energy operating revenues as well as a $3.8 million increase in Precious Metals operating revenues.

Operating revenues in our Securities segment increased 29% to $196.2 million in fiscal 2018 compared to the prior year. Equity Capital Markets increased operating revenues 64% versus the prior year, to $93.2 million, as the gross dollar volume traded increased 35% as a result of increased market volatility, the on-boarding of new clients and increased market share. Operating revenues in our Debt Capital Markets business increased 15%, to $95.3 million versus the prior year, with increases in activity in our municipal securities business as well as an increase in interest income in our domestic institutional fixed income business, partially offset by lower operating revenues in Argentina. The prior year period included a $2.5 million realized gain on the sale of exchange shares in Argentina. Asset Management operating revenues declined 35% to $7.7 million in fiscal 2018, as the average assets under management declined 25%. Our Securities segment operating revenues benefited from a $26.7 million increase in interest income, primarily in our domestic institutional fixed income and securities lending activities.

Overall interest income increased $53.6 million to $123.3 million in fiscal 2018 compared to prior year, primarily driven by the $26.7 million increase in our Securities segment interest income. In addition, average client equity in the Financial Ag & Energy and Exchange-Traded Futures & Options components of our Commercial Hedging and CES segments increased 8% to $2.2 billion in fiscal 2018 compared to the prior year, which combined with an increase in short term interest rates resulted in an aggregate $21.1 million increase in interest income in these businesses. Included in interest income in the prior year period was a $4.8 million unrealized loss on U.S. Treasury notes held as part of our interest rate management strategy.

Finally, operating revenues for fiscal 2018 include gains of $5.5 million related to economic hedges in place against the effect of the devaluation of the Argentina Peso on our Argentine operations, reported in the Corporate unallocated segment.

Interest and Transactional Expenses

Year Ended September 30, 2019 Compared to Year Ended September 30, 2018

Transaction-based clearing expenses: Transaction-based clearing expenses increased 2% to $183.5 million in fiscal 2019 compared to $179.7 million in fiscal 2018, and were 17% of operating revenues in fiscal 2019 compared to 18% in fiscal 2018. The increase in expense is primarily related to increases in ADR conversion fees and exchange fees, partially offset by lower transaction taxes, in our Equity Capital Markets component. Also, our Debt Capital Markets component had an increase in expenses related to our activities conducted as an institutional dealer in fixed income securities and from the acquisition of GMP Securities, LLC. Additionally, higher volumes in our LME component resulted in higher expenses. These increases were partially offset by a decrease in expense resulting from lower volumes in our Exchange-Traded Futures & Options component.

Introducing broker commissions: Introducing broker commissions decreased 14% to $114.7 million in fiscal 2019 compared to $133.8 million in fiscal 2018, and were 10% of operating revenues in fiscal 2019 compared to 14% in fiscal 2018. The decrease in the percentage of introducing broker commissions as a percentage of operating revenues is primarily a result of the

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growth in interest income. The decrease in expense is primarily due to decreased activity in our Exchange-Traded Futures & Options component and lower costs in our Argentinian Debt Capital Markets business, partially offset by expense increases in our Financial Ag & Energy and Independent Wealth Management components as a result of higher revenues.

Interest expense: Interest expense increased $74.0 million, or 92%, to $154.7 million in fiscal 2019 compared to $80.7 million in fiscal 2018. During fiscal 2019 and fiscal 2018, interest expense directly attributable to trading activities, including interest on short-term financing facilities of subsidiaries, was $142.0 million and $70.5 million, respectively, and interest expense related to corporate funding purposes was $12.7 million and $10.2 million, respectively. Also, an increase in short-term rates resulted in higher costs in our Exchange-Traded Futures & Options component, and higher short-term rates along with higher average borrowings outstanding on our physical commodities financing facilities resulted in increased expense.

During fiscal 2019, interest expense directly attributable to trading activities includes $73.9 million in connection with trading activities conducted as an institutional dealer in fixed income securities, and $35.8 million in connection with securities lending activities. During fiscal 2018, interest expense directly attributable to trading activities included $38.6 million in connection with trading activities conducted as an institutional dealer in fixed income securities, and $13.2 million in connection with securities lending activities.

Year Ended September 30, 2018 Compared to Year Ended September 30, 2017

Transaction-based clearing expenses: Transaction-based clearing expenses increased 32% to $179.7 million in fiscal 2018 compared to $136.3 million in fiscal 2017, and were 18% of operating revenues in fiscal 2018 compared to 17% in fiscal 2017. The increase in expense is primarily related to higher volumes in our Financial Ag & Energy, Exchange-Traded Futures & Options and Equity Capital Markets components, partially offset by lower costs in our LME Metals, FX Prime Brokerage and Correspondent Clearing components.

Introducing broker commissions: Introducing broker commissions increased 18% to $133.8 million in fiscal 2018 compared to $113.0 million in fiscal 2017, and were 14% of operating revenues in fiscal 2018 and fiscal 2017. The increase in expense is primarily due to increased business activity and improved performance in our Exchange-Traded Futures & Options and Financial Ag & Energy components, partially offset by lower costs in Global Payments and Equity Capital Markets.

Interest expense: Interest expense increased 92% to $80.7 million in fiscal 2018 compared to $42.1 million in fiscal 2017. During fiscal 2018 and fiscal 2017, interest expense directly attributable to trading activities, including interest on short-term financing facilities of subsidiaries, was $70.5 million and $32.7 million, respectively, and interest expense related to corporate funding purposes was $10.2 million and $9.4 million, respectively.

During fiscal 2018, interest expense directly attributable to trading activities includes $38.6 million in connection with trading activities conducted as an institutional dealer in fixed income securities, and $13.2 million in connection with securities lending activities, started up during fiscal 2017 in our Equity Capital Markets component. During fiscal 2017, interest expense directly attributable to trading activities included $20.8 million in connection with trading activities conducted as an institutional dealer in fixed income securities, and $1.3 million in connection with securities lending activities. Also, an increase in short-term rates resulted in higher costs in our Exchange-Traded Futures & Options and Financial Ag & Energy components. Additionally, higher short-term rates along with higher average borrowings outstanding on our physical commodities financing facilities resulted in increased expense.

Net Operating Revenues

Net operating revenues is one of the key measures used by management to assess the performance of our operating segments. Net operating revenue is calculated as operating revenue less transaction-based clearing expenses, introducing broker commissions and interest expense. Transaction-based clearing expenses represent variable expenses paid to executing brokers, exchanges, clearing organizations and banks in relation to our transactional volumes. Introducing broker commissions include commission paid to non-employee third parties that have introduced clients to us. Net operating revenues represent revenues available to pay variable compensation to risk management consultants and traders and direct non-variable expenses, as well as variable and non-variable expenses of operational and administrative employees, including our executive management team.

Year Ended September 30, 2019 Compared to Year Ended September 30, 2018

Net operating revenues increased 12% to $653.2 million in fiscal 2019 compared to $581.6 million in fiscal 2018.

Year Ended September 30, 2018 Compared to Year Ended September 30, 2017

Net operating revenues increased $89.0 million, or 18%, to $581.6 million in fiscal 2018 compared to $492.6 million in fiscal 2017.

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Compensation and Other Expenses

The following table shows a summary of expenses, other than interest and transactional expenses.



	Year Ended September 30,
(in millions)	2019			% Change		2018		% Change		2017
Compensation and benefits:
Variable compensation and benefits	$	211.6		22	%	$	174.1	26	%	$	138.7
Fixed compensation and benefits	181.5			11	%	163.6		4	%	157.0
	393.1			16	%	337.7		14	%	295.7
Other expenses:
Trading systems and market information	38.8			12	%	34.7		1	%	34.4
Occupancy and equipment rental	19.4			18	%	16.5		9	%	15.2
Professional fees	21.0			16	%	18.1		19	%	15.2
Travel and business development	16.2			17	%	13.8		4	%	13.3
Non-trading technology and support	20.1			45	%	13.9		20	%	11.6
Depreciation and amortization	14.0			21	%	11.6		18	%	9.8
Communications	6.6			22	%	5.4		8	%	5.0
Bad debts	2.5			(19	)%	3.1		(28	)%	4.3
(Recovery) bad debt on physical coal	(12.4		)	n/m		1.0		(98	)%	47.0
Other	28.4			8	%	26.3		2	%	25.9
	154.6			7	%	144.4		(21	)%	181.7
Total compensation and other expenses	$	547.7		14	%	$	482.1	1	%	$	477.4

Year Ended September 30, 2019 Compared to Year Ended September 30, 2018

Compensation and Other Expenses: Compensation and other expenses increased $65.6 million, or 14%, to $547.7 million in fiscal 2019 compared to $482.1 million in fiscal 2018. Compensation and other expenses related to acquisitions and new business initiatives during fiscal 2019 added $25.3 million.

Compensation and Benefits: Total compensation and benefits expense increased $55.4 million, or 16% to $393.1 million in fiscal 2019 compared to $337.7 million in fiscal 2018. Total compensation and benefits were 36% of operating revenues in fiscal 2019 compared to 35% in fiscal 2018. The variable portion of compensation and benefits increased $37.5 million, or 22%, to $211.6 million in fiscal 2019 compared to $174.1 million in fiscal 2018. Variable compensation and benefits were 32% of net operating revenues in fiscal 2019 compared to 30% in fiscal 2018. The primary driver of the increase in variable compensation is the increased front office variable incentive compensation of $31.7 million. Additionally, administrative, centralized operations and executive incentive compensation increased $5.8 million to $30.4 million in fiscal 2019 compared to $24.6 million in fiscal 2018, primarily due to increased headcount and company performance.

The fixed portion of compensation and benefits increased $17.9 million, or 11% to $181.5 million in fiscal 2019 compared to $163.6 million in fiscal 2018. Non-variable salaries increased $11.5 million, or 10%, primarily due to our recent acquisitions and new business initiatives, which added $8.0 million in fiscal 2019. Employee benefits, excluding share-based compensation, increased $7.0 million in fiscal 2019, primarily related to higher payroll, health care and retirement costs from the increased headcount. Share-based compensation is a component of the fixed portion, and includes stock option and restricted stock expense. Share-based compensation was $8.1 million in fiscal 2019 compared to $6.6 million in fiscal 2018. The number of employees was 2,012 at the end of fiscal 2019 compared to 1,701 at the end of fiscal 2018.

Other Expenses: Other non-compensation expenses increased $10.2 million, or 7% to $154.6 million in fiscal 2019 compared to $144.4 million in fiscal 2018. Other non-compensation expenses related to acquisitions and new business initiatives during fiscal 2019 added $7.9 million.

Trading systems and market information costs increased $4.1 million, primarily due to higher costs in our Financial Ag & Energy, Equity Capital Markets and Debt Capital Markets businesses, including $1.5 million in incremental costs due to acquisitions and new business initiatives during fiscal 2019. Occupancy and equipment rental increased $2.9 million, primarily related to higher office lease costs, including $1.1 million in incremental costs of office space from recent acquisitions during fiscal 2019. Professional fees increased $2.9 million, primarily related to higher legal fees, including $1.0 million of contingency-based legal fees resulting from successful outcomes of monetary collections. Non-trading technology and support increased $6.2 million, primarily due to higher support and maintenance costs related to various IT, client engagement, accounting and human resources systems, as well as $0.8 million in incremental costs due to acquisitions and new business initiatives during fiscal 2019. Depreciation and amortization increased primarily due to higher depreciation expense of leaseholds and IT equipment, and higher amortization expense of intangible assets recorded as part of the acquisitions

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completed during fiscal 2019. Communications expenses increased $1.2 million, primarily related to incremental costs due to acquisitions during fiscal 2019.

Excluding the bad debt on physical coal discussed below, bad debts decreased $0.6 million year-over-year. During fiscal 2019, bad debts were $2.5 million, primarily related to $2.7 million of OTC client account deficits in the Commercial Hedging segment, and $1.4 million in the Clearing & Execution Services segment, partially offset by a $1.4 million client recovery across the Commercial Hedging segment and the Physical Commodities segment. During fiscal 2018, bad debts were $3.1 million, primarily related to $2.8 million of agricultural OTC client account deficits in our Commercial Hedging segment and $0.4 million of exchange-traded client account deficits in our Clearing & Execution Services segment.

(Recovery) Bad Debt on Physical Coal: During fiscal 2019, we reached settlements with clients, paying $8.4 million related to demurrage, dead freight, and other penalty charges regarding coal supplied during fiscal 2017. The settlement amounts paid were less than the accrued liability for the transactions recorded during fiscal 2017 and fiscal 2018, and accordingly we recorded a recovery on the bad debt on physical coal of $2.4 million. Additionally, in September 2019, we received $10.0 million through an insurance policy claim related to the physical coal matter, and recorded the insurance proceeds as an additional recovery. During fiscal 2018, we recorded additional bad debt expense of $1.0 million related to reimbursement due to us from a coal supplier following our recorded charge of $47.0 million during the fourth quarter of fiscal 2017.

Other Gains: The results of fiscal 2019 include bargain purchase gains of $5.5 million, primarily related to the acquisition of INTL FCStone Credit Trading, LLC (formerly GMP Securities LLC). The fiscal 2018 results include a gain of $2.0 million related to a judgment received in final settlement of our claim in the Sentinel Management Group Inc. bankruptcy proceeding.

Provision for Taxes: The effective income tax rate was 23% in fiscal 2019 compared to 45% in fiscal 2018. The effective income tax rate for fiscal 2019 was higher than the U.S. federal statutory rate of 21% due to global intangible low-taxed income (“GILTI”), earnings taxed at a higher rate, foreign permanent differences and an increase to foreign valuation allowances. The estimated federal and state tax expense from GILTI increased the effective income tax rate approximately 2%. The bargain purchase gain of $5.5 million is not taxable and reduced the effective income tax rate 1%. The amount of earnings taxed at higher tax rates increased the effective income tax rate 1%, and the increase in foreign valuation allowances also increased the effective income tax rate 1%. The effective income tax rate for fiscal 2018 excluding the impacts of the Tax Reform was 26%. The effective income tax rate decreased 0.5% due to excess tax benefits on share-based compensation recognized during the period related to the adoption of ASU 2016-09. The effective income tax rate can vary from period to period depending on, among other factors, the geographic and business mix of our earnings.

Year Ended September 30, 2018 Compared to Year Ended September 30, 2017

Compensation and Other Expenses: Compensation and other expenses increased $4.7 million, or 1%, to $482.1 million in fiscal 2018 compared to $477.4 million in fiscal 2017.

Compensation and Benefits: Total compensation and benefits expenses increased 14% to $337.7 million in fiscal 2018 compared to $295.7 million in fiscal 2017. Total compensation and benefits were 35% of operating revenues in fiscal 2018 compared to 38% of operating revenues in fiscal 2017. The variable portion of compensation and benefits increased 26% to $174.1 million in fiscal 2018 compared to $138.7 million in fiscal 2017. Variable compensation and benefits were 30% of net operating revenues in fiscal 2018 compared to 28% in fiscal 2017. Administrative, centralized operations and executive incentive compensation was $24.6 million in fiscal 2018 compared to $16.7 million in fiscal 2017, primarily due to current year performance, as there was no executive team incentive compensation in fiscal 2017 due to the bad debt on physical coal.

The fixed portion of compensation and benefits increased 4% to $163.6 million in fiscal 2018 compared to $157.0 million in fiscal 2017. Non-variable salaries increased $3.2 million, or 3%, primarily across operations and administrative areas. Contract labor costs increased $0.8 million. Employee benefits, excluding share-based compensation, increased $4.1 million in fiscal 2018, primarily related to higher accruals for executive management related to a cash-based long-term incentive plan and higher employer payroll and retirement costs. Share-based compensation is a component of the fixed portion, and includes stock option and restricted stock expense. Share-based compensation was $6.6 million in fiscal 2018 compared to $6.3 million in fiscal 2017. The number of employees increased 6% to 1,701 at the end of fiscal 2018 compared to 1,607 at the end of fiscal 2017.

Other Expenses: Other non-compensation expenses decreased by 21% to $144.4 million in fiscal 2018 compared to $181.7 million in fiscal 2017. Professional fees increased 19%, primarily due to higher legal fees related to the bad debt on physical coal and higher consulting fees primarily related to administrative system evaluations. Depreciation and amortization increased primarily due to depreciation of the new trading system for certain OTC commodities business activities, placed in service during the fourth quarter of fiscal 2017.

Excluding the bad debt on physical coal discussed below, bad debts decreased $1.2 million year-over-year. During fiscal 2018, bad debts were $3.1 million, primarily related to $2.8 million of agricultural OTC client account deficits in our Commercial

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Hedging segment and $0.4 million of exchange-traded client account deficits in our Clearing & Execution Services segment. During fiscal 2017, bad debts were $4.3 million, primarily related to $3.9 million in LME Metals client deficits in our Commercial Hedging segment and $0.2 million of uncollectible client receivables in our Physical Ag & Energy and Derivative Voice Brokerage components.

Bad Debt on Physical Coal: During the first quarter of fiscal 2018 and the fourth quarter of fiscal 2017, we recorded charges to earnings of $1.0 million and $47.0 million, respectively, to record an allowance for doubtful accounts related to the bad debt incurred in our physical coal business, conducted solely in our Singapore subsidiary, INTL Asia Pte. Ltd., with a coal supplier. During fiscal 2018, we completed our exit of the physical coal business. Components of the bad debt on physical coal included allowances on amounts due to us from our supplier related to: coal paid for but not delivered to clients; reimbursement of demurrage claims, dead freight and other charges paid by INTL Asia Pte. Ltd. to its clients; reimbursement due for deficiencies in the quality of coal delivered to clients; and losses incurred related to the cancellation of open sales contracts.

Other Gains: The fiscal 2018 results include a contingent gain of $2.0 million related to a judgment received in final settlement of our claim in the Sentinel Management Group Inc. bankruptcy proceeding. Please see Note 11 - Commitments and Contingencies for additional information on the Sentinel litigation.

Provision for Taxes: The effective income tax rate on income from operations was 45% in fiscal 2018 compared to 58% in fiscal 2017. The discrete expense of $19.8 million related to the Tax Reform increased the effective tax rate by 20%. The effective tax rate for fiscal 2018 excluding the impacts of Tax reform was 26%. The effective tax rate decreased 0.5% due to excess tax benefits on share-based compensation recognized during the period related to the adoption of ASU 2016-09. Our effective income tax rate during fiscal 2017 was significantly higher than the U.S. federal statutory rate primarily due to the bad debt on our physical coal business in Singapore being taxed at a lower rate resulting in less of a benefit to offset taxable earnings in other jurisdictions. Excluding the impact of the bad debt on physical coal, our effective tax rates was 20.7% in fiscal 2017. The effective income tax rate can vary from period to period depending on, among other factors, the geographic and business mix of our earnings.

Unallocated Costs and Expenses

The following table is a breakout of our unallocated costs and expenses from the total costs and expenses shown above. The unallocated costs and expenses include certain shared services such as information technology, accounting and treasury, credit and risk, legal and compliance, and human resources and other activities.



	Year Ended September 30,
(in millions)	2019		% Change		2018		% Change		2017
Compensation and benefits:
Variable compensation and benefits	$	27.7	24	%	$	22.4	51	%	$	14.8
Fixed compensation and benefits	72.8		14	%	63.9		7	%	59.7
	100.5		16	%	86.3		16	%	74.5
Other expenses:
Trading systems and market information	2.7		(10	)%	3.0		15	%	2.6
Occupancy and equipment rental	19.3		17	%	16.5		9	%	15.1
Professional fees	13.3		27	%	10.5		25	%	8.4
Travel and business development	3.8		15	%	3.3		3	%	3.2
Non-trading technology and support	15.1		39	%	10.9		27	%	8.6
Depreciation and amortization	10.8		16	%	9.3		13	%	8.2
Communications	6.2		24	%	5.0		11	%	4.5
Other	17.7		2	%	17.4		43	%	12.2
	88.9		17	%	75.9		21	%	62.8
Total compensation and other expenses	$	189.4	17	%	$	162.2	18	%	$	137.3

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Year Ended September 30, 2019 Compared to Year Ended September 30, 2018

Total unallocated costs and other expenses increased $27.2 million to $189.4 million in fiscal 2019 compared to $162.2 million in fiscal 2018. Compensation and benefits increased $14.2 million, or 16% to $100.5 million in fiscal 2019 compared to $86.3 million in fiscal 2018, of which $2.2 million relates to recent acquisitions. Other non-compensation expenses related to acquisitions and new business initiatives during fiscal 2019 added $3.6 million.

During the fiscal year ended, the increase in fixed compensation and benefits and variable compensation and benefits is also related to headcount increases across several administrative departments. Additionally, non-trading technology and support increased due to higher support and maintenance costs related to various IT, client engagement, accounting and human resources systems.

Year Ended September 30, 2018 Compared to Year Ended September 30, 2017

Total unallocated costs and other expenses increased $24.9 million to $162.2 million in fiscal 2018 compared to $137.3 million in fiscal 2017. Compensation and benefits increased $11.8 million, or 16% to $86.3 million in fiscal 2018 compared to $74.5 million in fiscal 2017.

During fiscal 2018, the increase in compensation and benefits is primarily related to accruals for executive management for incentives based on current year performance, as well as a cash-based long-term incentive plan. Additionally, there were no executive team incentive compensation in fiscal 2017 due to the bad debt on physical coal. The increase in other expense is primarily related to our internal bi-annual global sales meeting held during January 2018.

Variable vs. Fixed Expenses

The table below shows an analysis of our variable expenses and non-variable expenses as a percentage of total non-interest expenses for the years ended September 30, 2019, 2018, and 2017, respectively.



	Year Ended September 30,
(in millions)	2019			% of Total		2018		% of Total		2017		% of Total
Variable compensation and benefits	$	211.6		25	%	$	174.1	22	%	$	138.7	19	%
Transaction-based clearing expenses	183.5			22	%	179.7		23	%	136.3		19	%
Introducing broker commissions	114.7			14	%	133.8		16	%	113.0		15	%
Total variable expenses	509.8			61	%	487.6		61	%	388.0		53	%
Fixed compensation and benefits	181.5			21	%	163.6		21	%	157.0		22	%
Other fixed expenses	164.5			19	%	140.3		18	%	130.4		18	%
Bad debts	2.5			—	%	3.1		—	%	4.3		1	%
(Recovery) bad debt on physical coal	(12.4		)	(1	)%	1.0		—	%	47.0		6	%
Total non-variable expenses	336.1			39	%	308.0		39	%	338.7		47	%
Total non-interest expenses	$	845.9		100	%	$	795.6	100	%	$	726.7	100	%

We seek to make our non-interest expenses variable to the greatest extent possible, and to keep our fixed costs as low as possible. Our variable expenses include variable compensation paid to traders and risk management consultants, bonuses paid to operational, administrative, and executive employees, transaction-based clearing expenses and introducing broker commissions. As a percentage of total non-interest expenses, variable expenses were 61% in fiscal 2019, 61% in fiscal 2018 and 53% in fiscal 2017.

Non-variable expenses, excluding bad debts and the recoveries and bad debt on physical coal, increased $42.1 million, or 14%, year-over-year, primarily driven by our acquisitions of Carl Kliem S.A., PayCommerce Financial Solutions, LLC, CoinInvest GmbH, European Precious Metal Trading GmbH and GMP Securities LLC, as well as the launch of our securities prime brokerage initiative and our expansion efforts in Canada. While we view these acquisitions and expansion efforts as long-term strategic decisions, they resulted in a pre-tax net loss of $10.3 million for fiscal 2019.

The lower percentage of variable expenses in fiscal 2017 was primarily due to there being no executive team incentive compensation in fiscal 2017 due to the bad debt on physical coal - see the discussion in the Executive Summary previously discussed for additional information.

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Segment Information

Our business activities are managed as operating segments and organized into reportable segments as follows:

INTL FCStone Inc.

Commercial Hedging

Global Payments

Securities

Physical Commodities

Clearing and Execution Services (“CES”)

Components:

Component:

Components:

- Financial Ag

& Energy

- Global Payments

- Equity Capital

Markets

- Precious Metals

- Exchange-Traded
Futures & Options

- LME Metals

- Debt Capital
Markets

- Physical Ag

& Energy

- FX Prime Brokerage

- Asset Management

- Correspondent
Clearing

- Independent
Wealth Management

- Derivative
Voice Brokerage

We report our operating segments based on services provided to clients. Net contribution is one of the key measures used by management to assess the performance of each segment and for decisions regarding the allocation of our resources. Net contribution is calculated as revenues less cost of sales of physical commodities, transaction-based clearing expenses, introducing broker commissions, interest expense and variable compensation. Variable compensation paid to risk management consultants and traders generally represents a fixed percentage, that can vary by revenue type, of an amount equal to revenues generated, and in some cases, revenues generated less transaction-based clearing expenses, base salaries and an overhead allocation.

Segment income is calculated as net contribution less non-variable direct segment costs. These non-variable direct expenses include trader base compensation and benefits, operational charges, trading systems and market information, professional fees, travel and business development, communications, bad debts, trade errors and direct marketing expenses.

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Total Segment Results

The following table shows summary information concerning all of our business segments combined.



	Year Ended September 30,
(in millions)	2019		% of Operating Revenues	2018		% of Operating Revenues	2017		% of Operating Revenues
Sales of physical commodities	$	31,830.3		$	26,682.4		$	28,673.3
Principal gains, net	412.8			342.8			300.2
Commission and clearing fees	373.0			392.5			312.1
Consulting, management, and account fees	77.2			69.1			63.8
Interest income	208.0			131.5			80.3
Total revenues	32,901.3			27,618.3			29,429.7
Cost of sales of physical commodities	31,790.9			26,646.9			28,639.6
Operating revenues	1,110.4		100%	971.4		100%	790.1		100%
Transaction-based clearing expenses	182.6		16%	178.7		18%	133.9		17%
Introducing broker commissions	114.6		10%	133.7		14%	112.9		14%
Interest expense	149.2		13%	77.1		8%	34.3		4%
Net operating revenues	664.0			581.9			509.0
Variable direct compensation and benefits	181.2		16%	149.5		15%	122.0		15%
Net contribution	482.8			432.4			387.0
Fixed compensation and benefits	93.5