The following discussion and analysis should be read in conjunction with the
consolidated financial statements and notes thereto appearing elsewhere in this
report. This Annual Report on Form 10-K contains "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. These forward-looking statements involve
known and unknown risks and uncertainties, many of which are beyond the control
of the Company, including adverse changes in economic, political and market
conditions, losses from our market-making and trading activities arising from
counterparty failures and changes in market conditions, the possible loss of key
personnel, the impact of increasing competition, the impact of changes in
government regulation, the possibility of liabilities arising from violations of
foreign, U.S. federal and U.S. state securities laws, the impact of changes in
technology in the securities and commodities trading industries, the failure to
successfully integrate the operations of businesses acquired and the potential
impact of the COVID-19 pandemic on our business, operations, results of
operations, financial condition, workforce or the operations or decisions of our
customers, suppliers or business customers. Although we believe that our
forward-looking statements are based upon reasonable assumptions regarding our
business and future market conditions, there can be no assurances that our
actual results will not differ materially from any results expressed or implied
by our 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 undertake no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise, except as required by law. We caution
readers that any forward-looking statements are not guarantees of future
performance.
Overview
We operate a global financial services network that connects companies,
organizations, traders and investors to the global market ecosystem through a
unique blend of digital platforms, end-to-end clearing and execution services,
high touch service and deep expertise. We strive to be the one trusted partner
to our clients, providing our network, product and services to allow them to
pursue trading opportunities, manage their market risks, make investments and
improve their business performance. Our businesses are supported by our global
infrastructure of regulated operating subsidiaries, our advanced technology
platform and our team of more than 3,200 employees as of September 30, 2021. 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.
For additional information, see Overview of Business and Strategy within Item 1.
Business section of this Annual Report on Form 10-K.
Our operating segments are based primarily on the nature of the clients we
serve, consisting of Commercial, Institutional, Retail, and Global Payments
clients. This structure allows us to efficiently serve clients in more than 180
countries and manage our large global footprint. See Segment Information for a
listing of business activities performed within our reportable segments.
StoneX Group Inc. and its trade name "StoneX" carries forward the foundation
established by Saul Stone in 1924 to today's modern financial services firm.
Today, we provide an institutional-grade financial services ecosystem,
connecting our clients to 36 derivatives exchanges, 185 foreign exchange
markets, nearly every global securities marketplace, and a number of bi-lateral
liquidity venues via our networks of highly integrated digital platforms and
experienced professionals. Our platform delivers support throughout the entire
lifecycle of a transaction, from consulting and boots-on-the-ground
intelligence, to efficient execution, to post-trade clearing, custody and
settlement.
COVID Impact
Beginning in the second quarter of fiscal 2020 and continuing through the fourth
quarter of fiscal 2021, worldwide social and economic activity has been severely
impacted by the spread and threat of COVID-19. In March 2020, COVID-19 was
recognized as a global pandemic and spread to many regions of the world,
including all countries in which we have operations. The responses by
governments and societies to the COVID-19 pandemic, which include temporary
closures of businesses, social distancing, travel restrictions, "shelter in
place" and other governmental regulations and various economic stimulus
programs, have significantly impacted market volatility and general economic
conditions. We have and continue to closely track the evolving impact of
COVID-19 and are focused on helping our customers and employees through these
difficult times.
Current Results of Operations
The COVID-19 pandemic has resulted in significant market volatility and
unprecedented market conditions. Our fourth quarter results continue to reflect
revenue growth in Equity and Debt Capital Markets over the prior year primarily
related to increased customer flow to our equity market making desk and a
widening of spreads in fixed income products, albeit to a lesser extent than in
the third quarter of fiscal 2020, as a result of periods of higher volatility in
the global markets due to economic concerns related to the COVID-19 pandemic. We
have also seen a significant increase in customer demand for precious metals in
light of
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the COVID-19 global pandemic and the resulting effect on the global economy.
This revenue growth has been partially offset by the effect of the actions of
the Federal Open Market Committee ("FOMC"), which immediately reduced short term
interest rates by 100 basis points in March 2020 in response to the economic
effect of the pandemic and the resulting effect on our interest and fee income
earned on client balances as well as increases in bad debt expense, reflective
of the effect of the global pandemic on our client base.
Employees
We have taken actions to minimize risk to our employees, including restricting
travel and providing secure and efficient remote work options for our team
members. These steps leveraged our existing operational contingency plans at
every level of the organization, ensuring business process and control
continuity, while preventing major disruption to our clients and operations.
Business Continuity Plans
We deployed business continuity plans to ensure we continue to serve our
customers while maintaining operational flexibility through the evolving
conditions described above, including the ability to work remotely for all of
our staff, as needed.
The full extent to which the COVID-19 pandemic will impact our business and
operating results will depend on future developments that are highly uncertain
and cannot be accurately predicted, including new information that may emerge
concerning COVID-19, including variants of COVID-19 emerging from time-to-time,
and the mitigation efforts by government entities, as well as our own immediate
and continuing COVID-19 operational response. We have taken, and will continue
to take, active and decisive steps in this time of uncertainty and remain
committed to the safety of our employees, while also continuing to serve our
customers.
Executive Summary
In fiscal 2021 we continued to benefit from our diversified product offering and
client base, achieving operating revenue growth across all of our operating
segments. Increased volatility in commodity prices drove significant growth in
operating revenues from both listed and OTC derivatives, and while spreads in
securities products have declined versus the prior year, which benefited from
volatility related to the onset of the COVID-19 pandemic, we experienced
significant growth in securities volumes leading to growth in operating revenues
from securities contracts. We continue to face the headwind of historically low
short-term interest rates, with interest and fee income on client balances
declining $16.7 million, or 39%, to $26.0 million in the year ended September
30, 2021, however we experienced strong growth in our client balances, as
average client equity and average money-market/FDIC sweep balances increased 39%
and 30%, respectively compared to the year ended September 30, 2020.
Operating revenues increased $364.8 million, or 28%, to $1,673.1 million in the
year ended September 30, 2021 compared to $1,308.3 million in the year ended
September 30, 2020, led by our Retail segment, which added $208.0 million
compared to the year ended September 30, 2020, principally related to the
acquisition of Gain, effective August 1, 2020. In addition, our Commercial and
Institutional segments added $103.3 million and $44.3 million, respectively,
compared to the year ended September 30, 2020, while our Global Payments segment
added $19.9 million.
Overall segment income increased $111.1 million, or 28%, compared to the year
ended September 30, 2020. This growth in segment income was led by our
Commercial segment which increased $50.3 million, or 35% compared to the year
ended September 30, 2020, as a result of strong growth in operating revenues,
benefiting from increased volatility and customer activity, primarily in
agricultural and metal commodity markets.
Institutional segment income increased $14.8 million, or 10% compared to the
year ended September 30, 2020. This growth was principally driven by an 7%
increase in operating revenues, most notably in securities transactions, where
securities average daily volumes ("ADV") increased 61% compared to the year
ended September 30, 2020, which was partially offset by a 28% decline in
securities rate per million ("RPM") earned. In addition, bad debts, net of
recoveries and impairments in the Institutional segment declined $9.2 million
compared to the year ended September 30, 2020. These net positive variances were
partially offset by a $16.3 million decline in interest and fee income earned on
average client equity and FDIC sweep balances compared to the year ended
September 30, 2020.
Segment income in our Retail segment increased $36.1 million or 114% compared to
the year ended September 30, 2020, primarily as a result of the acquisition of
Gain as well as an increase in customer activity in our retail precious metal
and independent wealth management businesses.
Finally, Global Payments segment income increased $9.9 million, or 14% compared
to the year ended September 30, 2020, as average daily volumes increased 20%
compared to the year ended September 30, 2020. This was partially offset by a
$4.2 million increase in non-variable direct expenses, primarily fixed
compensation and benefits.
Interest expense related to corporate funding purposes increased $17.7 million
to $41.3 million in the year ended September 30, 2021 compared to $23.6 million
in the year ended September 30, 2020, primarily due to incremental interest
related to the
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issuance of senior secured notes during June 2020, partially offset by lower
short-term interest rates on our senior secured syndicated loan facility.
On the expense side, we continue to focus on maintaining our variable cost model
and limiting the growth of our non-variable
expenses. Reflecting such efforts, variable expenses were 56% of total expenses
in the current period compared to 59% in the prior year period. Non-variable
expenses, excluding bad debts increased $183.5 million compared to the year
ended September 30, 2020, principally due to the Gain acquisition in the fourth
quarter of fiscal 2020.
Net income decreased $53.3 million to $116.3 million in the year ended September
30, 2021 compared to $169.6 million in the year ended September 30, 2020.
Diluted earnings per share were $5.74 for the year ended September 30, 2021
compared to $8.61 in the year ended September 30, 2020. Net income includes
gains on acquisitions of $3.3 million and $81.9 million for the years ended
September 30, 2021 and 2020, respectively. These gains on acquisitions are
non-taxable, and accordingly there is no corresponding income tax provision
amounts recorded related to the gains.
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 periods indicated.
Financial Overview
                                                                                Year Ended September 30,
(in millions)                                     2021              % Change              2020              % Change              2019
Revenues:
Sales of physical commodities                 $ 40,961.6              (23)%           $ 52,899.2               66%            $ 31,830.3
Principal gains, net                               892.0               43%                 622.2               50%                 415.8
Commission and clearing fees                       487.2               21%                 403.6               8%                  372.4
Consulting, management, and account fees            91.0               9%                   83.7               5%                   79.6
Interest income                                    102.4              (22)%                130.9              (34)%                198.9
Total revenues                                  42,534.2              (21)%             54,139.6               65%              32,897.0
Cost of sales of physical commodities           40,861.1              (23)%             52,831.3               66%              31,790.9
Operating revenues                               1,673.1               28%               1,308.3               18%               1,106.1
Transaction-based clearing expenses                271.7               22%                 222.5               21%                 183.5
Introducing broker commissions                     160.5               41%                 113.8              (1)%                 114.7
Interest expense                                    49.6              (38)%                 80.4              (43)%                142.0
Interest expense on corporate funding               41.3               75%                  23.6               86%                  12.7
Net operating revenues                           1,150.0               32%                 868.0               33%                 653.2
Compensation and benefits                          679.1               31%                 518.7               32%                 393.1
Bad debts, net of recoveries and impairments        10.4              (44)%                 18.7              648%                   2.5
Recovery of bad debt on physical coal                  -               -%                      -             (100)%                (12.4)
Other expenses                                     309.8               51%                 205.8               25%                 164.5
Total compensation and other expenses              999.3               34%                 743.2               36%                 547.7
Gain on acquisitions and other gains                 3.4              (96)%                 81.9             1,389%                  5.5
Income before tax                                  154.1              (25)%                206.7               86%                 111.0
Income tax expense                                  37.8               2%                   37.1               43%                  25.9
Net income                                    $    116.3              (31)%           $    169.6               99%            $     85.1


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The tables below present a disaggregation of consolidated operating revenues and
select operating data and metrics used by management in evaluating our
performance, for the periods indicated:
                                                                            

Year Ended September 30,


                                                 2021             % Change              2020             % Change              2019
Operating Revenues (in millions):
Listed derivatives                           $   387.6               18%            $   328.5               4%             $   317.1
OTC derivatives                                  143.4               29%                111.2               13%                 98.3
Securities                                       533.6               16%                458.3               39%                329.3
FX / Contract for Difference ("CFD")
contracts(1)                                     242.0              262%                 66.9              207%                 21.8
Global payments                                  133.8               17%                114.6               3%                 110.8
Physical contracts                               152.6               25%                122.4               65%                 74.0
Interest / fees earned on client balances         26.0              (39)%                42.7              (49)%                83.9
Other                                             69.5               2%                  68.4              (9)%                 75.2
Corporate Unallocated                              1.7              (88)%                14.6              (30)%                20.8
Eliminations                                     (17.1)             (11)%               (19.3)             (23)%               (25.1)
                                             $ 1,673.1               28%            $ 1,308.3               18%            $ 1,106.1

(1) Operating revenues from FX / CFD contracts for the year ended September 30, 2020 includes 43

trading days of Gain activity from the period post-acquisition of Gain, which was acquired

effective August 1, 2020. Gain activity is shown in our Retail segment, along with our

pre-existing FX activities, which are shown in our Institutional segment. Both had a full


       year of trading days during the year ended September 30, 2020.


                                                                               Year Ended September 30,
                                                   2021             % Change             2020             % Change             2019

Volumes and Other Select Data (all $ amounts are U.S. dollar or U.S. dollar equivalents): Listed derivatives (contracts, 000's)

            146,101              (6)%             154,652               20%             128,898
Listed derivatives, average rate per contract
(1)                                            $    2.55               29%            $   1.98              (9)%            $   2.17
Average client equity - listed derivatives
(millions)                                     $   3,842               39%            $  2,765               33%            $  2,073
Over-the-counter ("OTC") derivatives
(contracts, 000's)                                 2,557               21%               2,113               19%               1,772
OTC derivatives, average rate per contract     $   55.70               7%             $  52.19              (5)%            $  55.19
Securities average daily volume ("ADV")
(millions)                                     $   2,776               61%            $  1,729               20%            $  1,440
Securities rate per million ("RPM") (2)        $     610              (28)%           $    845               23%            $    685
Average money market / FDIC sweep client
balances (millions)                            $   1,471               30%            $  1,130               43%            $    791
FX / CFD contracts ADV (millions) (3)          $  10,636               10%            $  9,679              611%            $  1,361
FX / CFD contracts RPM                         $      89              (8)%            $     97               70%            $     57
Global Payments ADV (millions)                 $      54               20%            $     45               -%             $     45
Global Payments RPM                            $   9,921              (2)%            $ 10,092               3%             $  9,805

(1) Give-up fees, as well as cash and voice brokerage revenues are excluded from the

calculation of listed derivatives, average rate per contract. (2) Interest income related to securities lending is excluded from the calculation of

Securities RPM. (3) ADV for the year ended September 30, 2020 includes 43 trading days of Gain activity from

the period post-acquisition of Gain, which was acquired effective August 1, 2020. Gain

activity is shown in our Retail segment, along with our pre-existing FX activities, which

are shown in our Institutional segment. Both had a full year of trading days during the

year ended September 30, 2020.




Operating Revenues
Year Ended September 30, 2021 Compared to Year Ended September 30, 2020
Operating revenues increased $364.8 million, or 28%, to $1,673.1 million in the
year ended September 30, 2021 compared to $1,308.3 million in the year ended
September 30, 2020. The table above displays operating revenues disaggregated
across the key products we provide to our clients.
Operating revenues derived from listed derivatives increased $59.1 million, or
18%, to $387.6 million in the year ended September 30, 2021 compared to $328.5
million in the year ended September 30, 2020, principally driven by a 29%
increase in the average rate per contract, which was partially offset by a 6%
decline in listed derivative volumes.
Operating revenues in OTC derivatives increased $32.2 million, or 29%, to $143.4
million in the year ended September 30, 2021 compared to $111.2 million in the
year ended September 30, 2020. This growth was principally driven by increased
customer activity in agricultural markets which drove a 21% increase in OTC
contract volumes.
Operating revenue from securities transactions increased $75.3 million, or 16%,
to $533.6 million in the year ended September 30, 2021 compared to $458.3
million in the year ended September 30, 2020. This was principally a result of a
61% increase in securities ADV driven by increased customer activity in fixed
income markets and to a lesser extent equity products, which was partially
offset by a 28% decline in RPM as a result of lower spreads in fixed income
products.
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Operating revenues from FX/CFD contracts increased $175.1 million, or 262%, to
$242.0 million in the year ended September 30, 2021 compared to $66.9 million in
the year ended September 30, 2020, as a result of an incremental $183.0 million
increase in FX/CFD contracts operating revenues in our Retail segment resulting
from the acquisition of Gain, which was partially offset by lower FX operating
revenues in our Institutional FX prime brokerage business.
Operating revenues from global payments increased by $19.2 million, or 17%, to
$133.8 million in the year ended September 30, 2021 compared to $114.6 million
in the year ended September 30, 2020, principally as a result of a 20% increase
in ADV.
Operating revenues from physical contracts increased $30.2 million, or 25%, to
$152.6 million in the year ended September 30, 2021 compared to $122.4 million
in the year ended September 30, 2020, principally due to increased customer
activity in agricultural and energy commodities as well as continued strong
customer demand for precious metals.
Interest and fee income earned on client balances, which is associated with our
listed and OTC derivative businesses, as well as our correspondent clearing and
independent wealth management businesses, declined $16.7 million, or 39%, to
$26.0 million in the year ended September 30, 2021 compared to $42.7 million in
the year ended September 30, 2020, principally as a result of a significant
decline in short term interest rates related to the FOMC's actions to reduce the
federal funds rate in March 2020. Partially offsetting the decline in short term
interest rates was an increase in average client equity and average FDIC sweep
client balances of 39% and 30%, respectively.
Finally, related to the transfer of the majority of the operations of Gain's
U.K. domiciled subsidiaries into StoneX Financial Ltd., a U.S. dollar
denominated entity, which was completed during the quarter ended March 2021,
operating revenues for the year ended September 30, 2021 include a $5.0 million
loss on derivative positions entered into to mitigate our exposure to the
British Pound in the Gain subsidiaries in advance of the transfer as well as a
$0.4 million foreign currency gain on revaluation related to the Gain U.K.
domiciled subsidiaries. Prior to the transfer, the assets and liabilities of
Gain's U.K. subsidiaries were subject to translation to the U.S. dollar, and for
the period beginning October 2020 through March 31, 2021, the foreign currency
translation adjustment related to Gain's U.K. subsidiaries resulted in a $10.3
million increase in "accumulated other comprehensive income".
Year Ended September 30, 2020 Compared to Year Ended September 30, 2019
Operating revenues increased 18% to $1,308.3 million in the year ended September
30, 2020 compared to $1,106.1 million in the year ended September 30, 2019.
The table above displays operating revenues disaggregated across the products in
which we conduct our business. Operating revenues in listed derivatives
increased $11.4 million, or 4% to $328.5 million in the year ended September 30,
2020 compared to $317.1 million in the year ended September 30, 2019, primarily
a result of a 20% increase in listed derivative volumes while the average rate
per contract declined 9%.
Operating revenues in OTC derivatives increased $12.9 million, or 13% to $111.2
million in the year ended September 30, 2020 compared to $98.3 million in the
year ended September 30, 2019, driven by a 19% increase in OTC derivative
volumes driven by heightened volatility in energy and renewable fuels markets.
Operating revenue from Securities transactions increased $129.0 million, or 39%
to $458.3 million in the year ended September 30, 2020 compared to $329.3
million in the year ended September 30, 2019, primarily as a result of a 20%
increase in securities ADV as well as a 23% increase in RPM, each of which were
driven by heightened volatility in the global equity and fixed income markets
due to economic concerns related to the COVID-19 pandemic.
Operating revenues from FX/CFD contracts increased $45.1 million, or 207% to
$66.9 million in the year ended September 30, 2020 compared to $21.8 million in
the year ended September 30, 2019, as a result of a $42.9 million increase in
retail FX/CFD contracts operating revenues driven by the acquisition of Gain in
the fourth quarter fiscal 2020.
Operating revenues from global payments increased by $3.8 million, or 3% to
$114.6 million in the year ended September 30, 2020 compared to $110.8 million
in the year ended September 30, 2019, as a result of a 3% increase in the RPM as
the ADV was relatively flat with the prior year at $45 as the results of the
global economic slowdown related to the COVID-19 pandemic inhibited growth.
Operating revenues from physical contracts increased $48.4 million, or 65% to
$122.4 million in the year ended September 30, 2020 compared to $74.0 million in
the year ended September 30, 2019, primarily due to a significant increase in
customer demand for precious metals as well as a widening of spreads due to
market dislocations related to the COVID-19 pandemic. This was partially offset
by a $7.6 million loss on a lower of cost or net realizable value adjustment for
certain physical inventories in energy commodities in the year ended September
30, 2020.
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Finally, interest and fee income earned on client balances, which is associated
with our listed and OTC derivative businesses, as well as our correspondent
clearing and independent wealth management businesses, declined $41.2 million,
or 49% to $42.7 million in the year ended September 30, 2020 compared to $83.9
million in the year ended September 30, 2019 as a result of a significant
decline in short term interest rates related to FOMC actions to reduce the
federal funds rate beginning in August 2019. Partially offsetting the decline in
short term interest rates was an increase in average client equity and average
FDIC sweep client balances of 33% and 43%, respectively.
Interest and Transactional Expenses
Year Ended September 30, 2021 Compared to Year Ended September 30, 2020
Transaction-based clearing expenses
                                                      Year Ended September 

30,


                                          2021           2020        $ 

Change % Change Transaction-based clearing expenses $ 271.7 $ 222.5 $ 49.2

           22  %
Percentage of operating revenues             16  %         17  %


The increase in transaction-based clearing expense is principally due to
incremental costs in the retail forex business within our Retail segment related
to the acquisition of Gain effective August 1, 2020, and also from higher
clearing and exchange fees within our Institutional segment, resulting from the
increase in securities ADV, and our Commercial segment, resulting from the
increase in listed derivative contract volumes.
Introducing broker commissions
                                                  Year Ended September 30,
                                      2021           2020        $ Change       % Change
Introducing broker commissions     $  160.5       $ 113.8       $    46.7           41  %
Percentage of operating revenues         10  %          9  %


The increase in introducing broker commissions is principally due to increases
in our Retail and Institutional segments related to incremental expense from the
Gain acquisition. Additionally, higher revenues have resulted in increased costs
within our Commercial segment and our Independent Wealth Management business.
Interest expense
                                                                             Year Ended September 30,
                                                          2021               2020           $ Change            % Change
Interest expense attributable to:
Trading activities:
Institutional dealer in fixed income securities       $    9.6            $  33.5          $  (23.9)                  (71) %
Securities borrowing                                      17.6               25.0              (7.4)                  (30) %

Short-term financing facilities of subsidiaries and other direct interest of operating segments

               22.4               21.9               0.5                     2  %
                                                          49.6               80.4             (30.8)                  (38) %
Corporate funding                                         41.3               23.6              17.7                    75  %
Total interest expense                                $   90.9            $ 104.0          $  (13.1)                  (13) %


The decrease in interest expense attributable to trading activities is
principally due to the decrease in short-term interest rates. Interest expense
on corporate funding increased principally due to incremental interest related
to the issuance of our senior secured notes during June 2020, partially offset
by lower short-term interest rates on our senior secured syndicated loan
facility. In June 2020, we completed the issuance and sale of $350.0 million in
aggregate principal amount of the Company's 8.625% Senior Secured Notes due 2025
at the offering price of 98.5% of the aggregate principal amount.
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Table of Contents Year Ended September 30, 2020 Compared to Year Ended September 30, 2019 Transaction-based clearing expenses


                                                      Year Ended September 

30,


                                          2020           2019        $ 

Change % Change Transaction-based clearing expenses $ 222.5 $ 183.5 $ 39.0

           21  %
Percentage of operating revenues             17  %         17  %


The increase in transaction-based clearing expenses primarily resulted from
higher listed derivative contracts, higher clearing and exchange fees within
Equity Capital Markets and incremental costs in Retail Forex related to the
acquisition of Gain effective August 1, 2020.
Introducing broker commissions
                                                  Year Ended September 30,
                                      2020           2019        $ Change       % Change
Introducing broker commissions     $  113.8       $ 114.7       $    (0.9)          (1) %
Percentage of operating revenues          9  %         10  %


The decrease in expense is primarily due to decreased activity of listed
derivatives within our Institutional and Commercial segments, partially offset
by expense increases in our Retail segment due to incremental expense from the
Gain acquisition and increased activity in our Independent Wealth Management
business as a result of higher revenues.
Interest expense
                                                                             Year Ended September 30,
                                                           2020              2019           $ Change            % Change
Interest expense attributable to:
Trading activities:
Institutional dealer in fixed income securities       $   33.5             $ 73.9          $  (40.4)                  (55) %
Securities borrowing                                      25.0               35.8             (10.8)                  (30) %

Short-term financing facilities of subsidiaries and other direct interest of operating segments

               21.9               32.3             (10.4)                  (32) %
                                                          80.4              142.0             (61.6)                  (43) %
Corporate funding                                         23.6               12.7              10.9                    86  %
Total interest expense                                   104.0              154.7             (50.7)                  (33) %


Interest expense attributable to trading activities decreased principally due to
the impact of changes in the short-term interest rate environment. Interest
expense on short-term financing facilities of subsidiaries and other direct
interest expense of operating segments decreased principally due to the decrease
in short-term interest rates along with lower average borrowings outstanding on
our physical commodities financing facilities.
Interest expense related to corporate funding purposes increased principally to
incremental interest related to the June 2020 issuance and sale of $350 million
in aggregate principal amount of the Company's 8.625% Senior Secured Notes due
2025 at the offering price of 98.5% of the aggregate principal amount.
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.
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The table below presents a disaggregation of consolidated net operating revenues
used by management in evaluating our performance, for the periods indicated:
                                                                            Year Ended September 30,
                                                 2021              % Change             2020            % Change             2019
Net Operating Revenues (in millions):
Listed derivatives                           $    173.8               21%            $ 143.9               -%             $ 143.4
OTC derivatives                                   143.4               29%              111.2               13%               98.2
Securities                                        357.8               24%              287.9              112%              135.7
FX / CFD contracts                                193.2              249%               55.4              195%               18.8
Global Payments                                   126.4               16%              108.7               4%               105.0
Physical contracts                                136.2               27%              107.1               90%               56.5
Interest, net / fees earned on client
balances                                           22.9              (35)%              35.4              (47)%              67.3
Other                                              51.1               19%               42.9               10%               39.1
Corporate Unallocated                             (54.8)             124%              (24.5)             127%              (10.8)
                                             $  1,150.0               32%            $ 868.0               33%            $ 653.2


Compensation and Other Expenses
The following table presents a summary of expenses, other than interest and
transactional expenses.
                                                                              Year Ended September 30,
(in millions)                                      2021              % Change             2020            % Change             2019
Compensation and benefits:
Variable compensation and benefits            $   377.7                 27%            $ 296.8               40%            $ 211.6
Fixed compensation and benefits                   301.4                 36%              221.9               22%              181.5
                                                  679.1                 31%              518.7               32%              393.1
Other expenses:
Trading systems and market information             58.8                 27%               46.3               19%               38.8
Professional fees                                  40.9                 35%               30.2               44%               21.0
Non-trading technology and support                 46.0                 62%               28.4               41%               20.1
Occupancy and equipment rental                     34.2                 46%               23.5               21%               19.4
Selling and marketing                              33.3                173%               12.2              135%                5.2
Travel and business development                     4.5                (49)%               8.9              (45)%              16.2
Communications                                      9.3                 33%                7.0               6%                 6.6
Depreciation and amortization                      36.5                 85%               19.7               41%               14.0
Bad debts, net of recoveries and impairment        10.4                (44)%              18.7              648%                2.5
Recovery of bad debt on physical coal                 -                 -%                   -             (100)%             (12.4)
Other                                              46.3                 56%               29.6               28%               23.2
                                                  320.2                 43%              224.5               45%              154.6
Total compensation and other expenses         $   999.3                 34%            $ 743.2               36%            $ 547.7


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Year Ended September 30, 2021 Compared to Year Ended September 30, 2020
Compensation and Other Expenses: Compensation and other expenses increased
$256.1 million, or 34%, to $999.3 million in the year ended September 30, 2021
compared to $743.2 million in the year ended September 30, 2020.
Compensation and Benefits:
                                                                             Year Ended September 30,
(in millions)                                             2021              2020            $ Change            % Change
Compensation and benefits:
Variable compensation and benefits
Front office                                           $  333.5          $ 251.0          $    82.5                    33  %

Administrative, executive, and centralized and local operations

                                                 44.2             45.8               (1.6)                   (3) %
Total variable compensation and benefits                  377.7            296.8               80.9                    27  %

Variable compensation and benefits as a percentage of net operating revenues

                                       33  %          

34 %



Fixed compensation and benefits:
Non-variable salaries                                     204.7            159.0               45.7                    29  %

Employee benefits and other compensation, excluding share-based compensation

                                   82.8             52.6               30.2                    57  %
Share-based compensation                                   13.9             10.3                3.6                    35  %
Total fixed compensation and benefits                     301.4            221.9               79.5                    36  %
Total compensation and benefits                           679.1            518.7              160.4                    31  %

Total compensation and benefits as a percentage of operating revenues

                                           41  %            40  %
Number of employees, end of period                        3,242            2,950                292                    10  %


Non-variable salaries increased principally due to a full year of the costs
associated with the Gain acquisition in the fourth quarter of the year ended
September 30, 2020.
Employee benefits and other compensation, excluding share-based compensation,
increased principally due to higher payroll, benefits, 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.
Fixed compensation and benefits during the year ended September 30, 2021 include
severance costs of $7.7 million, principally due to the departure of certain
senior officers. During the during the year ended September 30, 2020, severance
costs were $1.5 million.
Other Expenses: Other non-compensation expenses increased $95.7 million, or 43%,
to $320.2 million in the year ended September 30, 2021 compared to $224.5
million in the year ended September 30, 2020.
Trading systems and market information costs increased $12.5 million,
principally due to incremental costs in the retail forex business acquired as
part of the Gain acquisition in the fourth quarter of fiscal 2020 and higher
costs in our Institutional segment.
Professional fees increased $10.7 million, principally due to higher legal,
consulting and accounting services fees.
Non-trading technology and support increased $17.6 million, principally due to
incremental costs related to the Gain acquisition in the fourth quarter of
fiscal 2020 in addition to higher non-trading software implementation costs
related to various IT, client engagement, and accounting systems.
Occupancy and equipment rental increased $10.7 million, principally due to
additional leased office space.
Selling and marketing costs increased $21.1 million, principally due to
incremental costs related to the acquired retail forex business, partially
offset by the prior year including costs for the bi-annual global sales meeting
held in February 2020.
Travel and business development decreased $4.4 million principally as a result
of the impact of the response by governments and regulatory bodies to the
COVID-19 pandemic, which included social distancing; travel restrictions,
"shelter in place" and other governmental regulations.
Communications increased $2.3 million, principally due to incremental costs
related to the Gain acquisition in the fourth quarter of fiscal 2020.
Depreciation and amortization increased $16.8 million, principally due to the
amortization costs of the acquired intangible assets related to the Gain
acquisition, as well as increases in depreciation of IT hardware, third-party
software, internally developed software, and amortization of leasehold
improvements.
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Other expenses increased $16.7 million, primarily due to incremental costs from
recent acquisitions most notably related to higher non-income taxes, insurance
and recruiting costs.
Bad debts, net of recoveries and impairment decreased $8.3 million
year-over-year. During the year ended September 30, 2021, bad debts, net of
recoveries were $10.4 million, principally related to client trading account
deficits in our Commercial, Institutional, and Retail segments of $3.4 million,
$0.6 million, and $1.1 million, respectively. Additionally, we recorded bad debt
expense of $5.1 million related to trade receivables with physical clients.
During the year ended September 30, 2020, bad debts, net of recoveries were
$13.0 million, primarily related to client trading account deficits in our
Commercial, Institutional, and Retail segments of $3.5 million, $5.7 million,
and $0.6 million, respectively. Additionally, we recorded bad debt expense of
$3.2 million related to trade receivables with physical clients.
In connection with the integration of Gain, the Company re-evaluated all trading
systems utilized across the organization in order to identify duplicative
systems. In connection with this process, the Company determined that certain
legacy capitalized developed software costs within our OTC foreign exchange and
physical metals business would no longer be placed into service and utilized as
expected prior to the merger with Gain. As a result, the Company recorded
impairment charges of $5.7 million in the year ended September 30, 2020.
Gain on Acquisitions and Other Gains: The results of the year ended September
30, 2021 include a gain of $3.3 million related to an adjustment to the
liabilities assumed as part of the Gain acquisition initially determined values,
as of August 1, 2020. The results of the year ended September 30, 2020 included
gain on acquisitions of $81.9 million, principally related to the acquisition of
Gain.
Provision for Taxes: The effective income tax rate was 25% in the year ended
September 30, 2021 compared to 18% in the year ended September 30, 2020. The
gains on acquisitions of $3.3 million and $81.9 million in the year ended
September 30, 2021 and 2020, respectively, are not taxable and reduced the
effective income tax rate 0.5% and 8.3% in the year ended September 30, 2021 and
2020, respectively.
The effective income tax rate for the year ended September 30, 2021 was higher
than the U.S. federal statutory rate of 21% due to U.S. state and local taxes,
global intangible low-taxed income ("GILTI"), U.S. and foreign permanent
differences, and the amount of foreign earnings taxed at higher tax rates. The
effective rate for the year ended September 30, 2020 was lower than the U.S.
federal statutory rate of 21% due to the non-taxable gain recognized upon the
acquisition of Gain.
Year Ended September 30, 2020 Compared to Year Ended September 30, 2019
Compensation and Other Expenses: Compensation and other expenses increased
$195.5 million, or 36%, to $743.2 million in the year ended September 30, 2020
compared to $547.7 million in the year ended September 30, 2019.
Compensation and Benefits:
                                                                             Year Ended September 30,
(in millions)                                             2020              2019            $ Change            % Change
Compensation and benefits:
Variable compensation and benefits
Front office                                           $  251.0          $ 179.5          $    71.5                    40  %

Administrative, executive, and centralized and local operations

                                                 45.8             32.1               13.7                    43  %
Total variable compensation and benefits                  296.8            211.6               85.2                    40  %

Variable compensation and benefits as a percentage of net operating revenues

                                       34  %          

32 %



Fixed compensation and benefits:
Non-variable salaries                                     159.0            128.3               30.7                    24  %

Employee benefits and other compensation, excluding share-based compensation

                                   52.6             45.1                7.5                    17  %
Share-based compensation                                   10.3              8.1                2.2                    27  %
Total fixed compensation and benefits                     221.9            181.5               40.4                    22  %
Total compensation and benefits                           518.7            393.1              125.6                    32  %

Total compensation and benefits as a percentage of operating revenues

                                           40  %            36  %
Number of employees, end of period                        2,950            2,012                938                    47  %


Non-variable salaries increased principally due to the acquisitions and new business initiatives during the year ended September 30, 2020.


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Employee benefits and other compensation, excluding share-based compensation,
increased principally due 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.
Other Expenses: Other non-compensation expenses increased $69.9 million, or 45%,
to $224.5 million in the year ended September 30, 2020 compared to $154.6
million in the year ended September 30, 2019. Other non-compensation expenses
related to acquisitions and new business initiatives began after September 2018
added $27.7 million.
Trading systems and market information costs increased $7.5 million, of which
$6.1 million was related to incremental costs from recent acquisitions and new
business initiatives.
Professional fees increased $9.2 million, primarily related to
acquisition-specific closing costs.
Non-trading technology and support increased $8.3 million, primarily due to
higher costs from non-trading software as a service arrangements related to
various IT, client engagement, accounting and human resources systems, higher
costs from external data center services, and incremental costs due to
acquisitions and new business initiatives during the year ended September 30,
2020.
Occupancy and equipment rental increased $4.1 million, primarily related to
higher office lease costs of $3.7 million, including $1.5 million in incremental
costs from recent acquisitions.
Selling and marketing costs increased $7.0 million, primarily related to
incremental costs from the acquisition of Gain.
Travel and business development decreased $7.3 million primarily as a result of
the impact of the response by governments and regulatory bodies to the COVID-19
pandemic, which included social distancing; travel restrictions, "shelter in
place" and other governmental regulations.
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 completed during the year
ended September 30, 2020.
Excluding the recovery of bad debt on physical coal discussed below, bad debts,
net of recoveries and impairment increased $16.2 million year-over-year. During
the year ended September 30, 2020, bad debts, net of recoveries were $13.0
million, primarily related to client trading account deficits in our Commercial,
Institutional, and Retail segments of $3.5 million, $5.7 million, and $0.6
million, respectively. Additionally, we recorded bad debt expense of $3.2
million related to trade receivables with physical clients. During the year
ended September 30, 2019, bad debts, net of recoveries were $2.5 million,
primarily related to $2.7 million of OTC client account deficits, partially
offset by a $1.4 million client recovery, in the Commercial segment and $1.4
million in the Institutional segment.
In connection with the integration of Gain, the Company re-evaluated all trading
systems utilized across the organization in order to identify duplicative
systems. In connection with this process, the Company determined that certain
legacy capitalized developed software costs within our OTC foreign exchange and
physical metals business would no longer be placed into service and utilized as
expected prior to the merger with Gain. As a result, the Company recorded
impairment charges of $5.7 million in the year ended September 30, 2020.
Recovery of Bad Debt on Physical Coal: During the year ended September 30, 2019,
we recorded recoveries on the bad debt on physical coal of $12.4 million related
to settlements reached with clients and proceeds received through an insurance
policy claim related to a physical coal bad debt.
Gain on Acquisitions and Other Gains: The results of the year ended September
30, 2020 included a gain of $81.8 million related to the acquisition of Gain.
The results of the year ended September 30, 2019 included gains of $5.5 million,
primarily related to the acquisition of the former subsidiary GMP Securities
LLC, which was subsequently merged into StoneX Financial Inc.
Provision for Taxes: The effective income tax rate was 18% in the year ended
September 30, 2020 compared to 23% in the year ended September 30, 2019. The
effective income tax rate for the year ended September 30, 2020 was lower than
the U.S. federal statutory rate of 21% due to the non-taxable bargain purchase
gain recognized upon the acquisition of Gain. State income tax, GILTI, U.S. and
foreign permanent differences, and an increase to foreign valuation allowances
increased the effective income tax rate. The bargain purchase gain on
acquisitions of $81.9 million is not taxable and reduced the effective income
tax rate 8%. The estimated federal expense from GILTI increased the effective
income tax rate approximately 0.7%. State income tax expense increased the
effective income tax rate 1.0%. U.S. and foreign permanent differences increased
the effective income tax rate approximately 1.4%. The increase in foreign
valuation allowances also increased the effective income tax rate 1.0%. The
effective income tax rate for fiscal 2019 was 23%. It was higher than the U.S.
federal statutory rate of 21% due to GILTI, earnings taxed at a higher rate,
foreign permanent differences, and an increase in foreign valuation allowances.
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The effective income tax rate can vary from period to period depending on, among
other factors, the geographic and business mix of our earnings.
Variable vs. Fixed Expenses
The table below sets forth our variable expenses and non-variable expenses as a
percentage of total non-interest expenses for the periods indicted.
                                                                                Year Ended September 30,
                                                               % of                                 % of                               % of
(in millions)                                2021              Total              2020              Total             2019             Total
Variable compensation and benefits       $   377.7              26%           $   296.8              27%           $ 211.6              25%
Transaction-based clearing expenses          271.7              19%               222.5              21%             183.5              22%
Introducing broker commissions               160.5              11%               113.8              11%             114.7              14%
Total variable expenses                      809.9              56%               633.1              59%             509.8              61%
Fixed compensation and benefits              301.4              21%               221.9              20%             181.5              21%
Other fixed expenses                         309.8              22%               205.8              19%             164.5              19%
Bad debts, net of recoveries and
impairment                                    10.4              1%                 18.7              2%                2.5              -%
Recovery of bad debt on physical coal            -              -%                    -              -%              (12.4)            (1)%
Total non-variable expenses                  621.6              44%               446.4              41%             336.1              39%
Total non-interest expenses              $ 1,431.5             100%           $ 1,079.5             100%           $ 845.9             100%


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. We seek to make our non-interest expenses variable to the greatest
extent possible, and to keep our fixed costs as low as possible.
During the year ended September 30, 2021, non-variable expenses, excluding bad
debts, net of recoveries and impairment, increased $183.5 million, or 43%,
compared to the year ended September 30, 2020, primarily driven by incremental
costs from the Gain acquisition in the fourth quarter of the year ended
September 30, 2020.
During the year ended September 30, 2020, non-variable expenses, excluding bad
debts, net of recovery and impairment and the recovery of bad debt on physical
coal, increased $81.7 million, or 24%, compared to the year ended September 30,
2019, primarily driven by incremental costs from the acquisitions of UOB Bullion
and Futures Limited, Tellimer, GIROXX, and Gain during the year, as well as
certain transaction costs related to our acquisition of Gain.
Segment Information
Our operating segments are based principally on the nature of the clients we
serve (commercial, institutional, and retail), and a fourth operating segment,
our global payments business. We manage our business in this manner due to our
large global footprint, in which we have more than 3,200 employees allowing us
to serve clients in more than 180 countries.
Our business activities are managed as operating segments and organized into
reportable segments as shown below.
                                                                   StoneX Group Inc.

           Commercial                             Institutional                              Retail                             Global Payments
Primary Activities:                     Primary Activities:                     Primary Activities:                     Primary Activities:
Financial Ag                            Equity Capital                          Retail Forex                            Global Payments
   & Energy                                Markets
Physical Ag                             Debt Capital                            Retail Precious Metals                  Payment Technology
   & Energy                                Markets                                                                        Services
Precious Metals                         FX Prime Brokerage                      Independent
                                                                                   Wealth Management
Derivative Voice                        Exchange-Traded
   Brokerage                               Futures & Options
                                        Correspondent
                                           Clearing


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Operating revenues, net operating revenues, net contribution and segment income
are some of the key measures used by management to assess the performance of
each segment and for decisions regarding the allocation of our resources.
Operating revenues are calculated as total revenues less cost of sales of
physical commodities.
Net operating revenue is calculated as operating revenue less transaction-based
clearing expenses, introducing broker commissions and interest expense.
Net contribution is calculated as net operating revenues less 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.
Total Segment Results
The following table presents summary information concerning all of our business
segments on a combined basis, excluding unallocated overhead, for the periods
indicated.
                                                                                                       Year Ended September 30,
(in millions)                              2021             % of Operating Revenues             2020             % of Operating Revenues             2019             % of Operating Revenues

Sales of physical commodities          $ 40,961.6                                           $ 52,899.2                                           $ 31,830.3
Principal gains, net                        899.0                                                620.8                                                412.8
Commission and clearing fees                488.4                                                405.1                                                373.0
Consulting, management, and account
fees                                         86.5                                                 79.2                                                 77.2
Interest income                             114.1                                                140.0                                                208.0
Total revenues                           42,549.6                                             54,144.3                                             32,901.3
Cost of sales of physical commodities    40,861.1                                             52,831.3                                             

31,790.9


Operating revenues                        1,688.5                     100%                     1,313.0                     100%                     1,110.4                     100%
Transaction-based clearing expenses         270.3                     16%                        221.0                     17%                        182.6                     16%
Introducing broker commissions              161.2                     10%                        113.6                      9%                        114.6                     10%
Interest expense                             52.2                      3%                         85.9                      7%                        149.2                     13%
Net operating revenues                    1,204.8                                                892.5                                                

664.0


Variable direct compensation and
benefits                                    336.1                     20%                        253.0                     19%                        181.2                     16%
Net contribution                            868.7                                                639.5                                                482.8
Fixed compensation and benefits             162.3                                                117.7                                                 93.5
Other fixed expenses                        189.8                                                108.0                                                 93.5
Bad debts, net of recoveries and
impairment                                   10.4                                                 18.7                                                  

2.5


(Recovery) bad debt on physical coal            -                                                    -                                                

(12.4)


Total non-variable direct expenses          362.5                     21%                        244.4                     19%                        177.1                     16%
Segment income                         $    506.2                                           $    395.1                                           $    305.7


Year Ended September 30, 2021 Compared to Year Ended September 30, 2020
Net contribution for all of our business segments increased $229.2 million, or
36%, to $868.7 million in the year ended September 30, 2021 compared to $639.5
million in the year ended September 30, 2020. Segment income increased $111.1
million, or 28%, to $506.2 million in the year ended September 30, 2021 compared
to $395.1 million in the year ended September 30, 2020.
Year Ended September 30, 2020 Compared to Year Ended September 30, 2019
Net contribution for all of our business segments increased $156.7 million, or
32%, to $639.5 million in the year ended September 30, 2020 compared to $482.8
million in the year ended September 30, 2019. Segment income increased $89.4
million, or 29%, to $395.1 million in the year ended September 30, 2020 compared
to $305.7 million in the year ended September 30, 2019.
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Commercial
We offer our commercial clients a comprehensive array of products and services,
including risk management and hedging services, execution and clearing of
exchange-traded and OTC products, voice brokerage, market intelligence and
physical trading, as well as commodity financing and logistics services. We
believe our ability to provide these high-value-added products and services
differentiates us from our competitors and maximizes our ability to retain
clients.
The tables below present the financial performance, a disaggregation of
operating revenues, and select operating data and metrics used by management in
evaluating the performance of the Commercial segment, for the periods indicated.
                                                                                 Year Ended September 30,
(in millions)                                      2021              % Change              2020              % Change              2019

Revenues:


Sales of physical commodities                  $ 39,420.3              (25)%           $ 52,593.9               66%            $ 31,759.3
Principal gains, net                                245.5               26%                 194.1               24%                 156.7
Commission and clearing fees                        178.3               27%                 140.1              (7)%                 150.5
Consulting, management and account fees              19.7               5%                   18.8               1%                   18.6
Interest income                                      20.2              (13)%                 23.2              (42)%                 40.3
Total revenues                                   39,884.0              (25)%             52,970.1               65%              32,125.4
Cost of sales of physical commodities            39,349.2              (25)%             52,538.6               66%              31,721.0
Operating revenues                                  534.8               24%                 431.5               7%                  404.4
Transaction-based clearing expenses                  54.0               32%                  40.8               5%                   38.9
Introducing broker commissions                       34.7               45%                  24.0              (10)%                 26.8
Interest expense                                     13.0              (2)%                  13.3              (24)%                 17.5
Net operating revenues                              433.1               23%                 353.4               10%                 321.2
Variable direct compensation and benefits           133.4               20%                 111.2               15%                  96.6
Net contribution                                    299.7               24%                 242.2               8%                  224.6
Fixed compensation and benefits                      49.9               3%                   48.5               3%                   47.0
Other fixed expenses                                 49.1               13%                  43.5              (2)%                  44.3
Bad debts, net of recoveries and impairment           8.5               2%                    8.3              655%                   1.1
Recovery of bad debt on physical coal                   -               -%                      -             (100)%                (12.4)
Total non-variable direct expenses                  107.5               7%                  100.3               25%                  80.0
Segment income                                 $    192.2               35%            $    141.9              (2)%            $    144.6


                                                                                  Year Ended September 30,
                                                       2021                 % Change             2020            % Change             2019
Operating Revenues (in millions):
Listed derivatives                             $       223.5                   26%            $ 176.9              (4)%            $ 184.5
OTC derivatives                                        143.4                   29%              111.0               13%               98.3
Physical contracts                                     132.2                   21%              109.6               49%               73.5
Interest / fees earned on client balances               14.6                   1%                14.5              (50)%              29.0
Other                                                   21.1                   8%                19.5               2%                19.1
                                               $       534.8                   24%            $ 431.5               7%             $ 404.4

Select data (all $ amounts are U.S. dollar equivalent): Listed derivatives (contracts, 000's)

                 30,904                   6%              29,255               5%              27,985
Listed derivatives, average rate per contract
(1)                                            $        6.92                   26%            $  5.48               -%             $  5.49
Average client equity - listed derivatives
(millions)                                     $       1,648                   62%            $ 1,019               8%             $   948
Over-the-counter ("OTC") derivatives
(contracts, 000's)                                     2,557                   21%              2,113               19%              1,772
OTC derivatives, average rate per contract     $       55.70                   7%             $ 52.19              (5)%            $ 55.19

(1) Give-up fees as well as cash and voice brokerage are excluded from the calculation of listed derivatives, average rate per contract.




For information about the assets of this segment, see Note 23 to the
Consolidated Financial Statements.
Year Ended September 30, 2021 Compared to Year Ended September 30, 2020
Operating revenues increased $103.3 million, or 24%, to $534.8 million in the
year ended September 30, 2021 compared to $431.5 million in the year ended
September 30, 2020. Net operating revenues increased $79.7 million, or 23%, to
$433.1 million in the year ended September 30, 2021 compared to $353.4 million
in the year ended September 30, 2020.
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Operating revenues derived from listed derivatives increased $46.6 million, or
26%, to $223.5 million in the year ended September 30, 2021 compared to $176.9
million in the year ended September 30, 2020. This increase was principally
driven by a 26% increase in the average rate per contract, as well as a 6%
increase in contract volumes as a result of increased volatility in agricultural
and base metal markets. This increase was partially offset by a $6.7 million
decline in derivative voice brokerage revenues.
Operating revenues derived from OTC transactions increased $32.4 million, or
29%, to $143.4 million in the year ended September 30, 2021 compared to $111.0
million in the year ended September 30, 2020. This increase was driven by a 21%
increase in OTC volumes as well as a 7% increase in the average rate per
contract as a result of increased customer activity in agricultural markets.
Operating revenues derived from physical transactions increased $22.6 million,
or 21%, to $132.2 million in the year ended September 30, 2021 compared to
$109.6 million in the year ended September 30, 2020, principally due to
increased customer activity in agricultural and energy commodities as well as
continued strong customer demand for precious metals. The years ended September
30, 2021 and 2020 include unrealized losses on derivative positions held against
physical inventories carried at the lower of cost or net realizable value of
$2.2 million and $0.7 million, respectively. In addition, the years ended
September 30, 2021 and 2020 included losses on the liquidation of certain
physical inventories of crude oil and low sulfur fuel oil as a result of quality
degradation and additional costs to sell of $1.9 million and $7.6 million,
respectively.
Interest and fee income earned on client balances was $14.6 million and $14.5
million, respectively, in the years ended September 30, 2021 and 2020. A 62%
increase in average client equity to $1,648 million was offset by a significant
decline in short term interest rates.
Variable expenses, excluding interest, expressed as a percentage of operating
revenues was 42% in the year ended September 30, 2021 compared to 41% in the
year ended September 30, 2020.
Segment income increased $50.3 million, or 35%, to $192.2 million in the year
ended September 30, 2021 compared to $141.9 million in the year ended September
30, 2020, principally driven by the growth in operating revenues which was
partially offset by a $1.4 million increase in fixed compensation and benefits
as well as a $5.6 million increase in other fixed expenses including a $1.6
million increase in professional fees and a $1.2 million increase in trading
systems and market information.
Year Ended September 30, 2020 Compared to Year Ended September 30, 2019
Operating revenues increased $27.1 million, or 7% to $431.5 million in the year
ended September 30, 2020 compared to $404.4 million in the year ended September
30, 2019. Net operating revenues increased $32.2 million, or 10% to $353.4
million in the year ended September 30, 2020 compared to $321.2 million in the
year ended September 30, 2019.
The increase in operating revenues derived from physical transactions led the
overall increase, benefiting from a significant increase in customer demand for
precious metals and a widening of spreads due to market dislocations related to
the COVID-19 global pandemic and the resulting effect on the global precious
metals market. Partially offsetting the increase in physical contract operating
revenues, we recorded lower of cost or net realizable value adjustments for
certain physical inventories of crude oil and low sulfur fuel oil primarily
based on quality degradation and consideration of costs to sell of $7.6 million.
These adjustments are included in Cost of sales of physical commodities. We are
continuing to pursue all legal avenues to collect this from our supplier,
however there is substantial uncertainty as to whether we will be successful.
The increase in operating revenues derived from OTC transactions were driven by
a 19% increase in OTC volumes, which was partially offset by a 5% decline in the
average rate per contract. The increase in OTC revenues was primarily driven by
an increase in energy and renewable fuels operating revenues as a result of
increased volatility caused by economic concerns over the COVID-19 pandemic.
The decrease in operating revenues derived from listed derivatives was primarily
driven by a $13.6 million decline in derivative voice brokerage revenues.
Derivative voice brokerage data is not included in the listed derivatives volume
or average rate per contract in the select data table above. This decline was
partially offset by a 5% increase in listed derivatives contract volumes while
the average rate per contract was relatively flat with the prior year period.
Interest and fee income earned on client balances declined 50% as compared to
the prior year as a result of a significant declines in short term interest
rates related to FOMC actions to reduce the federal funds rate beginning in
August 2019. Partially offsetting the decline in short term interest rates was
an 8% increase in average client equity to $1,019 million.
Variable expenses, excluding interest, expressed as a percentage of operating
revenues were 41% in the year ended September 30, 2020 compared to 40% in the
year ended September 30, 2019.
During 2020, we recorded bad debts, net of recoveries of $6.7 million, including
$3.2 million related to trade receivables with physical clients and $3.5 million
related to client deficits in our OTC and listed derivatives businesses. Also,
in the year ended September 30, 2020 we recorded an impairment charge of $1.6
million related to capitalized development on a back-office
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software system not yet placed into service, that will be replaced with an
alternative system we acquired as part of our acquisition of Gain.
During the year ended September 30, 2019, we recorded recoveries on the bad debt
on physical coal of $12.4 million related to settlements reached with clients
and proceeds received through an insurance policy claim related to the physical
coal matter, as described further detail below.
Segment income decreased 2% to $141.9 million in the year ended September 30,
2020 compared to $144.6 million in the year ended September 30, 2019, as growth
in operating revenues were offset by the bad debts, impairment, and impact of
fiscal 2019's recovery. Fixed compensation and benefits and other fixed expenses
increased modestly.
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Institutional
We provide institutional clients with a complete suite of equity trading
services to help them find liquidity with best execution, consistent liquidity
across a robust array of fixed income products, 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. In addition, we originate, structure and place debt instruments in
the international and domestic capital markets. These instruments include
asset-backed securities (primarily in Argentina) and domestic municipal
securities.
The tables below present the financial performance, a disaggregation of
operating revenues, and select operating data and metrics used by management in
evaluating the performance of the Institutional segment, for the periods
indicated.
                                                                               Year Ended September 30,
(in millions)                                        2021               % Change             2020            % Change            2019
Revenues:
Sales of physical commodities                  $        -                  -%             $     -               -%             $    -
Principal gains, net                                312.0                  14%              273.6               83%             149.5
Commission and clearing fees                        246.0                  17%              211.1               24%             170.0
Consulting, management, and account fees             18.0                 (23)%              23.3              (18)%             28.3
Interest income                                      92.4                 (20)%             116.1              (31)%            167.2
Total revenues                                      668.4                  7%               624.1               21%             515.0
Cost of sales of physical commodities                   -                  -%                   -               -%                  -
Operating revenues                                  668.4                  7%               624.1               21%             515.0
Transaction-based clearing expenses                 184.1                  9%               168.7               23%             136.7
Introducing broker commissions                       27.5                  38%               19.9              (25)%             26.7
Interest expense                                     37.4                 (48)%              71.7              (45)%            131.5
Net operating revenues                              419.4                  15%              363.8               65%             220.1
Variable compensation and benefits                  158.5                  38%              114.9               82%              63.1
Net contribution                                    260.9                  5%               248.9               59%             157.0
Fixed compensation and benefits                      46.1                 (2)%               47.2               45%              32.6
Other fixed expenses                                 46.5                  19%               39.0               13%              34.4
Bad debts, net of recoveries and impairment           0.6                 (94)%               9.8              600%               1.4
Total non-variable direct expenses                   93.2                 (3)%               96.0               40%              68.4
Segment income                                 $    167.7                  10%            $ 152.9               73%            $ 88.6



                                                                              Year Ended September 30,
                                                  2021               % Change             2020             % Change             2019
Operating Revenues (in millions):
Listed derivatives                           $    164.1                 8%             $  151.6               14%            $  132.6
OTC derivatives                                       -               (100)%                0.2               n/m                   -
Securities                                        436.0                 16%               376.1               48%               253.6
FX contracts                                       16.1                (33)%               24.0               10%                21.8
Interest / fees earned on client balances          10.2                (62)%               26.5              (50)%               52.9
Other                                              42.0                (8)%                45.7              (16)%               54.1
                                             $    668.4                 7%             $  624.1               21%            $  515.0

Volumes and Other Select Data (all $ amounts are U.S. dollar equivalents): Listed derivatives (contracts, 000's)

           115,197                (8)%             125,397               24%             100,913
Listed derivatives, average rate per
contract (1)                                 $     1.38                 18%            $   1.17              (6)%            $   1.25
Average client equity - listed derivatives
(millions)                                   $    2,195                 26%            $  1,746               55%            $  1,125
Securities ADV ( millions)                   $    2,776                 61%            $  1,729               20%            $  1,440
Securities RPM (2)                           $      610                (28)%           $    845               23%            $    685
Average money market / FDIC sweep client
balances (millions)                          $    1,471                 30%            $  1,130               43%            $    791
FX contracts ADV ( millions)                 $    1,647                 25%            $  1,322              (3)%            $  1,361
FX contracts RPM                             $       38                (47)%           $     72               26%            $     57
n/m = not meaningful to present as a
percentage
(1) Give-up fee revenue are excluded from the calculation of listed derivative, average rate per contract.
(2) Interest income related to securities lending is excluded from the calculation of Securities RPM.


For information about the assets of this segment, see Note 23 to the Consolidated Financial Statements.


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Year Ended September 30, 2021 Compared to Year Ended September 30, 2020
Operating revenues increased $44.3 million, or 7%, to $668.4 million in the year
ended September 30, 2021 compared to $624.1 million in the year ended September
30, 2020. Net operating revenues increased $55.6 million, or 15%, to $419.4
million in the year ended September 30, 2021 compared to $363.8 million in the
year ended September 30, 2020.
Operating revenues derived from listed derivatives increased $12.5 million, or
8%, to $164.1 million in the year ended September 30, 2021 compared to $151.6
million in the year ended September 30, 2020, principally driven by an 18%
increase in the average rate per contract, which was partially offset by an 8%
decline in listed derivative contract volumes in the year ended September 30,
2021 compared to the year ended September 30, 2020.
Operating revenues derived from securities transactions increased $59.9 million,
or 16%, to $436.0 million in the year ended September 30, 2021 compared to
$376.1 million in the year ended September 30, 2020. The ADV of securities
traded increased 61%, principally driven by increased customer activity in fixed
income markets and to a lesser extent equity products, however the RPM traded
declined 28% in the year ended September 30, 2021 principally driven by lower
spreads in fixed income products compared to the year ended September 30, 2020
which benefited from wider spreads driven by the onset of the COVID-19 pandemic.
Operating revenues derived from FX contracts declined $7.9 million, or 33%, to
$16.1 million in the year ended September 30, 2021 compared to $24.0 million in
the year ended September 30, 2020, as a 25% increase in the ADV of FX contracts
traded was more than offset by a 47% decline in the average rate per contract
due to a decline in foreign currency volatility.
Finally, interest and fee income earned on client balances, which is associated
with our listed derivative business, as well as our correspondent clearing and
independent wealth management businesses, declined $16.3 million, or 62%, to
$10.2 million in the year ended September 30, 2021 compared to $26.5 million in
the year ended September 30, 2020, principally as a result of a significant
decline in short term interest rates. Partially offsetting the decline in short
term interest rates was a 26% increase in average client equity and a 30%
increase in average FDIC sweep client balances.
Also primarily as a result of the decline in short term interest rates, interest
expense declined 48% compared to the prior year, with interest expense directly
associated with serving as an institutional dealer in fixed income securities
declining $23.9 million and interest expense directly attributable to securities
lending activities declining $7.4 million compared to the prior year period.
Variable expenses, excluding interest, expressed as a percentage of operating
revenues increased to 55% in the year ended September 30, 2021 compared to 49%
in the year ended September 30, 2020, primarily as the result of the decline in
interest income and higher variable compensation.
Segment income increased $14.8 million, or 10%, to $167.7 million in the year
ended September 30, 2021 compared to $152.9 million in the year ended September
30, 2020, primarily as a result of the increase in operating revenues noted
above. Non-variable direct expenses, excluding bad debts, increased $6.4
million, or 7% versus the year ended September 30, 2020, primarily related to an
increase in market information, professional fees and depreciation of internally
developed software which was partially offset by lower travel and business
development expenses.
Year Ended September 30, 2020 Compared to Year Ended September 30, 2019
Operating revenues increased $109.1 million, or 21% to $624.1 million in the
year ended September 30, 2020 compared to $515.0 million in the year ended
September 30, 2019. Net operating revenues increased $143.7 million, or 65% to
$363.8 million in the year ended September 30, 2020 compared to $220.1 million
in the year ended September 30, 2019.
The increase in operating revenues was primarily driven by the growth in
operating revenues from securities transactions. The ADV of securities traded
increased 20% and the RPM traded increased 23%, each of which were driven by
heightened volatility in the global equity and fixed income markets due to
economic concerns related to the COVID-19 pandemic.
Operating revenues derived from listed derivatives increased 14% as listed
derivative contract volumes increased 24% in the year ended September 30, 2020
compared to the year ended September 30, 2019, however the average rate per
contract declined 6%. The increase in derivative contract volume was primarily
driven by increased market volatility as a result of the COVD-19 pandemic.
The increase in operating revenues derived from FX contracts resulted from a 26%
increase in the RPM, driven by volatility in foreign exchange markets during the
year ended September 30, 2020 related to the effect of COVID-19 which was
partially offset by a 3% decrease in the ADV traded compared to the year ended
September 30, 2019. The prior year period also includes a $2.7 million
settlement received related to the Barclays PLC 'last look' class action matter.
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Finally, interest and fee income earned on client balances, which is associated
with our listed derivative business, as well as our correspondent clearing and
independent wealth management businesses, declined 50% as compared to the prior
year as a result of a significant decline in short term interest rates related
to FOMC actions to reduce the federal funds rate beginning in August 2019.
Partially offsetting the decline in short term interest rates was an increase in
average client equity and average FDIC sweep client balances of 55% and 43%,
respectively.
Variable expenses, excluding interest, expressed as a percentage of operating
revenues increased to 49% in the year ended September 30, 2020 compared to 44%
in the year ended September 30, 2019, primarily as the result of the decline in
interest income and higher variable compensation as a result of improved
performance.
During the year ended September 30, 2020, we recorded bad debts of $5.7 million,
primarily related to client deficits in our listed derivatives businesses. Also,
in the year ended September 30, 2020 we recorded an impairment charge of $4.1
million related to capitalized development on a back-office software system not
yet placed into service,that will be replaced with an alternative system we
acquired as part of our acquisition of Gain.
Segment income increased $64.3 million, or 73% to $152.9 million in the year
ended September 30, 2020 compared to $88.6 million in the year ended September
30, 2019, primarily as a result of the increase in operating revenues noted
above, and partially offset by the increase in bad debts and impairment.
Non-variable direct expenses, excluding bad debts, increased $19.2 million, or
29% versus the year ended September 30, 2019, primarily related to fixed
compensation and trade system costs associated with the continued build out of
several recent acquisitions and initiatives, including equity prime brokerage.

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Retail
We provide our retail clients around the world access to over 18,000 global
financial markets, including spot foreign exchange ("forex"), both financial
trading and physical investment in precious metals, as well as contracts for
difference ("CFDs"), which are investment products with returns linked to the
performance of underlying assets. In addition, our independent wealth management
business offers a comprehensive product suite to retail investors in the United
States.
The tables below present the financial performance, a disaggregation of
operating revenues, and select operating data and metrics used by management in
evaluating the performance of the Retail segment, for the periods indicated.
                                                                              Year Ended September 30,
(in millions)                                       2021              % Change             2020            % Change            2019
Sales of physical commodities                  $   1,541.3              405%            $ 305.3              330%            $ 71.0
Principal gains, net                                 212.7              403%               42.3               n/m              (0.5)
Commission and clearing fees                          58.9               18%               49.8               2%               48.7
Consulting, management, and account fees              45.5               32%               34.6               21%              28.5
Interest income                                        1.5              114%                0.7               75%               0.4
Total revenues                                     1,859.9              330%              432.7              192%             148.1
Cost of physical commodities sold                  1,511.9              417%              292.7              319%              69.9
Operating revenues                                   348.0              149%              140.0               79%              78.2
Transaction-based clearing expenses                   25.7              302%                6.4              205%               2.1
Introducing broker commissions                        98.2               42%               69.0               14%              60.3
Interest expense                                       1.7              113%                0.8              700%               0.1
Net operating revenues                               222.4              249%               63.8              306%              15.7
Variable compensation and benefits                    18.0              260%                5.0              355%               1.1
Net contribution                                     204.4              248%               58.8              303%              14.6
Fixed compensation and benefits                       51.6              406%               10.2              149%               4.1
Other fixed expenses                                  83.9              415%               16.3              298%               4.1
Bad debts, net of recoveries                           1.1               83%                0.6               n/m                 -
Total non-variable direct expenses                   136.6              404%               27.1              230%               8.2
Segment income                                 $      67.8              114%            $  31.7              395%            $  6.4

The tables below reflect a disaggregation of operating revenues and select operating data and metrics used by management in evaluating performance of our Retail segment for the periods indicated.

Year Ended September 30,


                                                  2021              % Change             2020            % Change            2019
Operating Revenues (in millions):
Securities                                   $      97.6               19%            $  82.2               9%             $ 75.7
FX / CFD contracts                                 225.9              427%               42.9               n/m                 -
Physical contracts                                  20.4               59%               12.8             2,460%              0.5
Interest / fees earned on client balances            1.2              (29)%               1.7              (15)%              2.0
Other                                                2.9              625%                0.4               n/m                 -
                                             $     348.0              149%            $ 140.0               79%            $ 78.2

Select data (all $ amounts are U.S. dollar equivalents): FX / CFD contracts ADV (millions) (1) $ 8,989

               8%             $ 8,357               n/m            $    -
FX / CFD contracts RPM (2)                   $        98              (18)%           $   120               n/m            $    -

(1) The ADV for the year ended September 30, 2020 is reflective of the ADV post-acquisition of Gain, and is calculated based on 43 trading days with the activities of Gain, acquired effective August 1, 2020.




For information about the assets of this segment, see Note 23 to the
Consolidated Financial Statements.
Year Ended September 30, 2021 Compared to Year Ended September 30, 2020
Operating revenues increased $208.0 million, or 149%, to $348.0 million in the
year ended September 30, 2021 compared to $140.0 million in the year ended
September 30, 2020. Net operating revenues increased $158.6 million, or 249%, to
$222.4 million in the year ended September 30, 2021 compared to $63.8 million in
the year ended September 30, 2020.
Operating revenues derived from FX / CFD contracts increased $183.0 million, or
427% to $225.9 million, and represent the incremental revenues from the
acquisition of Gain, effective August 1, 2020. For Gain, the year ended
September 30, 2021 includes 259 trading days compared to 43 trading days post
acquisition, during the year ended September 30, 2020.
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Operating revenues derived from securities transactions relates to our
independent wealth management activities which increased $15.4 million, or 19%,
to $97.6 million in the year ended September 30, 2021 compared to $82.2 million
in the year ended September 30, 2020.
Operating revenues derived from physical contracts increased $7.6 million, or
59%, to $20.4 million in the year ended September 30, 2021 compared to $12.8
million in the year ended September 30, 2020, principally driven by continued
strong customer demand for precious metals.
Interest and fee income earned on client balances declined $0.5 million, or 29%,
to $1.2 million primarily as a result of the decline in short term interest
rates.
Variable expenses, excluding interest, as a percentage of operating revenues
were 41% in the year ended September 30, 2021 compared to 57% in the year ended
September 30, 2020, with the decrease in the variable rate percentage being
driven by the Gain acquisition effective August 1, 2020, which brought a large
lower variable rate cost base.
Segment income increased $36.1 million, or 114% to $67.8 million in the year
ended September 30, 2021 compared to $31.7 million in the year ended September
30, 2020, primarily as a result of the increase in net operating revenues noted
above. The increase in non-variable direct expenses, was primarily a result of
incremental costs from the Gain acquisition.
Year Ended September 30, 2020 Compared to Year Ended September 30, 2019
Operating revenues increased $61.8 million, or 79%, to $140.0 million in the
year ended September 30, 2020 compared to $78.2 million in the year ended
September 30, 2019. Net operating revenues were $63.8 million in the year ended
September 30, 2020 compared to $15.7 million in the year ended September 30,
2019.
Operating revenues derived from FX / CFD contracts represent the incremental
revenues from the Gain acquisition.
Operating revenues from securities transactions and other primarily relate to
our independent wealth management activities which increased 9% to $82.2 million
in the year ended September 30, 2020 as compared to $75.7 million in the year
ended September 30, 2019.
The increase in operating revenues derived from physical contracts was a result
of the acquisition of Coininvest GmbH and European Precious Metal Trading GmbH,
which was completed in April 2019, which benefited from increased customer
demand for precious metals transactions through our online platform.
Interest and fee income earned on client balances declined 15% to $1.7 million
primarily as a result of the decline in short term interest rates.
Variable expenses, excluding interest, as a percentage of operating revenues
were 57% in the year ended September 30, 2020 compared to 81% in the year ended
September 30, 2019, with the decrease in the variable rate percentage being
driven by the Gain acquisition in August 2020 which brought a large lower
variable rate cost base.
Segment income increased 395% to $31.7 million in the year ended September 30,
2020 compared to $6.4 million in the year ended September 30, 2019, primarily as
a result of the increase in net operating revenues noted above. The increase in
non-variable direct expenses, as stated above, was primarily a result of
incremental costs from the Gain acquisition.
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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 185 countries and 140 currencies, which we believe is more than any
other payments solutions provider.
The tables below present the financial performance, a disaggregation of
operating revenues, and select operating data and metrics used by management in
evaluating the performance of the Global Payments segment for the periods
indicated.
                                                                               Year Ended September 30,
(in millions)                                        2021                % Change            2020            % Change            2019
Revenues:
Sales of physical commodities                  $       -                     -             $    -                -             $    -
Principal gains, net                               128.8                    16%             110.8               3%              107.1
Commission and clearing fees                         5.2                    27%               4.1               8%                3.8
Consulting, management, account fees                 3.3                    32%               2.5               39%               1.8
Interest income                                        -                    -%                  -             (100)%              0.1
Total revenues                                     137.3                    17%             117.4               4%              112.8
Cost of sales of physical commodities                  -                     -                  -                -                  -
Operating revenues                                 137.3                    17%             117.4               4%              112.8
Transaction-based clearing expenses                  6.5                    27%               5.1               4%                4.9
Introducing broker commissions                       0.8                    14%               0.7              (13)%              0.8
Interest expense                                     0.1                    -%                0.1               -%                0.1
Net operating revenues                             129.9                    17%             111.5               4%              107.0
Variable compensation and benefits                  26.2                    20%              21.9               7%               20.4
Net contribution                                   103.7                    16%              89.6               3%               86.6
Fixed compensation and benefits                     14.7                    25%              11.8               20%               9.8
Other fixed expenses                                10.3                    12%               9.2              (14)%             10.7
Bad debts                                            0.2                    n/m                 -               -%                  -
Total non-variable direct expenses                  25.2                    20%              21.0               2%               20.5
Segment income                                 $    78.5                    14%            $ 68.6               4%             $ 66.1


                                                                             Year Ended September 30,
                                                 2021              % Change             2020             % Change             2019
Operating Revenues (in millions):
Payments                                     $    133.8               17%            $  114.6               3%             $ 110.8
Other                                               3.5               25%                 2.8               40%                2.0
                                             $    137.3               17%            $  117.4               4%             $ 112.8

Select data (all $ amounts are U.S. dollar equivalents): Global Payments ADV (millions)

$       54               20%            $     45               -%             $    45
Global Payments RPM (1)                      $    9,921              (2)%            $ 10,092               3%             $ 9,805

(1) Rate per million is based on principal gains, net and commission and clearing fees revenues and the ADV shown above.




For information about the assets of this segment, see Note 23 to the
Consolidated Financial Statements.
Year Ended September 30, 2021 Compared to Year Ended September 30, 2020
Operating revenues increased $19.9 million, or 17%, to $137.3 million in the
year ended September 30, 2021 compared to $117.4 million in the year ended
September 30, 2020. Net operating revenues increased $18.4 million, or 17% to
$129.9 million in the year ended September 30, 2021 compared to $111.5 million
in the year ended September 30, 2020.
The increase in operating revenues was primarily driven by a 20% increase in the
average daily notional payment volume which was partially offset by a 2% decline
in the rate per million dollars traded.
Variable expenses, excluding interest, expressed as a percentage of operating
revenues were 24% in both the year ended September 30, 2021 and the year ended
September 30, 2020.
Segment income increased $9.9 million, or 14%, to $78.5 million in the year
ended September 30, 2021 compared to $68.6 million in the year ended September
30, 2020. This increase primarily resulted from the increase in net operating
revenues, partially offset by a $4.2 million increase in non-variable direct
expenses versus the prior year period, which includes a $2.9 million increase in
fixed compensation and benefits.
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Year Ended September 30, 2020 Compared to Year Ended September 30, 2019
Operating revenues increased 4% to $117.4 million in the year ended September
30, 2020 compared to $112.8 million in the year ended September 30, 2019. Net
operating revenues increased 4% to $111.5 million in the year ended September
30, 2020 compared to $107.0 million in the year ended September 30, 2019.
The increase in operating revenues were primarily driven by a 3% increase in the
rate per million dollars traded, while the average daily notional payment volume
was relatively unchanged year-over-year, as larger debt capital market
transactions from our international banking clients decreased in the year ended
September 30, 2020 compared to the year ended September 30, 2019 due to the
global economic slowdown impact of the COVID-19 pandemic.
Variable expenses, excluding interest, expressed as a percentage of operating
revenues were 24% in the year ended September 30, 2020 compared to 23% in the
year ended September 30, 2019, primarily as a result of an increase in variable
compensation.
Segment income increased 4% to $68.6 million in the year ended September 30,
2020 compared to $66.1 million in the year ended September 30, 2019. This
increase primarily resulted from the increase in net operating revenues,
partially offset by a $0.5 million increase in non-variable direct expenses
versus the prior year period.
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)                                      2021              % Change             2020            % Change             2019
Compensation and benefits:
Variable compensation and benefits            $    37.6                (7)%            $  40.5               46%            $  27.7
Fixed compensation and benefits                   119.1                 37%               86.8               19%               72.8
                                                  156.7                 23%              127.3               27%              100.5
Other expenses:
Occupancy and equipment rental                     33.1                 41%               23.4               21%               19.3
Non-trading technology and support                 31.8                 43%               22.2               47%               15.1
Professional fees                                  23.0                 5%                22.0               65%               13.3
Depreciation and amortization                      19.0                 15%               16.5               53%               10.8
Communications                                      6.5                 5%                 6.2               -%                 6.2
Selling and marketing                               1.7                (59)%               4.1              273%                1.1
Trading systems and market information              4.2                 62%                2.6              (4)%                2.7
Travel and business development                     1.3                (43)%               2.3              (39)%               3.8

Other                                              23.4                 22%               19.2               16%               16.6
                                                  144.0                 22%              118.5               33%               88.9
Total compensation and other expenses         $   300.7                 22%            $ 245.8               30%            $ 189.4


Year Ended September 30, 2021 Compared to Year Ended September 30, 2020
Total unallocated costs and other expenses increased $54.9 million, or 22%, to
$300.7 million in the year ended September 30, 2021 compared to $245.8 million
in the year ended September 30, 2020. Compensation and benefits increased $29.4
million, or 23%, to $156.7 million in the year ended September 30, 2021 compared
to $127.3 million in the year ended September 30, 2020.
During the year ended September 30, 2021, the increase in fixed compensation and
benefits was primarily related to the increase in headcount, principally due to
the acquisition of Gain, across nearly all administrative departments, including
IT, compliance, accounting, human resources, as well as credit and risk. Fixed
compensation and benefits during the year ended September 30, 2021 include
severance costs of $3.5 million, principally due to the departure of certain
senior officers. During the year ended September 30, 2020, severance costs were
$0.5 million.
During the year ended September 30, 2021, the increase in other expenses is
primarily due higher occupancy costs, principally related to an increase in
leased office space. 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.
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Year Ended September 30, 2020 Compared to Year Ended September 30, 2019
Total unallocated costs and other expenses increased $56.4 million, or 30%, to
$245.8 million in the year ended September 30, 2020 compared to $189.4 million
in the year ended September 30, 2019. Compensation and benefits increased $26.8
million, or 27%, to $127.3 million in the year ended September 30, 2020 compared
to $100.5 million in the year ended September 30, 2019.
During the year ended September 30, 2020, the increase in fixed compensation and
benefits was primarily related to a 35% increase in headcount across several
administrative departments, including IT, compliance and accounting, of which
61% of the increase in headcount was acquisition related, adding $5.4 million.
The increase in variable compensation and benefits was primarily due to improved
overall company performance, along with an incremental $3.4 million related to
recent acquisitions.
Other non-compensation expenses related to acquisitions and new business
initiatives begun after fiscal 2018 added $11.0 million. During the year ended
September 30, 2020, 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.
Liquidity, Financial Condition and Capital Resources
Overview
Liquidity is our ability to generate funds sufficient to meet all of our cash
needs. Liquidity is of critical importance to us and imperative to maintaining
our daily operations. Senior management establishes liquidity and capital
policies, which we monitor on a daily basis and review for funding availability,
from both internal and external sources, and policy efficacy in supporting our
business operations. We have historically financed our liquidity and capital
needs principally with funds generated from our subsidiaries' operations,
issuing debt and equity securities, and access to committed credit facilities.
We plan to finance our future operating liquidity and regulatory capital needs
in a manner consistent with our past practice. Liquidity and capital matters are
reported regularly to our board of directors.
StoneX Financial Inc. is registered as a broker-dealer with the SEC and is a
member of both FINRA and MSRB. In addition, StoneX Financial Inc. is registered
as a futures commission merchant with the CFTC and NFA, and a member of various
commodities and futures exchanges in the U.S. and abroad. StoneX Financial Inc.
has a responsibility to meet margin calls at all exchanges on a daily basis, and
on an intra-day basis, if deemed necessary by relevant regulators or exchanges.
We require our clients to make margin deposits the next business day, and we
require our largest clients to make intra-day margin payments during periods of
significant price movement. Margin required to be posted to the exchanges is a
function of our clients' net open positions and required margin per contract.
StoneX Financial Inc. 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. StoneX Financial Inc. is also subject to the Rule 15c3-3
of the Securities Exchange Act of 1934, as amended ("Customer Protection Rule").
Gain Capital Group, LLC is registered as both a futures commission merchant and
registered foreign exchange dealer, 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 NFA Financial Requirements, Sections 1 and 11.
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
StoneX Financial Inc. and Gain Capital Group, LLC must maintain in relatively
liquid form, and are designed to maintain general financial integrity and
liquidity.
StoneX Financial Ltd is regulated by the FCA, the regulator of the financial
services industry in the U.K. and is subject to regulations which impose
regulatory capital requirements. StoneX Financial Ltd is a member of various
commodities and futures exchanges in the U.K. and Europe and has the
responsibility to meet margin calls at all exchanges on a daily basis and
intra-day basis, as necessary. StoneX Financial Ltd is required to be compliant
with the U.K.'s Individual Liquidity Adequacy Standards ("ILAS"). To comply with
these standards, we have implemented daily liquidity procedures, conduct
periodic reviews of liquidity by stressed scenarios, and have created liquidity
buffers. During the year ended September 30, 2021, StoneX Financial Ltd
finalized the transfer of substantially all business formerly within Gain's U.K.
operating entity, Gain Capital U.K., Ltd.
The regulations discussed above limit funds available for dividends to StoneX.
As a result, we may be unable to access funds which are generated by our
operating subsidiaries when we need them.
In addition, in our physical commodities trading, commercial hedging OTC,
securities and foreign exchange trading activities, we may be called upon to
meet margin calls with our various trading counterparties based upon the
underlying open transactions we have in place with those counterparties.
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We continuously review our overall credit and capital needs to ensure that our
capital base, both stockholders' equity and debt, as well as available credit
facilities can appropriately support the anticipated financing needs of our
operating subsidiaries.
As of September 30, 2021, we had total equity of $904.0 million, outstanding
loans under revolving credit facilities of $248.6 million, outstanding senior
secured term loan of $170.1 million and $336.9 million outstanding on our senior
secured notes, net of deferred financing costs.
A substantial portion of our assets are liquid. As of September 30, 2021,
approximately 97% of our assets consisted of cash; securities purchased under
agreements to resell; securities borrowed; deposits with and receivables from
exchange-clearing organizations, broker-dealers, clearing organizations and
counterparties; client receivables; marketable financial instruments and
investments; and physical commodities inventory. All assets that are not client
and counterparty deposits are financed by our equity capital, bank loans,
short-term borrowings from financial instruments sold, not yet purchased and
under repurchase agreements, securities loaned and other payables.
As of September 30, 2021, we had deferred tax assets totaling $35.1 million. We
are required to assess our deferred tax assets and the need for a valuation
allowance at each reporting period. In assessing the realizability of deferred
tax assets, we consider whether we are more likely than not to realize some or
all of the deferred tax assets. We are required to record a valuation allowance
against deferred tax assets when it is considered more likely than not that all
or a portion of our deferred tax assets will not be realized. The valuation
allowance for deferred tax assets as of September 30, 2021 and 2020 was
$15.0 million and $12.4 million, respectively. The valuation allowances as of
September 30, 2021 and 2020 were primarily related to U.S. state and local, and
foreign net operating loss carryforwards and foreign tax credits acquired
through the merger with Gain that, in the judgment of management, are not more
likely than not to be realized.
Client and Counterparty Credit and Liquidity Risk
Our operations expose us to credit risk of default of our clients and
counterparties. The risk includes liquidity risk to the extent our clients or
counterparties are unable to make timely payment of margin or other credit
support. We are indirectly exposed to the financing and liquidity risks of our
clients and counterparties, including the risks that our clients and
counterparties may not be able to finance their operations.
As a clearing broker, we act on behalf of our clients for all trades consummated
on exchanges. We must pay initial and variation margin to the exchanges, on a
net basis, before we receive the required payments from our clients.
Accordingly, we are responsible for our clients' obligations with respect to
these transactions, which exposes us to significant credit risk. Our clients are
required to make any required margin deposits the next business day, and we
require our largest clients to make intra-day margin payments during periods of
significant price movement. Our clients are required to maintain initial margin
requirements at the level set by the respective exchanges, but we have the
ability to increase margin requirements for clients based on their open
positions, trading activity, or market conditions.
As it relates to OTC derivative transactions, we act as a principal, which
exposes us to the credit risk of both our clients and the counterparties with
which we offset our client positions. 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.
OTC clients are required to post sufficient collateral to meet margin
requirements based on value-at-risk models as well as variation margin
requirements based on the price movement of the commodity or security in which
they transact. Our clients are required to make any margin deposits the next
business day, and we may require our largest clients to make intra-day margin
payments during periods of significant price movement. In this business as well,
we have the ability to increase the margin requirements for clients based on
their open positions, trading activity, or market conditions. On a limited
basis, we provide credit thresholds to certain clients, based on internal
evaluations and monitoring of client creditworthiness.
In addition, with OTC transactions, we are at risk that a counterparty will fail
to meet its obligations to us when due. We would then be exposed to the risk
that the settlement of a transaction which is due a client will not be collected
from the respective counterparty with which the transaction was offset. We
continuously monitor the credit quality of our respective counterparties and
mark our positions held with each counterparty to market on a daily basis.
We enter into securities purchased under agreements to resell, securities sold
under agreements to repurchase, securities borrowed and securities loaned
transactions to, among other things, finance financial instruments, acquire
securities to cover short positions, acquire securities for settlement, and to
accommodate counterparties' needs. In connection with these agreements and
transactions, it is our policy to receive or pledge cash or securities to
adequately collateralize such agreements and transactions in accordance with
general industry guidelines and practices. The collateral is valued daily and we
may require counterparties to deposit additional collateral or return collateral
pledged, when appropriate.
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Commodities Inventory
In the ordinary course of business, we hold commodities inventory in third-party
licensed grain facilities. As of September 30, 2021, we held title in the form
of warehouse receipts to approximately 2.6 million bushels of soybeans, valued
at $31.2 million, in multiple facilities owned by one third-party operator. The
amount of soybeans held at these third-party grain facilities increased to
2.8 million bushels on October 6, 2021 pursuant to the satisfaction of a
$2.5 million repurchase commitment. Our ownership interest in the soybeans held
at these third-party grain facilities is represented by warehouse receipts
issued by these facilities under the U.S. Warehouse Act, which is a program
administered by the U.S. Department of Agriculture. On September 29, 2021, the
above-mentioned third-party operator filed a petition for Chapter 11 bankruptcy,
and a Chief Restructuring Officer was assigned by the court to assist in
administering the allocation of the grain on hand and proceeds from the sale of
processed soybean products. As a result of these bankruptcy proceedings, in the
event we do not receive soybeans or proceeds from soybeans commensurate with the
2.8 million bushels of soybean inventory held at October 6, 2021, we believe
that it is probable that we have adequate insurance coverage to cover potential
shortfalls. Therefore, we have not recognized any estimated losses associated
with this matter in our September 30, 2021 consolidated financial statements.
OptionSellers
In November 2018, balances in approximately 300 accounts of the FCM division of
our wholly owned subsidiary, StoneX Financial Inc., 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 StoneX
Financial Inc.'s client agreements and obligations under market regulation
standards. 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 StoneX Financial Inc. acted solely as the clearing firm in its
role as the FCM.
StoneX Financial Inc.'s client agreements hold account holders liable for all
losses in their accounts and obligate the account holders to reimburse StoneX
Financial Inc. for any deficits in their accounts. As of September 30, 2021, the
aggregate receivable from these client accounts, net of collections and other
allowable deductions, was $28.9 million, with no individual account receivable
exceeding $1.4 million. StoneX Financial Inc. 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.
During our October 1, 2020 implementation of CECL, the new credit reserving
model which is based on expected losses over the life of an asset and which
applies to client deficits, we completed an assessment of the collectability of
these accounts in light of this new guidance. As a result of the implementation,
we recognized a cumulative-effect adjustment to record an allowance against
these uncollected balances of $8.2 million. We continue to assess collectability
of these accounts quarterly, including the consideration of numerous arbitration
proceedings we have initiated against these clients to recover deficit balances
in their accounts. As we move through the collection and arbitration processes
and additional information becomes available, we will continue to consider that
information in our determination of any changes in the 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.
StoneX Financial Inc. has 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
these 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 proceed 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.
Primary Sources and Uses of Cash
Our cash and cash equivalents and customer cash and securities held for
customers are held at banks, deposits at liquidity providers, investments in
money market funds that invest in highly liquid investment grade securities
including U.S. treasury bills, as well as investments in U.S treasury bills. In
general, we believe all of our investments and deposits are of high credit
quality and we have more than adequate liquidity to conduct our businesses.
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Our assets and liabilities may vary significantly from period to period due to
changing client requirements, economic and market conditions and our growth. Our
total assets as of September 30, 2021 and 2020, were $18.8 billion and $13.5
billion, respectively. Our operating activities generate or utilize cash as a
result of net income or loss earned or incurred during each period and
fluctuations in our assets and liabilities. The most significant fluctuations
arise from changes in the level of client activity, commodities prices and
changes in the balances of financial instruments and commodities inventory.
StoneX Financial Inc. and StoneX Financial Ltd occasionally utilize their margin
line credit facilities, on a short-term basis, to meet intraday settlements with
the commodity exchanges prior to collecting margin funds from their clients.
The majority of the assets of StoneX Financial Inc., StoneX Financial Ltd,
StoneX Markets LLC, and Gain Capital Group, LLC are restricted from being
transferred to its parent or other affiliates due to specific regulatory
requirements. This restriction has no impact on our ability to meet our cash
obligations, and no impact is expected in the future.
We have liquidity and funding policies and processes in place that are intended
to maintain significant flexibility to address both company-specific and
industry liquidity needs. The majority of our excess funds are held with
high-quality institutions, under highly liquid reverse repurchase agreements,
U.S. government obligations, interest earning cash deposits and AA-rated money
market investments.
We do not intend to distribute earnings of our foreign subsidiaries in a taxable
manner, and therefore intend to limit distributions to earnings previously taxed
in the U.S., or earnings that would qualify for the 100 percent dividends
received deduction, and earnings that would not result in any significant
foreign taxes. We repatriated $300.6 million and $30.0 million for the years
ended September 30, 2021 and 2020, respectively, of earnings previously taxed in
the U.S. resulting in no significant incremental taxes. Therefore, the Company
has not recognized a deferred tax liability on its investment in foreign
subsidiaries.
Senior Secured Notes
In June 2020, we issued $350.0 million in aggregate principal amount of our
8.625% Senior Secured Notes due 2025 (the "Notes") at the offering price of
98.5% of the aggregate principal amount. We used the net proceeds from the sale
of the Notes to fund the preliminary cash consideration for the acquisition of
Gain on the closing date, to pay certain related transactions fees and expenses,
and to fund the repayment of Gain's 5.00% Convertible Senior Notes due 2022,
with the exception of $0.5 million which remains outstanding, as certain holders
of the Gain Notes neither exercised such holder's fundamental change repurchase
right or make-whole fundamental change conversion right.
The Notes will mature on June 15, 2025. Interest on the Notes accrues at a rate
of 8.625% per annum and is payable semiannually in arrears on June 15 and
December 15 of each year, commencing on December 15, 2020. We incurred debt
issuance costs of $9.5 million in connection with the issuance of the Notes,
which are being amortized over the term of the Notes under the effective
interest method.
Pursuant to the terms of the Notes indenture, during the year ended
September 30, 2021, we had the option to redeem up to $100.0 million in
aggregate principal amount of the Notes at a redemption price equal to 103% of
the principal amount of the Notes redeemed, plus accrued and unpaid interest, if
any, to the date of redemption. In June 2021, we elected not to redeem the
Notes.
The Note holders had the right to require us to repurchase up to $100.0 million
in aggregate principal amount of the Notes (or a lesser amount equal to the
difference between $100.0 million and the amounts previously redeemed by us) at
a purchase price equal to 103% of the principal amount of the Notes repurchased,
plus accrued and unpaid interest, if any, to the date of repurchase. During the
year ended September 30, 2021, we repurchased $1.6 million of the principal
amount of the Notes, for 103% of the principal amount, plus accrued and unpaid
interest.
We have the option to redeem all or a portion of the Notes at any time prior to
June 15, 2022 at a price equal to 100% of the principal amount of the Notes
redeemed plus accrued and unpaid interest to the redemption date plus a
"make-whole" premium. At any time on or after June 15, 2022, we may redeem the
Notes, in whole or in part, at the redemption prices set forth in the indenture.
At any time before June 15, 2022, we may also redeem up to 40% of the aggregate
principal amount of the Notes at a redemption price of 108.625% of the principal
amount, plus accrued and unpaid interest, if any, to the date of redemption,
with the proceeds of certain equity offerings.
Committed Credit Facilities
As of September 30, 2021, we had four committed bank credit facilities, totaling
$806.4 million, of which $385.1 million was outstanding. Additional information
regarding our bank credit facilities can be found in Note 11 of the Consolidated
Financial Statements. The credit facilities include:
•A three-year first-lien senior secured syndicated loan facility under which
$406.4 million is available to us for general working capital requirements and
capital expenditures. During the year ended September 30, 2021, the facility was
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amended to increase the revolving credit facility from $196.5 million to
$236.1 million and to extend the maturity date to August 22, 2022. The facility
also includes a Term Loan component with an original value of $196.5 million.
We are required to make quarterly principal payments against the Term Loan equal
to 1.25% of the original balance with the remaining balance due on the maturity
date. During the year ended September 30, 2021, we made scheduled quarterly
principal payments against the Term Loan equal to $9.8 million. Amounts repaid
on the Term Loan may not be reborrowed.
•An unsecured committed line of credit until April 1, 2022, under which
$75.0 million is available to our wholly owned subsidiary, StoneX Financial Inc.
to provide short term funding of margin to commodity exchanges as necessary.
•A syndicated committed borrowing facility until January 29, 2022, under which
$300.0 million is available to our wholly owned subsidiary, StoneX Commodity
Solutions LLC ("StoneX Commodity Solutions") to finance commodity financing
arrangements and commodity repurchase agreements.
•An unsecured syndicated loan facility committed until October 14, 2022, under
which our subsidiary, StoneX Financial Ltd is entitled to borrow up to $25.0
million, subject to certain terms and conditions of the credit agreement. This
facility is intended to provide short-term funding of margin to commodity
exchanges as necessary. The facility in place at September 30, 2020 matured on
October 14, 2020 and was replaced by an unsecured syndicated committed borrowing
facility with substantially similar terms. During October 2021 the new facility
was renewed to extend the maturity date to October 14, 2022. On November 18,
2021, the facility was amended to increase the committed borrowing amount
available to $50.0 million.
Additional information regarding the committed bank credit facilities can be
found in Note 11 of the Consolidated Financial Statements. As reflected above,
three of our committed credit facilities are scheduled to expire during the year
ended September 30, 2022. We intend to renew or replace these facilities as they
expire, and based on our liquidity position and capital structure, we believe we
will be able to do so.
As of September 30, 2021, we had four uncommitted bank credit facilities with an
outstanding balance of $25.0 million. The credit facilities include:
•A secured uncommitted loan facility under which StoneX Financial Inc. may
borrow up to $75.0 million, collateralized by commodity warehouse receipts, to
facilitate U.S. commodity exchange deliveries of its clients, subject to certain
terms and conditions of the credit agreement. There were no borrowings
outstanding under this credit facility at September 30, 2021 and 2020.
•A secured uncommitted loan facility under which StoneX Financial Inc. may
borrow up to $100.0 million for short term funding of firm and client margin
requirements, subject to certain terms and conditions of the agreement. The
borrowings are secured by first liens on firm owned marketable securities or
client owned securities which have been pledged to us under a clearing
arrangement. There were no borrowings outstanding under this credit facility at
September 30, 2021 and 2020.
•A secured uncommitted loan facility under which StoneX Financial Inc. may
borrow for short term funding of proprietary and client securities margin
requirements, subject to certain terms and conditions of the agreement. The
uncommitted amount available to be borrowed is not specified, and all requests
for borrowing are subject to the sole discretion of the lender. The borrowings
are secured by first liens on firm owned marketable securities or client owned
securities which have been pledged to us. The amounts borrowed under the
facilities are payable on demand. There were no borrowings outstanding under
this credit facility as of September 30, 2021 and 2020.
•During the year ended September 30, 2021, we executed a secured, uncommitted
loan facility, under which StoneX Financial Ltd may borrow up to $25.0 million,
collateralized by commodities warehouse receipts, to facilitate the financing of
inventory of commodities, subject to certain terms and conditions of the credit
agreement. There were $25.0 million in borrowings outstanding under this credit
facility as of September 30, 2021.
Our facility agreements contain certain financial covenants relating to
financial measures on a consolidated basis, as well as on a stand-alone
subsidiary basis, in certain cases, including minimum tangible net worth,
minimum regulatory capital, minimum net unencumbered liquid assets, maximum net
loss, minimum fixed charge coverage ratio and maximum funded debt to net worth
ratio. Failure to comply with any such covenants could result in the debt
becoming payable on demand. As of September 30, 2021, we and our subsidiaries
are in compliance with all of our financial covenants under the outstanding
facilities.
In accordance with required disclosure as part of our three-year syndicated
revolving loan facility, during the trailing twelve months ended September 30,
2021, interest expense directly attributable to trading activities includes $9.6
million in connection with trading activities conducted as an institutional
dealer in fixed income securities, and $17.6 million in connection with
securities lending activities.
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Other Capital Considerations
Our activities are subject to various significant governmental regulations and
capital adequacy requirements, both in the U.S. and in the international
jurisdictions in which we operate. Our subsidiaries are in compliance with all
of their capital regulatory requirements as of September 30, 2021. Additional
information on our subsidiaries subject to significant net capital and minimum
net capital requirements can be found in Note 22 of the Consolidated Financial
Statements.
The Dodd-Frank Act created a comprehensive new regulatory regime governing the
OTC swaps and imposed 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.
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.
Swap dealers are subject to a comprehensive regulatory regime with new
obligations for the swaps activities for which they are registered, including
adherence to risk management policies, supervisory procedures, trade record and
real time reporting requirements, as well as rules for minimum capital
requirements which became effective October 6, 2021.
Our subsidiary, StoneX Markets LLC, is a CFTC provisionally registered swap
dealer, and under these capital rules is subject to a minimum regulatory capital
requirement of $100 million. During 2016, CFTC 23.154, Calculation of Initial
Margin rules came into effect, imposing new requirements on registered swap
dealers and certain counterparties to exchange initial margin, with phased-in
compliance dates, with StoneX Markets LLC falling in the final compliance date
tier of September 2022.
Compliance with this or other swap-related regulatory capital requirements may
require us to devote more capital to these businesses or otherwise restructure
our operations, such as by combining these businesses with other regulated
subsidiaries that must also satisfy regulatory capital requirements. StoneX
Markets LLC has faced, and may continue to face, increased costs due to the
registration and regulatory requirements listed above, as may any other of our
subsidiaries that may be required to register, or may register voluntarily, as a
swap dealer and/or swap execution facility.
Our subsidiary, GAIN GTX, LLC, a CFTC and NFA provisionally registered swap
dealer, withdrew its license on October 5, 2021. This subsidiary's withdrawal is
not expected to have any material impact to our business.
Cash Flows
Following the adoption of Accounting Standards Update ("ASU") 2016-18 on October
1, 2018, we now include client cash and securities that meet the short term
requirement for cash classification to be segregated for regulatory purposes in
our consolidated cash flow statements. We hold a significant amount of U.S.
Treasury obligations which represent investment of client funds or client-owned
investments pledged in lieu of cash margin. U.S. Treasury securities held with
third-party banks or pledged with exchange-clearing organizations representing
investments of client funds or which are held for particular clients in lieu of
cash margin are included in the beginning and ending cash balances reconciled on
our consolidated statements of cash flows to the extent that they have an
original or acquired maturity of 90 days or less and, therefore, meet the
definition of a segregated cash equivalent. Purchases and sales of U.S. Treasury
securities representing investment of clients' funds and U.S. Treasury
securities pledged or redeemed by particular clients in lieu of cash margin are
presented as operating uses and sources of cash, respectively, within the
operating section of the consolidated statements of cash flows if they have an
original or acquired maturity of greater than 90 days. Typically, there is an
offsetting use or source of cash related to the change in the payables to
clients. However, we will report a use of cash in periods where segregated U.S.
Treasury securities that meet the aforementioned definition of a segregated cash
equivalent mature and are replaced with U.S. Treasury securities that have
original or acquired maturities that are greater than 90 days.
Our cash, segregated cash, cash equivalents, and segregated cash equivalents
increased from $4,468.4 million as of September 30, 2020 to $6,509.5 million as
of September 30, 2021, a net increase of $2,041.1 million. Net cash of $2,122.7
million was provided by operating activities, including movements typical of our
operations, with large changes coming from Payables to clients and Financial
instruments owned and sold.
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In the broker-dealer and related trading industries, companies report trading
activities in the operating section of the statement of cash flows. Due to the
daily price volatility in the commodities market, as well as changes in margin
requirements, fluctuations in the balances of deposits held at various
exchanges, marketable securities and client commodity accounts may occur from
day-to-day. A use of cash, as calculated on the consolidated statement of cash
flows, includes unrestricted cash transferred and pledged to the exchanges or
guaranty funds. These funds are held in interest-bearing deposit accounts at the
exchanges, and based on daily exchange requirements, may be withdrawn and
returned to unrestricted cash. Additionally, within our unregulated OTC and
foreign exchange operations, cash deposits received from clients are reflected
as cash provided from operations. Subsequent transfer of these cash deposits to
counterparties or exchanges to margin their open positions will be reflected as
an operating use of cash to the extent the transfer occurs in a different period
than the cash deposit was received.
Unrealized gains and losses on open positions revalued at prevailing foreign
currency exchange rates are included in trading revenue but have no direct
impact on cash flow from operations. Similarly, gains and losses become realized
when client transactions are liquidated, though they do not affect cash flow. To
some extent, the amount of net deposits made by our clients in any given period
is influenced by the impact of gains and losses on our client balances, such
that clients may be required to post additional funds to maintain open positions
or may choose to withdraw excess funds on open positions.
We continuously evaluate opportunities to expand our business. Investing
activities include $62.1 million in capital expenditures for property and
equipment during the year ended September 30, 2021 compared to $16.6 million
during the year ended September 30, 2020 and $11.9 million during the year ended
September 30, 2019. Capital expenditures over the past three years have
primarily included core information technology hardware acquisitions and
leasehold improvements on office space. Following the acquisition of Gain we
expect higher capital expenditures for future years primarily related to
developing and creating additional features to various trading platforms.
In conjunction with the integration of Gain, we re-evaluated all trading systems
utilized across the organization in order to identify duplicative systems. In
connection with this process, we determined that certain legacy capitalized
developed software costs within our OTC foreign exchange and precious metals
businesses and would no longer be placed into service and utilized as expected
prior to the merger with Gain. As a result, we recorded impairment charges of
$5.7 million, which were reflected in Bad debts, net of recoveries and
impairments on the Consolidated Income Statement for the year ended September
30, 2020.
Investing activities also include $2.4 million in cash payments for the
acquisition of businesses during the year ended September 30, 2021 compared to
$225.0 million during the year ended September 30, 2020. Further information
about business acquisitions is contained in Note 21 to the Consolidated
Financial Statements. These amounts were offset by smaller inflows related to
sales of equipment and exchange membership stock of $3.1 million and
$1.6 million, respectively.
During the years ended September 30, 2021, 2020 and 2019, we repurchased
185,366, 200,000 and 100,000 shares of our outstanding common stock in open
market transactions, for an aggregate purchase price of $11.7 million,
$7.5 million and $3.8 million, respectively.
On August 25, 2021, our Board of Directors authorized the repurchase of up to
1.0 million shares of our outstanding common stock from time to time in open
market purchases and private transactions, commencing on October 1, 2021 and
ending on September 30, 2022. 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.
Apart from what has been disclosed above, there are no known trends, events or
uncertainties that have had or are likely to have a material impact on our
liquidity, financial condition and capital resources.
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Contractual Obligations
The following table summarizes our cash payment obligations as of September 30,
2021:
                                                                                       Payments Due by Period
                                                              Less than 1                                                      After 5
(in millions)                                Total               year              1 - 3 Years           3 - 5 Years            Years
Operating lease obligations               $   186.0          $     17.2

$ 32.4 $ 29.9 $ 106.5 Purchase obligations(1)

                     5,123.0             5,123.0                     -                     -                 -
Payable to lenders under loans                248.6               240.5                   1.1                   7.0                 -
Senior secured borrowings                     518.6                 9.8                 160.4                 348.4                 -
Contingent acquisition consideration            3.9                 3.9                     -                     -                 -
Other                                          78.7                15.2                  29.8                  20.8              12.9
                                          $ 6,158.8          $  5,409.6          $      223.7          $      406.1          $  119.4


(1) Represents an estimate of contractual purchase commitments in the ordinary
course of business primarily for the purchase of precious metals and
agricultural and energy commodities. Unpriced contract commitments have been
estimated using September 30, 2021 fair values. The purchase commitments for
less than one year will be partially offset by corresponding sales commitments
of $4,998.2 million.
Total contractual obligations exclude defined benefit pension obligations. We
comply with the minimum funding requirements, and accordingly contributed $0.1
million to our defined benefit pension plans during the year ended September 30,
2021. During the year ending September 30, 2022, we anticipate making future
benefit payments of $2.1 million related to the defined benefit plans.
Additional information on the funded status of these plans can be found in Note
17 of the Consolidated Financial Statements.
Based upon our current operations, we believe that cash flow from operations,
available cash and available borrowings under our credit facilities will be
adequate to meet our future liquidity needs.
Off Balance Sheet Arrangements
We are party to certain financial instruments with off-balance sheet risk in the
normal course of business as a registered securities broker-dealer, futures
commission merchant, U.K. based financial services firm, provisionally
registered swap dealer and from our market-making and proprietary trading in the
foreign exchange and commodities and debt securities markets. These financial
instruments include futures, forward and foreign exchange contracts,
exchange-traded and OTC options, To Be Announced ("TBA") securities and interest
rate swaps. Derivative financial instruments involve varying degrees of
off-balance sheet market risk whereby changes in the fair values of underlying
financial instruments may result in changes in the fair value of the financial
instruments in excess of the amounts reflected in the Consolidated Balance
Sheets. Exposure to market risk is influenced by a number of factors, including
the relationships between the financial instruments and our positions, as well
as the volatility and liquidity in the markets in which the financial
instruments are traded. The principal risk components of financial instruments
include, among other things, interest rate volatility, the duration of the
underlying instruments and changes in commodity pricing and foreign exchange
rates. We attempt to manage our exposure to market risk through various
techniques. Aggregate market limits have been established and market risk
measures are routinely monitored against these limits. Derivative contracts are
traded along with cash transactions because of the integrated nature of the
markets for such products. We manage the risks associated with derivatives on an
aggregate basis along with the risks associated with our proprietary trading and
market-making activities in cash instruments as part of our firm-wide risk
management policies.
A significant portion of these instruments are primarily the execution of orders
for commodity futures and options on futures contracts on behalf of our clients,
substantially all of which are transacted on a margin basis. Such transactions
may expose us to significant credit risk in the event margin requirements are
not sufficient to fully cover losses which clients may incur. We control the
risks associated with these transactions by requiring clients to maintain margin
deposits in compliance with both clearing organization requirements and internal
guidelines. We monitor required margin levels daily and, therefore, may require
clients to deposit additional collateral or reduce positions when necessary. We
also establish contract limits for clients, which are monitored daily. We
evaluate each client's creditworthiness on a case-by-case basis. Clearing,
financing, and settlement activities may require us to maintain funds with or
pledge securities as collateral with other financial institutions. Generally,
these exposures to exchanges are subject to netting of open positions and
collateral, while exposures to clients are subject to netting, per the terms of
the client agreements, which reduce the exposure to us by permitting receivables
and payables with such clients to be offset in the event of a client default.
Management believes that the margin deposits held as of September 30, 2019 are
adequate to minimize the risk of material loss that could be created by
positions held at that time. Additionally, we monitor collateral fair value on a
daily basis and adjust collateral levels in the event of excess market exposure.
Generally, these exposures to both counterparties and clients are subject to
master netting agreements and the terms of the client agreements, which reduce
our exposure.
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As a broker-dealer in U.S. Treasury obligations, U.S. government agency
obligations, agency mortgage-backed obligations, and asset-backed obligations,
we are engaged in various securities trading, borrowing and lending activities
serving solely institutional counterparties. Our exposure to credit risk
associated with the nonperformance of counterparties in fulfilling their
contractual obligations pursuant to these securities transactions and market
risk associated with the sale of securities not yet purchased can be directly
impacted by volatile trading markets which may impair their ability to satisfy
outstanding obligations to us. In the event of non-performance and unfavorable
market price movements, we may be required to purchase or sell financial
instruments, which may result in a loss to us.
We transact OTC and foreign exchange contracts with our clients, and our OTC and
foreign exchange trade desks will generally offset the client's transaction
simultaneously with one of our trading counterparties or will offset that
transaction with a similar, but not identical, position on the exchange. These
unmatched transactions are intended to be short-term in nature and are conducted
to facilitate the most effective transaction for our client.
Additionally, we hold options and futures on options contracts resulting from
market-making and proprietary trading activities in these product lines. We
assist clients in our commodities trading business to protect the value of their
future production (precious or base metals) by selling them put options on an
OTC basis. We also provide our physical commodities trading business clients
with sophisticated option products, including combinations of buying and selling
puts and calls. We mitigate our risk by effecting offsetting options with market
counterparties or through the purchase or sale of exchange-traded commodities
futures. The risk mitigation of offsetting options is not within the documented
hedging designation requirements of the Derivatives and Hedging Topic of the
ASC.
As part of the activities discussed above, we carry short positions. We sell
financial instruments that we do not own, borrow the financial instruments to
make good delivery, and therefore are obliged to purchase such financial
instruments at a future date in order to return the borrowed financial
instruments. We record these obligations in the consolidated financial
statements as of September 30, 2021 and 2020, at fair value of the related
financial instruments, totaling $1,771.2 million and $686.0 million,
respectively. These positions are held to offset the risks related to financial
assets owned, and reported in our Consolidated Balance Sheets in Financial
instruments owned, at fair value, and Physical commodities inventory, net. We
will incur losses if the fair value of the Financial instruments sold, not yet
purchased, increases subsequent to September 30, 2021, which might be partially
or wholly offset by gains in the value of assets held as of September 30, 2021.
The totals of $1,771.2 million and $686.0 million include a net liability of
$368.5 million and $176.8 million for derivatives, based on their fair value as
of September 30, 2021 and 2020, respectively.
We do not anticipate non-performance by counterparties in the above situations.
We have a policy of reviewing the credit standing of each counterparty with
which we conduct business. We have credit guidelines that limit our current and
potential credit exposure to any one counterparty. We administer limits, monitor
credit exposure, and periodically review the financial soundness of
counterparties. We manage the credit exposure relating to our trading activities
in various ways, including entering into collateral arrangements and limiting
the duration of exposure. Risk is mitigated in certain cases by closing out
transactions and entering into risk reducing transactions.
We are a member of various exchanges that trade and clear futures and option
contracts. We are also a member of and provide guarantys to securities
clearinghouses and exchanges in connection with client trading activities.
Associated with our memberships, we may be required to pay a proportionate share
of the financial obligations of another member who may default on its
obligations to the exchanges. While the rules governing different exchange
memberships vary, in general our guaranty obligations would arise only if the
exchange had previously exhausted its resources. In addition, any such guaranty
obligation would be apportioned among the other non-defaulting members of the
exchange. Our liability under these arrangements is not quantifiable and could
exceed the cash and securities we have posted as collateral at the exchanges.
However, management believes that the potential for us to be required to make
payments under these arrangements is remote. Accordingly, no contingent
liability for these arrangements has been recorded in the Consolidated Balance
Sheets as of September 30, 2021 and 2020.
Effects of Inflation
Increases in our expenses, such as compensation and benefits, transaction-based
clearing expenses, occupancy and equipment rental, may result from inflation,
while we may not be readily recoverable from increasing the prices of our
services. Rising interest rates are generally favorable for us, to the extent
that inflation has other adverse effects on the financial markets and on the
value of the financial instruments held in inventory, it may adversely affect
our financial position and results of operations.
Critical Accounting Policies
Preparing consolidated financial statements in conformity with U.S. GAAP
requires that management make estimates and assumptions affecting reported
amounts of assets and liabilities, disclosure of contingent liabilities at the
date of the financial statements, as well as the recorded amounts of revenue and
expenses during the reported period. The accounting policies
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discussed in this section are those that we consider the most critical to the
financial statements. Therefore, understanding these policies is important to
understanding our reported and potential future results of operations and
financial position.
Valuation of Financial Instruments and Foreign Currencies
Description
Substantially all financial instruments are reflected in the consolidated
financial statements at fair value, or amounts that approximate fair value due
to their short-term nature or level of collateralization. These financial
instruments include: cash and cash equivalents; cash, securities and other
assets segregated under federal and other regulations; securities purchased
under agreements to resell; securities borrowed; deposits with and receivables
from broker-dealers, clearing organizations, and counterparties; financial
instruments owned; securities sold under agreements to repurchase; securities
loaned; and financial instruments sold, but not yet purchased. Unrealized gains
and losses related to these financial instruments, when we are principal to the
transaction, are reflected in earnings.
Foreign currency translation is an estimate critical to consolidating in our
reporting currency. The value of foreign currencies, including foreign
currencies sold, not yet purchased, are converted into their U.S. dollar
equivalents at the foreign exchange rates in effect at the close of business at
the end of the accounting period. For foreign currency transactions completed
during each reporting period, the foreign exchange rate in effect at the time of
the transaction is used.
Judgment and Uncertainties
At each period end, we, using professional judgment and industry expertise,
select fair values for financial instruments. Where available, we price from
independent sources such as listed market prices, third-party pricing services,
or broker or dealer price quotations. In limited cases, we use fair values
derived from pricing models that consider current market and contractual prices
for the underlying financial instruments or commodities, as well as time value
and yield curve or volatility factors underlying the positions. In some cases,
even though the value of a security is derived from an independent market price,
or broker or dealer quote, certain assumptions may be required to determine the
fair value.
Effect if Actual Results Differ From Assumptions
Our valuation assumptions may be incorrect, and the actual value realized upon
closing any position could be different from estimated carrying value, because
of changes in prices, assumptions, or the overall business environment. We do
not believe that there is a reasonable likelihood that such a possibility will
be significant. This view is supported by a few key factors:
•Valuations for substantially all of the financial instruments, most of which
are in highly liquid markets, are available from independent, well-known
publishers of market information.
•We have robust controls and procedures surrounding pricing and our various
technologies involved in it.
•The relevant positions are generally short-term in nature.
•The Company holds positions in a wide range of products, such that an error in
a limited number of prices is unlikely to cause a significant change to the
overall result and pricing issues in a wide array of products is very unlikely.

Revenue Recognition
Description
A significant portion of our revenues are derived principally, from realized and
unrealized trading income in securities, derivative instruments, commodities and
foreign currencies purchased or sold for our account. We record realized and
unrealized trading income on a trade date basis. We state financial instruments
owned and financial instruments sold, not yet purchased and foreign currencies
sold, not yet purchased, at fair value with related changes in unrealized
appreciation or depreciation reflected in Principal gains, net in the
Consolidated Income Statements. We record fee and interest income on the accrual
basis and dividend income is recognized on the ex-dividend date.

A substantial amount of our revenues derive from Commission and clearing fees.
These revenue types involve less complexity than Principal gains, net would, as,
generally, we are an agent in the underlying transactions. We recognize revenues
on a trade date basis for the transactions, as, typically, our obligation is met
at that point and there are no future obligations to consider.
Revenue on commodities that are purchased for physical delivery to clients and
that are not readily convertible into cash is recognized at the point in time
when the commodity has been shipped, title and risk of loss has been transferred
to the client, and the following conditions have been met: persuasive evidence
of an arrangement exists, the price is fixed and determinable, and
collectability of the resulting receivable is reasonably assured.
Judgment and Uncertainties
Judgments, outside of the valuation considerations previously discussed, relate
to the timing and appropriateness of revenue recognition and whether we have
fulfilled our performance obligations.
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Effect if Actual Results Differ From Assumptions
If we misapply the relevant guidance or incorrectly recognize revenue that we
have not earned, earnings may be misstated. We do not believe that such a
possibility is reasonably likely, because we have developed systems and controls
for each of our businesses to capture all known transactions in the appropriate
reporting period. In addition, the overwhelming majority of our revenue is
recognized upon trade consummation, as our obligation is met, and we do not need
to estimate when that may have occurred.
Income Taxes
Description
We are subject to income taxes in the U.S. and numerous foreign jurisdictions.
Judgement and Uncertainties
Judgment is required in determining the consolidated income taxes and in
evaluating tax positions, including evaluating income tax uncertainties. As a
result, the company recognizes tax liabilities based on estimates of whether
additional taxes and interest will be due. These tax liabilities are recognized
when, despite our belief that our tax return positions are supportable, we
believe that certain positions may not be fully sustained upon review by the
relevant tax authorities.
Income taxes are accounted for under the asset and liability method, recognizing
the estimated future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled, with any change in tax
rates recognized in income in the period that includes the enactment date.
Management considers all relevant evidence for each jurisdiction to determine
valuation allowances. If we change our determination as to the amount of
deferred tax assets we expect to realize, we adjust our valuation allowance with
a corresponding impact to income tax expense in the period in which such
determination is made.
Effect if Actual Results Differ From Assumptions
We believe that our accruals for tax liabilities are adequate for all open audit
years. This assessment relies on estimates and assumptions and may involve a
series of judgments about future events. To the extent circumstances arise
requiring us to change our judgment regarding the adequacy of existing tax
accounts, we do not believe such a change is likely to be material to our
financial statements. The tax accounts in total are relatively immaterial to the
balance sheet, which, when combined with their likelihood of being misstated,
particularly our valuation allowances given our positive earnings trend in
recent years, results in a generally insignificant risk to us.
Accounting Standards Update
In December 2019, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update ("ASU")
2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.
This ASU removes certain exceptions for
recognizing deferred taxes for investments, performing intra-period allocation
and calculating income taxes in interim periods.
The ASU also adds guidance to reduce complexity in certain areas, including
recognizing deferred taxes for tax goodwill and
allocating taxes to members of a consolidated group. We intend to adopt this
guidance during the three months ended December 31, 2021. We are currently
evaluating the impact that this new guidance will have on our consolidated
financial statements.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
See also Note 4 to the Consolidated Financial Statements, 'Financial Instruments
with Off-Balance Sheet Risk and Concentrations of Credit Risk'.
Market Risk
We conduct our market-making and trading activities predominantly as a
principal, which subjects our capital to significant risks. These risks include,
but are not limited to, absolute and relative price movements, price volatility
and changes in liquidity, over which we have virtually no control. Our exposure
to market risk varies in accordance with the volume of client-driven
market-making transactions, the size of the proprietary positions and the
volatility of the financial instruments traded.
We seek to mitigate exposure to market risk by utilizing a variety of
qualitative and quantitative techniques:
•Diversification of business activities and instruments;
•Limitations on positions;
•Allocation of capital and limits based on estimated weighted risks; and
•Daily monitoring of positions and mark-to-market profitability.
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We utilize derivative products in a trading capacity as a dealer to satisfy
client needs and mitigate risk. We manage risks from both derivatives and
non-derivative cash instruments on a consolidated basis. The risks of
derivatives should not be viewed in isolation, but in aggregate with our other
trading activities.
We are exposed to market risk in connection with our retail trading activities.
Because we act as counterparty to our retail customers' transactions, we are
exposed to risk on each trade that the value of our position will decline.
Accordingly, accurate and efficient management of our net exposure is a high
priority, and we have developed policies addressing both our automated and
manual procedures to manage our exposure. These risk-management policies and
procedures are established and reviewed regularly by the Risk Committee of our
Board of Directors. Our risk-management policies require quantitative analyses
by instrument, as well as assessment of a range of market inputs, including
trade size, dealing rate, customer margin and market liquidity. Our
risk-management procedures require our team of senior traders to monitor risk
exposure on a continuous basis and update senior management both informally over
the course of the trading day and formally through intraday and end of day
reporting. A key component of our approach to managing market risk is that we do
not initiate market positions for our own account in anticipation of future
movements in the relative prices of products we offer.
Management believes that the volatility of revenues is a key indicator of the
effectiveness of its risk management techniques. The graph below summarizes
volatility of our daily revenue, determined on a marked-to-market basis, during
the year ended September 30, 2021.
[[Image Removed: intl-20210930_g2.jpg]]
In our Securities market-making and trading activities, we maintain inventories
of equity and debt securities. In our Commercial segment, our positions include
physical commodities inventories, precious metals on lease, forwards, futures
and options on futures, and OTC derivatives. Our commodity trading activities
are managed as one consolidated book for each commodity encompassing both cash
positions and derivative instruments. We monitor the aggregate position for each
commodity in equivalent physical ounces, metric tons, or other relevant unit.
Interest Rate Risk
In the ordinary course of our operations, we have interest rate risk from the
possibility that changes in interest rates will affect the values of financial
instruments and impact interest income earned. Within our domestic institutional
dealer in fixed income securities business, we maintain a significant amount of
trading assets and liabilities which are sensitive to changes in interest rates.
These trading activities primarily consist of securities trading in connection
with U.S. Treasury, U.S. government agency, agency mortgage-backed and agency
asset-backed obligations as well as investment grade, high-yield, convertible
and emerging markets debt securities. Derivative instruments, which consist of
futures, TBA securities and forward settling transactions, are used to manage
risk exposures in the trading inventory. We enter into TBA securities
transactions for the sole purpose of managing risk associated with
mortgage-backed securities.
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In addition, we generate interest income from the positive spread earned on
client deposits. We typically invest in U.S. Treasury bills, notes, and
obligations issued by government sponsored entities, reverse repurchase
agreements involving U.S. Treasury bills and government obligations or AA-rated
money market funds. In some instances, we maintain interest earning cash
deposits with banks, clearing organizations and counterparties. We have an
investment policy which establishes acceptable standards of credit quality and
limits the amount of funds that can be invested within a particular fund,
institution, clearing organization or counterparty. We estimate that as of
September 30, 2021, an immediate 25 basis point decrease in short-term interest
rates would result in approximately $9.3 million less in annual pretax income.
We manage interest expense using a combination of variable and fixed rate debt.
The debt instruments are carried at their unpaid principal balance which
approximates fair value. As of September 30, 2021, $418.9 million of outstanding
principal debt was variable-rate debt. We are subject to earnings and liquidity
risks for changes in the interest rate on this debt. As of September 30, 2021,
$348.4 million of outstanding principal debt was fixed-rate long-term debt.
Foreign Currency Risk
Currency risk arises from the possibility that fluctuations in foreign exchange
rates will impact the value of our earnings and assets. Entities that have
assets and liabilities denominated in currencies other than the primary economic
environment in which the entity operates are subject to remeasurement. Virtually
all sales and related operating costs are denominated in the currency of the
local country and translated into USD for consolidated reporting purposes.
Although the majority of the assets and liabilities of these subsidiaries are
denominated in the functional currency of the subsidiary, they may also hold
assets or liabilities denominated in other currencies. As a result, our results
of operations and financial position are exposed to changing currency rates. We
may consider entering into hedging transactions to mitigate our exposure to
foreign currency exchange rates. These hedging transactions may not be
successful.
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