UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________

FORM 10-Q

____________________

(Mark One)



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, ~~2017~~2018



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From to

Commission File Number 000-23554

____________________

INTL FCStone Inc.

(Exact name of registrant as specified in its charter)

____________________



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

708 Third Avenue, Suite 1500

New York, NY 10017

(Address of principal executive offices) (Zip Code)

(212) 485-3500

(Registrant’s telephone number, including area code)

____________________

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

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

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



Large accelerated filer	o		Accelerated filer	x

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

			Emerging growth company	o

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

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

As of August ~~7, 2017~~2, 2018, there were ~~18,719,538~~18,906,669 shares of the registrant’s common stock outstanding.

~~Table of Contents~~

INTL FCStone Inc.

Quarterly Report on Form 10-Q for the Quarterly Period Ended June 30, ~~2017~~2018

Table Ofof Contents



		Page
Part I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheets	1

	Condensed Consolidated Income Statements	2

	Condensed Consolidated Statements of Comprehensive Income	3

	Condensed Consolidated Statements of Cash Flows ~~Statements~~	4

	Condensed Consolidated Statement of Stockholders’ Equity	5

	Notes to Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2528

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	5054

Item 4.	Controls and Procedures	5256

Part II. OTHER INFORMATION

Item 1.	Legal Proceedings	5256

Item 1A.	Risk Factors	5257

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5357

Item 6.	Exhibits	5357

Signatures		5358

~~Table of Contents~~

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

INTL FCStone Inc.

Condensed Consolidated Balance Sheets

(Unaudited)


(in millions, except par value and share amounts)	June 30, 2017			September 30, 2016			June 30, 2018			September 30, 2017
ASSETS
Cash and cash equivalents	$	306.1		$	316.2		$	347.8		$	314.9
Cash, securities and other assets segregated under federal and other regulations (including $241.8 and $618.8 at fair value at June 30, 2017 and September 30, 2016, respectively)	678.7			1,136.3
Cash, securities and other assets segregated under federal and other regulations (including $675.4 and $54.5 at fair value at June 30, 2018 and September 30, 2017, respectively)							1,212.6			518.8
Collateralized transactions:
Securities purchased under agreements to resell	521.7			609.6			769.6			406.6
Securities borrowed	119.6			—			176.3			86.6
Deposits with and receivables from:
Exchange-clearing organizations (including $232.5 and $868.5 at fair value at June 30, 2017 and September 30, 2016, respectively)	1,988.6			1,524.4
Broker-dealers, clearing organizations and counterparties (including $22.5 and $(15.2) at fair value at June 30, 2017 and September 30, 2016, respectively)	177.7			237.0
Deposits with and receivables from broker-dealers, clearing organizations and counterparties (including $716.4 and $204.7 at fair value at June 30, 2018 and September 30, 2017, respectively)							2,165.2			2,625.1
Receivables from customers, net	251.5			194.5			218.5			232.7
Notes receivable, net	9.1			18.9
Notes receivable							11.0			10.6
Income taxes receivable	1.4			1.1			0.2			0.4
Financial instruments owned, at fair value (includes securities pledged as collateral that can be sold or repledged of $171.4 and $47.2 at June 30, 2017 and September 30, 2016, respectively)	1,779.1			1,606.1
Physical commodities inventory (including $84.4 and $71.2 at fair value at June 30, 2017 and September 30, 2016, respectively)	172.5			123.8
Financial instruments owned, at fair value (includes securities pledged as collateral that can be sold or repledged of $17.3 and $19.4 at June 30, 2018 and September 30, 2017, respectively)							2,003.4			1,731.8
Physical commodities inventory, net (including $111.1 and $73.2 at fair value at June 30, 2018 and September 30, 2017, respectively)							212.8			124.8
Deferred income taxes, net	40.4			34.5			22.7			42.6
Property and equipment, net	33.1			29.4			41.0			38.7
Goodwill and intangible assets, net	60.5			56.6			56.4			59.4
Other assets	55.9			61.9			47.4			50.4
Total assets	$	6,195.9		$	5,950.3		$	7,284.9		$	6,243.4
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and other accrued liabilities (including $0.9 and $0.8 at fair value at June 30, 2017 and September 30, 2016, respectively)	$	142.5		$	161.3
Accounts payable and other accrued liabilities (including $1.0 at fair value at September 30, 2017)							$	128.1		$	135.6
Payables to:
Customers	2,799.5			2,854.2			3,354.7			3,072.9
Broker-dealers, clearing organizations and counterparties (including $3.4 and $3.5 at fair value at June 30, 2017 and September 30, 2016, respectively)	182.3			260.1
Broker-dealers, clearing organizations and counterparties (including $7.1 and $4.8 at fair value at June 30, 2018 and September 30, 2017, respectively)							130.8			125.7
Lenders under loans	244.7			182.8			360.6			230.2
Senior unsecured notes	—			44.5
Income taxes payable	8.6			7.1			12.5			7.3
Collateralized transactions:
Securities sold under agreements to repurchase	1,458.3			1,167.1			1,599.0			1,393.1
Securities loaned	148.0			—			204.3			111.1
Financial instruments sold, not yet purchased, at fair value	742.9			839.4			1,007.2			717.6
Total liabilities	5,726.8			5,516.5			6,797.2			5,793.5
Commitments and contingencies (Note 11)
Stockholders' Equity:
Preferred stock, $0.01 par value. Authorized 1,000,000 shares; no shares issued or outstanding	—			—			—			—
Common stock, $0.01 par value. Authorized 30,000,000 shares; 20,825,712 issued and 18,703,755 outstanding at June 30, 2017 and 20,557,175 issued and 18,435,218 outstanding at September 30, 2016	0.2			0.2
Common stock in treasury, at cost - 2,121,957 shares at June 30, 2017 and September 30, 2016	(46.3		)	(46.3		)
Common stock, $0.01 par value. Authorized 30,000,000 shares; 21,012,531 issued and 18,890,574 outstanding at June 30, 2018 and 20,855,243 issued and 18,733,286 outstanding at September 30, 2017							0.2			0.2
Common stock in treasury, at cost - 2,121,957 shares at June 30, 2018 and September 30, 2017							(46.3		)	(46.3		)
Additional paid-in capital	256.8			249.4			265.7			259.0
Retained earnings	285.1			255.1			301.3			261.5
Accumulated other comprehensive loss, net	(26.7		)	(24.6		)	(33.2		)	(24.5		)
Total stockholders' equity	469.1			433.8			487.7			449.9
Total liabilities and stockholders' equity	$	6,195.9		$	5,950.3		$	7,284.9		$	6,243.4

See accompanying notes to condensed consolidated financial statements.

INTL FCStone Inc.

Condensed Consolidated Income Statements

(Unaudited)


	Three Months Ended June 30,				Nine Months Ended June 30,				Three Months Ended June 30,				Nine Months Ended June 30,
(in millions, except share and per share amounts)	2017		2016		2017		2016		2018		2017		2018		2017
Revenues:
Sales of physical commodities	$	5,317.0	$	4,703.2	$	16,486.3	$	11,503.8	$	6,866.2	$	5,317.0	$	20,836.4	$	16,486.3
Trading gains, net	79.9		83.4		246.9		243.8		103.4		79.9		296.9		246.9
Commission and clearing fees	73.0		58.2		212.5		159.4		96.6		73.0		271.6		212.5
Consulting and management fees	16.3		8.0		47.5		27.3
Consulting, management, and account fees									18.3		16.3		53.2		47.5
Interest income	19.6		15.6		47.7		42.8		33.7		19.6		85.6		47.7
Other income	0.1		0.1		0.2		0.2		0.1		0.1		0.2		0.2
Total revenues	5,505.9		4,868.5		17,041.1		11,977.3		7,118.3		5,505.9		21,543.9		17,041.1
Cost of sales of physical commodities	5,308.3		4,693.5		16,462.2		11,484.9		6,858.5		5,308.3		20,811.3		16,462.2
Operating revenues	197.6		175.0		578.9		492.4		259.8		197.6		732.6		578.9
Transaction-based clearing expenses	33.9		35.2		101.2		97.9		49.0		33.9		136.6		101.2
Introducing broker commissions	29.2		14.8		86.1		40.8		34.1		29.2		101.4		86.1
Interest expense	11.2		7.7		30.1		20.8		22.1		11.2		55.4		30.1
Net operating revenues	123.3		117.3		361.5		332.9		154.6		123.3		439.2		361.5
Compensation and other expenses:
Compensation and benefits	75.5		69.4		222.7		197.7		86.9		75.5		252.3		222.7
Communication and data services	9.8		7.9		29.6		23.1
Trading systems and market information									8.6		8.3		25.7		25.7
Occupancy and equipment rental	3.9		3.2		11.1		9.7		4.2		3.9		12.5		11.1
Professional fees	3.7		3.3		11.9		8.9		4.8		3.7		13.4		11.9
Travel and business development	3.0		2.9		9.6		8.4		3.7		3.0		10.2		9.6
Non-trading technology and support									3.8		3.2		10.3		8.9
Depreciation and amortization	2.4		2.1		7.2		6.2		2.8		2.4		8.4		7.2
Communications									1.3		1.5		4.1		3.9
Bad debts	0.1		—		3.9		4.6		1.6		0.1		2.9		3.9
Other	9.9		7.1		27.8		20.8		6.0		6.7		20.4		18.9
Total compensation and other expenses	108.3		95.9		323.8		279.4		123.7		108.3		360.2		323.8
Other gain									2.0		—		2.0		—
Income before tax	15.0		21.4		37.7		53.5		32.9		15.0		81.0		37.7
Income tax expense	2.3		6.8		7.7		15.6		8.9		2.3		41.2		7.7
Net income	$	12.7	$	14.6	$	30.0	$	37.9	$	24.0	$	12.7	$	39.8	$	30.0
Earnings per share:
Basic	$	0.67	$	0.79	$	1.59	$	2.03	$	1.27	$	0.67	$	2.10	$	1.59
Diluted	$	0.66	$	0.78	$	1.58	$	2.00	$	1.25	$	0.66	$	2.06	$	1.58
Weighted-average number of common shares outstanding:
Basic	18,447,053		18,138,754		18,365,939		18,461,063		18,597,165		18,447,053		18,524,846		18,365,939
Diluted	18,702,128		18,322,451		18,659,138		18,655,672		18,976,898		18,702,128		18,876,259		18,659,138

See accompanying notes to condensed consolidated financial statements.

INTL FCStone Inc.

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)


	Three Months Ended June 30,						Nine Months Ended June 30,						Three Months Ended June 30,						Nine Months Ended June 30,
(in millions)	2017			2016			2017			2016			2018			2017			2018			2017
Net income	$	12.7		$	14.6		$	30.0		$	37.9		$	24.0		$	12.7		$	39.8		$	30.0
Other comprehensive loss, net of tax:
Foreign currency translation adjustment	(1.9		)	(0.1		)	(2.1		)	(7.0		)	(4.9		)	(1.9		)	(8.7		)	(2.1		)
Pension liabilities adjustment	—			—			—			(0.2		)
Reclassification of adjustments included in net income:
Periodic pension costs (included in compensation and benefits)	—			—			—			0.4
Reclassification adjustment included in net income:	—			—			—			0.4
Other comprehensive loss	(1.9		)	(0.1		)	(2.1		)	(6.8		)	(4.9		)	(1.9		)	(8.7		)	(2.1		)
Comprehensive income	$	10.8		$	14.5		$	27.9		$	31.1		$	19.1		$	10.8		$	31.1		$	27.9

See accompanying notes to condensed consolidated financial statements.

INTL FCStone Inc.

Condensed Consolidated Statements of Cash Flows ~~Statements~~

(Unaudited)


	Nine Months Ended June 30,						Nine Months Ended June 30,
(in millions)	2017			2016			2018			2017
Cash flows from operating activities:
Net income	$	30.0		$	37.9		$	39.8		$	30.0
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	7.2			5.8			8.4			7.2
Bad debts	3.9			4.6			2.9			3.9
Deferred income taxes	(5.8		)	0.9			19.7			(5.8		)
Amortization of debt issuance costs and debt discount	1.7			0.7
Amortization of debt issuance costs							0.8			1.7
Amortization of share-based compensation	4.6			3.8			4.9			4.6
(Gain) loss on sale of property and equipment	(0.3		)	0.4
Gain on sale of property and equipment							—			(0.3		)
Changes in operating assets and liabilities, net:
Cash, securities and other assets segregated under federal and other regulations	458.8			(218.0		)	(731.0		)	458.8
Securities purchased under agreements to resell	87.9			(301.3		)	(363.4		)	87.9
Securities borrowed	(112.7		)	—			(89.7		)	(112.7		)
Deposits with and receivables from exchange-clearing organizations	(462.3		)	51.5
Deposits with and receivables from broker-dealers, clearing organizations, and counterparties	30.2			96.1			409.7			(432.1		)
Receivables from customers, net	(87.2		)	101.8			22.5			(87.2		)
Notes receivable, net	9.8			28.5
Notes receivable							(0.4		)	9.8
Income taxes receivable	(0.4		)	1.4			(0.8		)	(0.4		)
Financial instruments owned, at fair value	(174.6		)	(562.4		)	(254.0		)	(174.6		)
Physical commodities inventory	(48.9		)	(73.8		)
Physical commodities inventory, net							(89.0		)	(48.9		)
Other assets	0.5			(7.1		)	1.5			0.5
Accounts payable and other accrued liabilities	(13.3		)	(2.3		)	1.5			(13.3		)
Payables to customers	(4.8		)	75.6			319.7			(4.8		)
Payables to broker-dealers, clearing organizations and counterparties	(65.4		)	(8.9		)	10.0			(65.4		)
Income taxes payable	1.7			—			6.4			1.7
Securities sold under agreements to repurchase	291.2			429.0			206.0			291.2
Securities loaned	130.5			—			93.2			130.5
Financial instruments sold, not yet purchased, at fair value	(97.2		)	304.0			294.2			(97.2		)
Net cash used in operating activities	(14.9		)	(31.8		)	(87.1		)	(14.9		)
Cash flows from investing activities:
Cash paid for acquisitions, net	(6.0		)	—			—			(6.0		)
Purchase of property and equipment	(8.6		)	(12.1		)	(9.3		)	(8.6		)
Net cash used in investing activities	(14.6		)	(12.1		)	(9.3		)	(14.6		)
Cash flows from financing activities:
Net change in payable to lenders under loans	62.5			170.6			131.0			62.5
Repayment of senior unsecured notes	(45.5		)	—			—			(45.5		)
Payments of note payable	(0.6		)	(0.6		)	(0.6		)	(0.6		)
Deferred payments on acquisitions	—			(2.7		)	(5.5		)	—
Debt issuance costs	(0.3		)	(1.9		)	(0.4		)	(0.3		)
Exercise of stock options	3.1			2.3			2.6			3.1
Share repurchases	—			(19.5		)
Income tax (shortfall) benefit on stock options and awards	(0.2		)	0.7
Withholding taxes on stock option exercises							(0.8		)
Income tax benefit on stock options and awards							—			(0.2		)
Net cash provided by financing activities	19.0			148.9			126.3			19.0
Effect of exchange rates on cash and cash equivalents	0.4			(8.5		)	3.0			0.4
Net (decrease) increase in cash and cash equivalents	(10.1		)	96.5
Net increase (decrease) in cash and cash equivalents							32.9			(10.1		)
Cash and cash equivalents at beginning of period	316.2			268.1			314.9			316.2
Cash and cash equivalents at end of period	$	306.1		$	364.6		$	347.8		$	306.1
Supplemental disclosure of cash flow information:
Cash paid for interest	$	27.2		$	18.9		$	54.2		$	27.2
Income taxes paid, net of cash refunds	$	12.4		$	12.4		$	15.8		$	12.4
Supplemental disclosure of non-cash investing and financing activities:
Identified intangible assets from asset acquisitions	$	6.0		$	—
Additional consideration payable related to acquisitions, net	$	—		$	0.3
Identified intangible assets from asset acquisition							$	—		$	6.0

See accompanying notes to condensed consolidated financial statements.

INTL FCStone Inc.

Condensed Consolidated Statement of Stockholders’ Equity

(Unaudited)


(in millions)	Common Stock		Treasury Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss, net			Total			Common Stock		Treasury Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss, net			Total
Balances as of September 30, 2016	$	0.2	$	(46.3	)	$	249.4	$	255.1	$	(24.6	)	$	433.8
Balances as of September 30, 2017																$	0.2	$	(46.3	)	$	259.0	$	261.5	$	(24.5	)	$	449.9
Net income								30.0					30.0										39.8					39.8
Other comprehensive loss										(2.1		)	(2.1		)										(8.7		)	(8.7		)
Exercise of stock options						2.8							2.8								1.8							1.8
Share-based compensation						4.6							4.6								4.9							4.9
Balances as of June 30, 2017	$	0.2	$	(46.3	)	$	256.8	$	285.1	$	(26.7	)	$	469.1
Balances as of June 30, 2018																$	0.2	$	(46.3	)	$	265.7	$	301.3	$	(33.2	)	$	487.7

See accompanying notes to condensed consolidated financial statements.

INTL FCStone Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1 – Basis of Presentation and Consolidation and Accounting Standards Adopted

INTL FCStone Inc., a Delaware corporation, and its consolidated subsidiaries (collectively “INTL” or “the Company”), is a diversified global financial services organization providing execution, risk management and advisory services, market intelligence, and clearing services across asset classes and markets around the world. The Company’s services include comprehensive risk management advisory services for commercial customers; execution of listed futures and options on futures contracts on all major commodity exchanges; structured over-the-counter (“OTC”) products in a wide range of commodities; physical trading and hedging of precious metals and select other commodities; trading of more than 140 foreign currencies; market-making in international equities; fixed income; debt origination and asset management.

The Company provides these services to a diverse group of more than 20,000 predominantly wholesale organizations located throughout the world, including producers, processors and end-users of nearly all widely-traded physical commodities to manage their risks and enhance margins; to commercial counterparties who are end-users of the Company’s products and services; to governmental and non-governmental organizations; and to commercial banks, brokers, institutional investors and major investment banks.

Basis of Presentation and Consolidation

The accompanying unaudited condensed consolidated balance sheet as of September 30, ~~2016~~2017, which has been derived from audited consolidated financial statements, and the unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and ~~note~~ disclosures normally included in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to those rules and regulations. The Company believes that the disclosures made are adequate to make the information presented not misleading. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the condensed consolidated financial statements for the interim periods presented have been reflected as required by Rule 10-01 of Regulation S-X.

Operating results for interim periods are not necessarily indicative of the results that may be expected for the full year. These interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes contained in the Company’s Form 10-K for the fiscal year ended September 30, ~~2016~~2017 filed with the SEC.

These condensed consolidated financial statements include the accounts of INTL FCStone Inc. and all other entities in which the Company has a controlling financial interest. All material intercompany transactions and balances have been eliminated in consolidation.

The Company’s fiscal year end is September 30, and the fiscal quarters end on December 31, March 31, June 30 and September 30. Unless otherwise stated, all dates refer to fiscal years and fiscal interim periods.

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent liabilities as of the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. The most significant of these estimates and assumptions relate to fair value measurement for financial instruments and investments, revenue recognition, the provision for ~~potential losses from~~ bad debts, valuation of inventories, valuation of goodwill and intangible assets, incomes taxes, and contingencies. Although these and other estimates and assumptions are based on the best available information, actual results could be materially different from these estimates.

In the condensed consolidated income statements, the total revenues reported combine gross revenues for the physical commodities business and net revenues for all other businesses. The subtotal ‘operating revenues’ in the condensed consolidated income statements is calculated by deducting physical commodities cost of sales from total revenues. The subtotal ‘net operating revenues’ in the condensed consolidated income statements is calculated as operating revenues 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 transactional volumes. Introducing broker commissions include commission paid to non-employee third parties that have introduced customers to the Company. 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.

~~During~~

Foreign Currency Translation

The Company’s condensed consolidated financial statements are reported in U.S. dollars. The Company’s foreign subsidiaries maintain their records either in U.S. dollars or in certain instances the ~~quarter ended March 31, 2017,~~currency of the ~~Company’s Securities reportable segment established~~country in which they operate. The method of translating local currency financial information into U.S. dollars depends on whether the economy in which the foreign subsidiary operates has been designated as highly inflationary or not. Economies with a ~~securities lending business. Securities borrowed~~three-year cumulative inflation rate of more than 100% are considered highly inflationary.

Assets and ~~loaned~~liabilities of foreign subsidiaries in non-highly inflationary economies are ~~accounted for as collateralized financings. Securities borrowed and loaned~~translated into U.S. dollars using rates of exchange at the balance sheet date. Translation adjustments are recorded in other comprehensive income (loss). Revenues and expense are translated at rates of exchange in effect during the year. Transaction gains and losses are recorded in earnings.

Foreign subsidiaries that operate in highly inflationary countries use the U.S. dollar as their functional currency. Local currency monetary assets and liabilities are remeasured into U.S. dollars using rates of exchange as of each balance sheet date, with remeasurement adjustments and other transaction gains and losses recognized in earnings. Nonmonetary assets and liabilities do not fluctuate with changes in the local currency exchange rates to the dollar as the translated amounts for nonmonetary assets and liabilities at the ~~amount~~end of ~~cash collateral advanced or received. Securities borrowed~~the accounting period in which the economy becomes highly inflationary becomes the accounting basis for those assets and ~~loaned~~liabilities in the period of change and subsequent periods. Revenues and expenses are ~~reported on a gross basis as~~translated at rates of exchange in effect during the year.

The Company operates asset management and debt trading businesses in Argentina through various wholly owned subsidiaries. Net operating revenues from the Argentinean subsidiaries represented approximately 4% of the consolidated net operating revenues for the nine months ended June 30, 2018. The operating environment in Argentina continues to present business challenges, including ongoing devaluation of the Argentine peso and significant inflation. For the nine months ended June 30, 2018, the Argentine peso declined approximately 67% (from 17.3 to 28.9 pesos to the U.S. dollar). Based upon inflationary data published by the International Practices Task Force (IPTF) of the Center for Audit Quality (CAQ), the economy of Argentina became highly inflationary during the three months ended June 30, 2018.

Beginning July 1, 2018, the Company has ~~determined~~designated Argentina’s economy as highly inflationary for accounting purposes. As a result, the Company will account for the Argentinean entities using the U.S. dollar as their functional currency beginning in the quarter ending September 30, 2018. Argentine peso-denominated monetary assets and liabilities will be remeasured at each balance sheet date to the currency exchange rate then in effect, with currency remeasurement gains and loses recognized in earnings. The translated balances for nonmonetary assets and liabilities as of June 30, 2018, will become the accounting basis for those assets in the period of change and subsequent periods.

At June 30, 2018, the Company had net monetary assets denominated in Argentine pesos of $11.2 million, including cash of $2.6 million. At June 30, 2018, the Company had net nonmonetary assets denominated in Argentine pesos of $1.1 million, including $0.1 million of goodwill.

Reclassifications

During the three and nine months ended June 30, 2018, the Company separately classified non-trading technology and support costs that were previously included within ‘Other’ on the ~~right~~condensed consolidated income statements. Additionally, during the three and nine months ended June 30, 2018, the Company separately classified communications related expenses separately from trading systems and market information related costs. In performing these reclassifications, the Company has made immaterial, retrospective adjustments to conform to the current period presentation. For the three and nine months ended June 30, 2017, ‘Other’ expenses included $3.2 million and $8.9 million, respectively, of ~~offset does not exist. Interest~~expenses that are now included within ‘Non-trading technology and support’ on the condensed consolidated income statements. For the three and ~~interest expense~~nine months ended June 30, 2017, ‘Trading systems and market information’ included $1.5 million and $3.9 million, respectively, of expenses that are ~~recognized over~~now included within ‘Communications’ on the ~~life of the arrangements.~~condensed consolidated income statements.

Accounting Standards Adopted

In ~~April 2015,~~March 2016, the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ~~(“ASU”)~~ No. ~~2015-03, Interest – Imputation~~2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”), which simplifies several aspects of ~~Interest (Subtopic 835-30).~~the accounting for share-based payment transactions. Under ASU ~~2015-03 requires that debt issuance costs related to a~~2016-09, excess tax benefits and tax deficiencies are recognized ~~debt liability be presented~~as income tax expense or benefit in the ~~balance sheet as a direct deduction from~~income statement instead of additional paid in capital. ASU 2016-09 also provides entities with the ~~carrying amount~~option to elect an accounting policy to estimate forfeitures of that debt liability. In June 2015, the FASB issued ASU 2015-15 as an amendment to this guidance to address the absence of authoritative guidance for debt issuance costs related to line-of-credit arrangements. The SEC staff stated that they would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratablyshare-based awards over the ~~term~~service period or account for forfeitures when they occur. Under ASU 2016-09, previously unrecognized excess tax benefits should be recognized using a modified retrospective transition. In addition, amendments requiring recognition of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. ASU 2015-03 required retrospective application to all prior periods presentedexcess tax benefits and tax deficiencies in the ~~consolidated financial statements. This new guidance~~income statement, as well as changes in the computation of weighted-average diluted shares outstanding, should be applied prospectively. ASU 2016-09 is effective for and was ~~effective for~~adopted by the Company in the first quarter of ~~2017. As a result~~2018 and the impact of ~~adopting this standard on October 1, 2016, deferred financing costs of $1.0 million as of September 30, 2016, previously reported within other assets, were reclassified to senior unsecured notes~~the adoption resulted in the following:

During the nine months ended June 30, 2018, the Company recognized excess tax benefits from share-based compensation of $0.4 million within income tax expense on the condensed consolidated income statement and within net income on the condensed consolidated cash flow statement. Prior to adoption, the tax effect of share-based awards would have been recognized in additional paid-in-capital on the condensed consolidated balance ~~sheet. As~~sheets and separately stated in the financing activities in the condensed consolidated cash flow statements. The Company has elected to adopt this guidance prospectively.

The Company has elected to account for forfeitures of ~~December 31, 2016, there~~share-based awards as they occur. The Company elected to account for forfeitures as they occur using a modified retrospective transition method. The adoption of this guidance did not have a material impact on the condensed consolidated financial statements.

The excess tax benefits from the assumed proceeds available to repurchase shares were ~~no deferred financing costs as~~excluded in the ~~senior unsecured notes were redeemed during~~computation of diluted earnings per share for the three and nine months ended ~~December 31, 2016,~~June 30, 2018. The Company has elected to adopt this guidance prospectively.

For the nine months ended June 30, 2018, the Company has classified as ~~discussed~~a financing activity in ~~Note 9.~~the condensed consolidated cash flow statement $0.8 million of cash paid to taxing authorities for restricted stock shares withheld to satisfy statutory income tax withholding obligations. The retrospective application of this guidance had no impact on the condensed consolidated cash flow statement for the nine months ended June 30, 2017.

In ~~January 2017,~~July 2015, the FASB issued ASU ~~2017-01, Business Combinations - Clarifying~~No. 2015-11, “Simplifying the ~~Definition~~Measurement of ~~a Business, which clarifies~~Inventory (Topic 330).” Under ASU 2015-11, inventory that is measured using the ~~definition of a business for determining whether transactions~~first-in, first-out (FIFO), specific identification, or average cost methods should be ~~accounted for as acquisitions (or disposals)~~measured at the lower of ~~assets~~cost or ~~businesses.~~net realizable value. This ASU does not impact inventory measurement under the last-in, first-out (LIFO) or retail inventory methods. The Company ~~early~~ adopted this ~~guidance effective October 1, 2016, and applied~~ASU prospectively in the ~~guidance in determining whether~~first quarter of 2018. The adoption of this ASU did not have a material impact on the ~~acquisition discussed in Note 16 is the acquisition of an asset or of a business.~~condensed consolidated financial statements.

Note 2 – Earnings per Share

The Company presents basic and diluted earnings per share (“EPS”) using the two-class method which requires all outstanding unvested share-based payment awards that contain rights to non-forfeitable dividends and therefore participate in undistributed earnings with common stockholders be included in computing earnings per share. Under the two-class method, net ~~earnings are~~income is reduced by the amount of dividends declared in the period for each class of common stock and participating security. The remaining undistributed earnings are then allocated to common stock and participating securities, based on their respective rights to receive dividends. Restricted stock awards granted to certain employees and directors contain non-forfeitable rights to dividends at the same rate as common stock, and are considered participating securities. Basic EPS has been computed by dividing net income by the weighted-average number of common shares outstanding.

The following is a reconciliation of the numerator and denominator of the diluted earnings per share computations for the periods presented below.


	Three Months Ended June 30,						Nine Months Ended June 30,						Three Months Ended June 30,						Nine Months Ended June 30,
(in millions, except share amounts)	2017			2016			2017			2016			2018			2017			2018			2017
Numerator:
Net income	$	12.7		$	14.6		$	30.0		$	37.9		$	24.0		$	12.7		$	39.8		$	30.0
Less: Allocation to participating securities	(0.3		)	(0.3		)	(0.6		)	(0.6		)	(0.3		)	(0.3		)	(0.6		)	(0.6		)
Net income allocated to common stockholders	$	12.4		$	14.3		$	29.4		$	37.3		$	23.7		$	12.4		$	39.2		$	29.4
Denominator:
Weighted average number of:
Common shares outstanding	18,447,053			18,138,754			18,365,939			18,461,063			18,597,165			18,447,053			18,524,846			18,365,939
Dilutive potential common shares outstanding:
Share-based awards	255,075			183,697			293,199			194,609			379,733			255,075			351,413			293,199
Diluted weighted-average shares	18,702,128			18,322,451			18,659,138			18,655,672
Diluted weighted-average common shares													18,976,898			18,702,128			18,876,259			18,659,138

The dilutive effect of share-based awards is reflected in diluted earnings per share by application of the treasury stock method, which includes consideration of unamortized share-based compensation expense required under the Compensation – Stock Compensation Topic of the ASC.

Options to purchase ~~210,543~~76,587 and ~~1,009,055~~210,543 shares of common stock for the three months ended June 30, ~~2017~~2018 and ~~2016,~~2017, respectively, and options to purchase ~~242,778~~147,640 and ~~933,678~~242,778 shares of common stock for the nine months ended June 30, ~~2017~~2018 and ~~2016,~~2017, respectively, were excluded from the calculation of diluted earnings per share as they would have been anti-dilutive.

Note 3 – Assets and Liabilities, at Fair Value

Fair value is defined by U.S. GAAP as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between willing market participants on the measurement date.

Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, the Company is required to develop a set of assumptions that reflect those that market participants would use in pricing the asset or liability at the measurement date. The ~~Company’s financial~~Company uses prices and ~~non-financial~~inputs that are current as of the measurement date, including periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may be reduced for many assets and liabilities. This condition could cause a security to be reclassified to a lower level within the fair value hierarchy.

The Company has designed independent price verification controls and periodically performs such controls to ensure the reasonableness of such values.

In accordance with FASB ASC 820, Fair Value Measurement, the Company groups its assets and liabilities measured at fair value in three levels based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:

Level 1 - Valuation is based upon unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Level 1 consists of financial assets and liabilities whose fair values are estimated using quoted market prices.

Level 2 - Valuation is based upon quoted prices for identical or similar assets or liabilities in markets that are less active, that is, markets in which there are few transactions for the asset or liability that are observable for substantially the full term. Included in Level 2 are those financial assets and liabilities for which fair values are estimated using models or other valuation methodologies. These models are primarily industry-standard models that consider various observable inputs, including time value, yield curve, volatility factors, observable current market and contractual prices for the underlying financial instruments, as well as other relevant economic measures.

Level 3 - Valuation is based on prices or valuation techniques that require an input that is both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity). Level 3 comprises financial assets and liabilities whose fair value is estimated based on internally developed models or methodologies utilizing significant inputs that are not readily observable from objective sources.

Financial and nonfinancial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). A market is active if there are sufficient transactions on an ongoing basis to provide current pricing information for the asset or liability, pricing information is released publicly, and price quotations do not vary substantially either over time or among market participants. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity.

The guidance requires the Company to consider counterparty credit risk of all parties of outstanding derivative instruments that would be considered by a market participant in the transfer or settlement of such contracts (exit price). The Company’s exposure to credit risk on derivative financial instruments relates to the portfolio of OTC derivative contracts as all exchange-traded contracts held can be settled on an active market with a credit guarantee from the respective exchange. The Company requires most counterparties to deposit margin collateral for all OTC instruments and is also required to deposit margin collateral with counterparties, which mitigates the impact of counterparty credit risk in the evaluation of the fair value of OTC derivative contracts.

Fair value of financial and nonfinancial assets and liabilities that are carried on the Condensed Consolidated Balance Sheets at fair value on a recurring basis

Cash and cash equivalents reported at fair value on a recurring basis ~~are included in the following captions on the condensed consolidated balance sheets:~~

~~Cash and cash equivalents~~

~~Cash, securities and other assets segregated under federal and other regulations~~

~~Deposits with and receivables from exchange-clearing organizations~~

~~Deposits with and receivables from broker-dealers, clearing organizations and counterparties~~

~~Financial instruments owned~~

~~Physical commodities inventory~~

~~Accounts payable and other accrued liabilities~~

~~Payables to broker-dealers, clearing organizations and counterparties~~

~~Financial instruments sold, not yet purchased~~

~~Fair Value Hierarchy~~

The majority of financial assets and liabilities on the condensed consolidated balance sheets are reported at fair value. Cash is reported at the balance held at financial institutions. Cash equivalents includes ~~money market funds, which are valued at period-end at the net asset value provided by the fund’s administrator, and~~ certificates of deposit, which are stated at cost plus accrued interest, which approximates fair value.

Cash, securities and other assets segregated under federal and other regulations reported at fair value on a recurring basis include the value of ~~cash collateral as well as the value of other~~ pledged investments, primarily U.S. Treasury ~~bills,~~ obligations ~~issued by government sponsored entities,~~ and commodities warehouse receipts.

Deposits with and receivables from ~~exchange-clearing organizations,~~ broker-dealers, clearing organizations and counterparties and ~~payables~~payable to customers and broker-dealers, clearing organizations and counterparties include the value of ~~cash collateral as well as the value of money market funds and other~~ pledged investments, primarily U.S. Treasury ~~bills,~~ obligations ~~issued by~~and foreign government ~~sponsored entities, and mortgage-backed and asset-backed securities.~~obligations. These balances also include the fair value of exchange-traded ~~futures and~~ options on futures and exchange-cleared OTC swaps and options determined by quoted prices on the applicable exchange.

Financial instruments owned and sold, not yet purchased reported at fair value on a recurring basis include the value of common and preferred stock, ~~and~~ American Depository Receipts (“ADRs”), and Global Depository Receipts (“GDRs”), exchangeable foreign

ordinary equities, ADRs, and ~~ADRs, U.S. and foreign government obligations,~~GDRs, corporate and municipal bonds, U.S. Treasury obligations, U.S. government agency obligations, foreign government obligations, agency mortgage-backed obligations, asset-backed obligations, derivative financial instruments, ~~exchange stock,~~commodities leases, commodities warehouse receipts, exchange firm common stock, and ~~leases,~~ mutual funds and investments in managed funds. ~~The~~

Physical commodities inventory recorded at fair value ~~of exchange common stock is determined by quoted market prices. Physical commodities inventory~~on a recurring basis includes precious metals that are a part of the trading activities of ~~the~~a regulated broker-dealer subsidiary and is recorded at fair value using spot prices. Physical commodities inventory also includes agricultural ~~and energy~~ commodities that are a part of the trading activities of a non-broker dealer subsidiary and are also recorded at ~~fair~~net realizable value using spot prices. The carrying value of securities purchased under agreements to resell, securities borrowed, receivables from customers, net, notes receivable, net, securities sold under agreements to repurchase, and securities loaned approximates fair value due to their short-term nature. Payables to lenders under loans carry variable rates of interest and thus approximate fair value.

Deposits with and receivables from broker-dealers, clearing organizations and counterparties include amounts receivable for securities sold but not yet delivered by the Company on settlement date (“fails-to-deliver”) and net receivables arising from unsettled trades. Payables to broker-dealers, clearing organizations and counterparties primarily include amounts payable for securities purchased, but not yet received by the Company on settlement date (“fails-to-receive”), net payables arising from unsettled trades, and bonds loaned transactions. Due to their short-term nature, deposits with and receivables from and payables to broker-dealers, clearing organizations and counterparties approximate fair value.

The fair value estimates presented in the condensed consolidated financial statements are based on pertinent information available to management as of June 30, 2017 and September 30, 2016. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these condensed consolidated financial statements since that date and current estimates of fair value may differ significantly from the amounts presented in the condensed consolidated financial statements.

Cash equivalents, securities, selected physical commodities inventory, commodities warehouse receipts, derivative financial instruments, commodities leases, exchange common stock and contingent liabilities are carried at fair value, on a recurring basis, and are classified and disclosed into three levels in the fair value hierarchy.

Precious metals inventory held by subsidiaries that are not broker-dealers are valued at fair value on a non-recurring basis. Except as disclosed in Note 6, the Company did not have any fair value adjustments for assets or liabilities measured at fair value on a non-recurring basis as of June 30, ~~2017~~2018 and September 30, ~~2016.~~2017.

The ~~three~~following section describes the valuation methodologies used by the Company to measure classes of financial instruments at fair value and specifies the level within the fair value hierarchy where various financial instruments are classified.

The Company uses quoted prices in active markets, where available, and classifies such instruments within Level 1 of the fair value hierarchy. Examples include U.S. Treasury obligations, commodities warehouse receipts, some common and preferred stock, ADRs, and GDRs, some exchangeable foreign ordinary equities, ADRs, and GDRs, some corporate and municipal obligations, physical precious metals held by a regulated broker-dealer subsidiary, exchange firm common stock, mutual funds, as well as exchange traded options on futures contracts.

When instruments are traded in secondary markets and observable prices are not available for substantially the full term, the Company generally relies on internal valuation techniques that use observable inputs or prices obtained from third-party pricing services or brokers or a combination thereof, and accordingly, classified these instruments as Level 2. Examples include U.S. government agency obligations, agency-mortgage backed obligations, asset-backed obligations, foreign government obligations, some common and preferred stock, ADRs, and GDRs, certain exchangeable foreign ordinary equities, ADRs, and GDRs, OTC commodity and foreign exchange forwards, swaps, and options, physical agricultural commodity inventory, and OTC firm purchase and sale commitments related to the Company’s agricultural and energy commodities.

With the exception of certain derivative instruments, financial instruments owned and sold are primarily valued using third party pricing sources. Third party vendors compile prices from various sources and often apply matrix pricing for similar securities when no prices are observable. The Company reviews the pricing methodologies provided by the various vendors in order to determine if observable market information is being used, versus unobservable inputs. When evaluating the propriety of an internal trader price compared with vendor prices, considerations include the range and quality of vendor prices. Trader or broker prices are used to ensure the reasonableness of a vendor price; however valuing financial instruments involves judgments acquired from knowledge of a particular market. If a trader asserts that a vendor or market price is not reflective of market value, justification for using the trader price, including recent sales activity where possible, must be provided to and approved by the appropriate levels of management. Financial instruments owned and sold are included within either Level 1 or Level 2 of the fair value hierarchy ~~under~~based upon the ~~Fair Value Measurement Topic~~observability of the ~~ASC are:~~

~~Level 1 - Unadjusted quoted prices~~inputs used and the level of activity in ~~active markets that are accessible at~~ the ~~measurement date for identical, unrestricted assets or liabilities;~~

Level 2 - Quoted prices for identical or similar assets or liabilities in markets that are less active, that is, markets in which there are few transactions for the asset or liability that are observable for substantially the full term; andmarket.

Level 3 ~~- Prices~~comprises financial assets and liabilities whose fair value is estimated based on internally developed models or ~~valuation techniques that require~~methodologies utilizing significant inputs that are ~~both significant to the~~not readily observable from objective sources. Included in Level 3 are some common stock and ADRs, some corporate and municipal obligations, and contingent liabilities. Level 3 assets and liabilities are valued using an income approach based upon management developed discounted cash flow projections, which are an unobservable input.

The fair value ~~measurement~~estimates presented herein are based on pertinent information available to management as of June 30, 2018 and ~~unobservable (i.e., supported by little or no market activity).~~September 30, 2017. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these condensed consolidated financial statements since those respective dates and current estimates of fair value may differ significantly from the amounts presented herein.

The following tables set forth the Company’s financial and nonfinancial assets and liabilities accounted for at fair value, on a recurring basis, as of June 30, ~~2017~~2018 by level in the fair value hierarchy.


	June 30, 2017												June 30, 2018
(in millions)	Level 1		Level 2		Level 3		Netting and Collateral (1)			Total			Level 1		Level 2		Level 3		Netting and Collateral (1)			Total
Assets:
Unrestricted cash equivalents - certificate of deposits	$	4.9	$	—	$	—	$	—		$	4.9		$	3.8	$	—	$	—	$	—		$	3.8
Commodities warehouse receipts	12.2		—		—		—			12.2			74.9		—		—		—			74.9
U.S. government obligations	—		229.6		—		—			229.6
Securities and other assets segregated under federal and other regulations	12.2		229.6		—		—			241.8
U.S. government obligations	—		295.5		—		—			295.5
U.S. Treasury obligations													600.5		—		—		—			600.5
Cash, securities and other assets segregated under federal and other regulations													675.4		—		—		—			675.4
U.S. Treasury obligations													666.7		—		—		—			666.7
"To be announced" (TBA) and forward settling securities													—		4.4		—		(0.1		)	4.3
Foreign government obligations													—		5.5		—		—			5.5
Derivatives	1,893.9		—		—		(1,956.9		)	(63.0		)	6,131.7		24.2		—		(6,116.0		)	39.9
Deposits with and receivables from exchange-clearing organizations	1,893.9		295.5		—		(1,956.9		)	232.5
"To be announced" (TBA) and forward settling securities	—		6.5		—		—			6.5
Derivatives	—		103.2		—		(87.2		)	16.0
Deposits with and receivables from broker-dealers, clearing organizations and counterparties	—		109.7		—		(87.2		)	22.5
Common and preferred stock and ADRs	24.3		2.5		0.2		—			27.0
Exchangeable foreign ordinary equities and ADRs	10.4		0.1		—		—			10.5
Deposits with and receivables from broker-dealers, clearing organization and counterparties													6,798.4		34.1		—		(6,116.1		)	716.4
Common and preferred stock, ADRs, and GDRs													33.2		2.9		—		—			36.1
Exchangeable foreign ordinary equities, ADRs, and GDRs													29.7		1.4		—		—			31.1
Corporate and municipal bonds	2.2		2.2		—		—			4.4			64.1		0.2		—		—			64.3
U.S. government obligations	—		524.7		—		—			524.7
U.S. Treasury obligations													99.7		—		—		—			99.7
U.S. government agency obligations													—		352.8		—		—			352.8
Foreign government obligations	—		44.4		—		—			44.4			—		8.5		—		—			8.5
Agency mortgage-backed and asset-backed securities	—		932.0		—		—			932.0
Agency mortgage-backed obligations													—		1,036.2		—		—			1,036.2
Asset-backed obligations													—		47.4		—		—			47.4
Derivatives	207.0		2,074.5		—		(2,077.7		)	203.8			0.7		1,473.7		—		(1,169.4		)	305.0
Commodities leases	—		122.7		—		(107.2		)	15.5			—		77.9		—		(70.6		)	7.3
Commodities warehouse receipts	3.5		—		—		—			3.5			0.1		—		—		—			0.1
Exchange firm common stock	7.5		—		—		—			7.5			10.0		—		—		—			10.0
Mutual funds and other	5.8		—		—		—			5.8			4.9		—		—		—			4.9
Financial instruments owned	260.7		3,703.1		0.2		(2,184.9		)	1,779.1			242.4		3,001.0		—		(1,240.0		)	2,003.4
Physical commodities inventory	84.4		—		—		—			84.4
Physical commodities inventory, net													8.9		102.2		—		—			111.1
Total assets at fair value	$	2,256.1	$	4,337.9	$	0.2	$	(4,229.0	)	$	2,365.2		$	7,728.9	$	3,137.3	$	—	$	(7,356.1	)	$	3,510.1
Liabilities:
Accounts payable and other accrued liabilities - contingent liabilities	$	—	$	—	$	0.9	$	—		$	0.9
TBA and forward settling securities	—		3.4		—		—			3.4			—		7.2		—		(0.1		)	7.1
Derivatives	1,858.5		95.0		—		(1,953.5		)	—			6,175.9		3.4		—		(6,179.3		)	—
Payable to broker-dealers, clearing organizations and counterparties	1,858.5		98.4		—		(1,953.5		)	3.4			6,175.9		10.6		—		(6,179.4		)	7.1
Common and preferred stock and ADRs	40.0		0.5		—		—			40.5
Exchangeable foreign ordinary equities and ADRs	9.7		0.8		—		—			10.5
U.S. government obligations	—		348.8		—		—			348.8
Foreign government obligations	—		11.2		—		—			11.2
Mortgage-backed securities	—		0.4		—		—			0.4
Common and preferred stock, ADRs, and GDRs													39.3		8.8		—		—			48.1
Exchangeable foreign ordinary equities, ADRs, and GDRs													31.2		—		—		—			31.2
Corporate and municipal bonds													1.5		—		—		—			1.5
U.S. Treasury obligations													511.4		—		—		—			511.4
U.S. government agency obligations													—		38.1		—		—			38.1
Agency mortgage-backed obligations													—		0.1		—		—			0.1
Derivatives	208.6		2,328.6		—		(2,257.2		)	280.0			—		1,490.6		—		(1,184.8		)	305.8
Commodities leases	—		195.4		—		(143.9		)	51.5			—		69.9		—		1.1			71.0
Financial instruments sold, not yet purchased	258.3		2,885.7		—		(2,401.1		)	742.9			583.4		1,607.5		—		(1,183.7		)	1,007.2
Total liabilities at fair value	$	2,116.8	$	2,984.1	$	0.9	$	(4,354.6	)	$	747.2		$	6,759.3	$	1,618.1	$	—	$	(7,363.1	)	$	1,014.3


(1)	Represents cash collateral and the impact of netting across the levels of the fair value hierarchy. Netting among positions classified within the same level is included in that level.

The following table sets forth the Company’s financial and nonfinancial assets and liabilities accounted for at fair value, on a recurring basis, as of September 30, ~~2016~~2017 by level in the fair value hierarchy.


	September 30, 2016												September 30, 2017
(in millions)	Level 1		Level 2		Level 3		Netting and Collateral (1)			Total			Level 1		Level 2		Level 3		Netting and Collateral (1)			Total
Assets:
Unrestricted cash equivalents - certificates of deposits	$	7.1	$	—	$	—	$	—		$	7.1		$	3.8	$	—	$	—	$	—		$	3.8
Commodities warehouse receipts	23.3		—		—		—			23.3			21.0		—		—		—			21.0
U.S. government obligations	—		595.5		—		—			595.5
Securities and other assets segregated under federal and other regulations	23.3		595.5		—		—			618.8
Money market funds	512.7		—		—		—			512.7
U.S. government obligations	—		472.1		—		—			472.1
U.S. Treasury obligations													33.5		—		—		—			33.5
Cash, securities and other assets segregated under federal and other regulations													54.5		—		—		—			54.5
U.S. Treasury obligations													244.7		—		—		—			244.7
"To be announced" (TBA) and forward settling securities													—		8.8		—		—			8.8
Foreign government obligations													—		6.4		—		—			6.4
Derivatives	2,149.9		—		—		(2,266.2		)	(116.3		)	2,608.6		289.1		—		(2,952.9		)	(55.2		)
Deposits with and receivables from exchange-clearing organizations	2,662.6		472.1		—		(2,266.2		)	868.5
TBA and forward settling securities	—		0.3		—		—			0.3
Derivatives	—		8.0		—		(23.5		)	(15.5		)
Deposits with and receivables from broker-dealers, clearing organizations and counterparties	—		8.3		—		(23.5		)	(15.2		)
Common and preferred stock and ADRs	34.6		1.7		0.2		—			36.5
Exchangeable foreign ordinary equities and ADRs	25.2		0.5		—		—			25.7
Deposits with and receivables from broker-dealers, clearing organizations, and counterparties													2,853.3		304.3		—		(2,952.9		)	204.7
Common and preferred stock, ADRs, and GDRs													31.2		3.4		0.1		—			34.7
Exchangeable foreign ordinary equities, ADRs, and GDRs													9.2		1.2		—		—			10.4
Corporate and municipal bonds	36.9		0.9		3.0		—			40.8			28.2		0.9		—		—			29.1
U.S. government obligations	—		514.9		—		—			514.9
U.S. Treasury obligations													60.0		—		—		—			60.0
U.S. government agency obligations													—		368.9		—		—			368.9
Foreign government obligations	—		14.6		—		—			14.6			—		10.2		—		—			10.2
Agency mortgage-backed and asset-backed securities	—		747.5		—		—			747.5
Agency mortgage-backed obligations													—		920.9		—		—			920.9
Asset-backed obligations													—		47.3		—		—			47.3
Derivatives	206.9		1,350.8		—		(1,363.8		)	193.9			1.3		1,413.4		—		(1,252.6		)	162.1
Commodities leases	—		137.2		—		(129.1		)	8.1			—		174.1		—		(138.7		)	35.4
Commodities warehouse receipts	8.9		—		—		—			8.9			38.5		—		—		—			38.5
Exchange firm common stock	6.4		—		—		—			6.4			8.3		—		—		—			8.3
Mutual funds and other	8.8		—		—		—			8.8			6.0		—		—		—			6.0
Financial instruments owned	327.7		2,768.1		3.2		(1,492.9		)	1,606.1			182.7		2,940.3		0.1		(1,391.3		)	1,731.8
Physical commodities inventory, net - precious metals	71.2		—		—		—			71.2
Physical commodities inventory, net													73.2		—		—		—			73.2
Total assets at fair value	$	3,091.9	$	3,844.0	$	3.2	$	(3,782.6	)	$	3,156.5		$	3,167.5	$	3,244.6	$	0.1	$	(4,344.2	)	$	2,068.0
Liabilities:
Accounts payable and other accrued liabilities - contingent liabilities	$	—	$	—	$	0.8	$	—		$	0.8		$	—	$	—	$	1.0	$	—		$	1.0
TBA and forward settling securities	—		2.6		—		0.9			3.5			—		4.9		—		(0.1		)	4.8
Derivatives	1,961.7		97.5		—		(2,059.2		)	—			2,476.2		292.8		—		(2,769.0		)	—
Payable to broker-dealers, clearing organizations and counterparties	1,961.7		100.1		—		(2,058.3		)	3.5			2,476.2		297.7		—		(2,769.1		)	4.8
Common and preferred stock and ADRs	23.5		0.4		—		—			23.9
Exchangeable foreign ordinary equities and ADRs	25.3		0.5		—		—			25.8
U.S. government obligations	—		509.8		—		—			509.8
Common and preferred stock, ADRs, and GDRs													33.7		0.7		—		—			34.4
Exchangeable foreign ordinary equities, ADRs, and GDRs													10.3		0.2		—		—			10.5
Corporate and municipal bonds	6.9		—		—		—			6.9			0.3		—		—		—			0.3
U.S. Treasury obligations													285.9		—		—		—			285.9
U.S. government agency obligations													—		27.9		—		—			27.9
Agency mortgage-backed obligations													—		0.1		—		—			0.1
Derivatives	199.4		1,319.3		—		(1,307.8		)	210.9			—		1,427.2		—		(1,110.2		)	317.0
Commodities leases	—		207.8		—		(145.7		)	62.1			—		191.1		—		(149.6		)	41.5
Financial instruments sold, not yet purchased	255.1		2,037.8		—		(1,453.5		)	839.4			330.2		1,647.2		—		(1,259.8		)	717.6
Total liabilities at fair value	$	2,216.8	$	2,137.9	$	0.8	$	(3,511.8	)	$	843.7		$	2,806.4	$	1,944.9	$	1.0	$	(4,028.9	)	$	723.4


(1)	Represents cash collateral and the impact of netting across the levels of the fair value hierarchy. Netting among positions classified within the same level is included in that level.

Realized and unrealized gains and losses are included in ‘trading gains, net’, ‘interest income’, and ~~‘interest income’~~‘cost of sales of physical commodities’ in the condensed consolidated income statements.

Information on Level 3 Financial Assets and Liabilities

~~The Company’s financial assets at fair value classified in level 3 of the fair value hierarchy as of~~ ~~June 30, 2017 and September 30, 2016~~ ~~are summarized below:~~

(in millions) June 30, 2017 September 30, 2016
Total level 3 assets $ 0.2
$ 3.2
Level 3 assets for which the Company bears economic exposure $ 0.2
$ 3.2
Total assets $ 6,195.9
$ 5,950.3
Total assets at fair value $ 2,365.2
$ 3,156.5
Total level 3 assets as a percentage of total assets — % 0.1 %
Level 3 assets for which the Company bears economic exposure as a percentage of total assets — % 0.1 %
Total level 3 assets as a percentage of total financial assets at fair value — % 0.1 %

The following tables set forth a summary of changes in the fair value of the Company’s ~~level~~Level 3 financial assets and liabilities during the three and nine months ended June 30, ~~2017~~2018 and ~~2016,~~2017, including a summary of unrealized gains (losses) during the respective periods on the Company’s ~~level~~Level 3 financial assets and liabilities ~~still~~ held ~~as of~~ ~~June 30, 2017~~.during the periods.


	Level 3 Financial Assets and Financial Liabilities For the Three Months Ended June 30, 2017														Level 3 Financial Assets For the Three and Nine Months Ended June 30, 2018
(in millions)	Balances at beginning of period		Realized gains (losses) during period		Unrealized gains (losses) during period		Purchases/issuances		Settlements		Transfers in or (out) of Level 3		Balances at end of period		Balances at beginning of period		Realized gains (losses) during period		Unrealized gains (losses) during period			Purchases/issuances		Settlements		Transfers in or (out) of Level 3		Balances at end of period
Assets:
Common stock and ADRs	$	0.2	$	—	$	—	$	—	$	—	$	—	$	0.2
Common and preferred stock, ADRs, and GDRs															$	0.1	$	—	$	(0.1	)	$	—	$	—	$	—	$	—
	$	0.2	$	—	$	—	$	—	$	—	$	—	$	0.2	$	0.1	$	—	$	(0.1	)	$	—	$	—	$	—	$	—

(in millions)	Balances at beginning of period		Realized (gains) losses during period		Unrealized (gains) losses during period		Purchases/issuances		Settlements		Transfers in or (out) of Level 3		Balances at end of period
Liabilities:
Contingent liabilities	$	0.9	$	—	$	—	$	—	$	—	$	—	$	0.9


	Level 3 Financial Assets and Financial Liabilities For the Nine Months Ended June 30, 2017															Level 3 Financial Assets and Financial Liabilities For the Three Months Ended June 30, 2017
(in millions)	Balances at beginning of period		Realized gains (losses) during period		Unrealized gains (losses) during period		Purchases/issuances		Settlements			Transfers in or (out) of Level 3		Balances at end of period		Balances at beginning of period		Realized gains (losses) during period		Unrealized gains (losses) during period		Purchases/issuances		Settlements		Transfers in or (out) of Level 3		Balances at end of period
Assets:
Common stock and ADRs	$	0.2	$	—	$	—	$	—	$	—		$	—	$	0.2
Common and preferred stock, ADRs, and GDRs																$	0.2	$	—	$	—	$	—	$	—	$	—	$	0.2
Corporate and municipal bonds	3.0		—		—		—		(3.0		)	—		—		—		—		—		—		—		—		—
	$	3.2	$	—	$	—	$	—	$	(3.0	)	$	—	$	0.2	$	0.2	$	—	$	—	$	—	$	—	$	—	$	0.2

(in millions)	Balances at beginning of period		Realized (gains) losses during period		Unrealized (gains) losses during period		Purchases/issuances		Settlements			Transfers in or (out) of Level 3		Balances at end of period		Balances at beginning of period		Realized (gains) losses during period		Unrealized (gains) losses during period		Purchases/issuances		Settlements		Transfers in or (out) of Level 3		Balances at end of period
Liabilities:
Contingent liabilities	$	0.8	$	—	$	0.1	$	—	$	—		$	—	$	0.9	$	0.9	$	—	$	—	$	—	$	—	$	—	$	0.9

Level 3 Financial Assets and Financial Liabilities For the Three Months Ended June 30, 2016
(in millions) Balances at
beginning of
period Realized gains
(losses) during
period Unrealized
gains (losses)
during period Purchases/issuances Settlements Transfers in
or (out) of
Level 3 Balances at
end of period
Assets:
Common stock and ADRs $ 0.3
$ —
$ —
$ —
$ —
$ —
$ 0.3
Corporate and municipal bonds 3.3
—
(0.3 ) —
—
—
3.0
$ 3.6
$ —
$ (0.3 ) $ —
$ —
$ —
$ 3.3

(in millions) Balances at
beginning of
period Realized (gains)
losses during
period Unrealized
(gains) losses
during period Purchases/issuances Settlements Transfers in
or (out) of
Level 3 Balances at
end of period
Liabilities:
Contingent liabilities $ 1.5
$ —
$ —
$ —
$ (0.7 ) $ —
$ 0.8


	Level 3 Financial Assets and Financial Liabilities For the Nine Months Ended June 30, 2016																Level 3 Financial Assets and Financial Liabilities For the Nine Months Ended June 30, 2017
(in millions)	Balances at beginning of period		Realized gains (losses) during period		Unrealized gains (losses) during period			Purchases/issuances		Settlements			Transfers in or (out) of Level 3		Balances at end of period		Balances at beginning of period		Realized gains (losses) during period		Unrealized gains (losses) during period		Purchases/issuances		Settlements			Transfers in or (out) of Level 3		Balances at end of period
Assets:
Common stock and ADRs	$	0.5	$	—	$	(0.2	)	$	—	$	—		$	—	$	0.3
Common and preferred stock, ADRs, and GDRs																	$	0.2	$	—	$	—	$	—	$	—		$	—	$	0.2
Corporate and municipal bonds	3.2		—		(0.2		)	—		—			—		3.0		3.0		—		—		—		(3.0		)	—		—
	$	3.7	$	—	$	(0.4	)	$	—	$	—		$	—	$	3.3	$	3.2	$	—	$	—	$	—	$	(3.0	)	$	—	$	0.2

(in millions)	Balances at beginning of period		Realized (gains) losses during period		Unrealized (gains) losses during period			Purchases/issuances		Settlements			Transfers in or (out) of Level 3		Balances at end of period		Balances at beginning of period		Realized (gains) losses during period		Unrealized (gains) losses during period		Purchases/issuances		Settlements			Transfers in or (out) of Level 3		Balances at end of period
Liabilities:
Contingent liabilities	$	3.3	$	—	$	0.3		$	—	$	(2.8	)	$	—	$	0.8	$	0.8	$	—	$	0.1	$	—	$	—		$	—	$	0.9

The Company ~~had debentures issued by a single asset owning company of Suriwongse Hotel located in Chiang Mai, Thailand. As of September 30, 2016, the Company’s investment in the hotel~~ was $3.0 million, and was included within the corporate and municipal bonds classification in the level 3 financial assets and financial liabilities tables. In December 2016, the Company sold the debentures and collected an amount approximating their carrying value.

~~The Company is~~ required to make additional future cash payments based on certain financial performance measures of ~~its~~an acquired ~~businesses.~~business. The Company iswas required to remeasure the fair value of contingent consideration arrangements on a recurring ~~basis in accordance with~~basis. As of September 30, 2017, the ~~guidance in the Business Combinations Topic of the ASC. The~~ Company ~~has~~had classified its ~~liabilities~~liability for the contingent consideration within ~~level~~Level 3 of the fair value hierarchy because the fair value iswas determined using significant unobservable inputs, which ~~include~~included projected cash flows. The estimated fair value of the ~~earn-outs is~~contingent consideration arrangements was based upon management-developed earnings forecasts for the remaining contingency period, which was a ~~level~~Level 3 input in the fair value hierarchy. These cash flows are discounted employing present value techniques in arriving at fair value. The discount rate was developed using market participant company data and there have been no significant changes in the interest rate environment. From the dates of acquisition to ~~June 30, 2017, certain acquisitions have had changes in the estimates of undiscounted cash flows, based on actual performances fluctuating from estimates.~~ The fair value of the contingent consideration increased by ~~less than~~ $0.1 ~~million and $0.1 million during the three months ended June 30, 2017 and 2016 and by less than $0.1 million and $0.3~~ million during the nine months ended June 30, 2017, ~~and 2016, respectively,~~ with the corresponding amount classified as ‘other’ in the condensed consolidated income statements. The contingency period for the

contingent consideration arrangements ended as of December 31, 2017 and the accrued balance of $1.0 million was paid during the nine months ended June 30, 2018.

The Company reports transfers in and out of ~~levels~~Levels 1, 2 and 3, as applicable, using the fair value of the securities as of the beginning of the reporting period in which the transfer occurred. The Company did not have any transfers in and out of ~~levels~~Levels 1, 2, and 3 during the three and nine months ended June 30, 2018 and 2017.

Additional disclosures about the fair value of financial instruments that are not carried on the Condensed Consolidated Balance Sheets at fair value

Many, but not all, of the financial instruments that the Company holds are recorded at fair value in the Condensed Consolidated Balance Sheets. The following represents financial instruments in which the ending balance at June 30, 2018 and September 30, 2017 was not carried at fair value in accordance with U.S. GAAP on the Condensed Consolidated Balance Sheets:

Short-term financial instruments: The carrying value of short-term financial instruments, including cash and ~~2016.~~cash equivalents, cash segregated under federal and other regulations, securities purchased under agreements to re-sell and securities sold under agreements to re-purchase, and securities borrowed and loaned are recorded at amounts that approximate the fair value of these instruments due to their short-term nature and level of collateralization. These financial instruments generally expose the Company to limited credit risk and have no stated maturities or have short-term maturities and carry interest rates that approximate market rates. Under the fair value hierarchy, cash and cash equivalents and cash segregated under federal and other regulations are classified as Level 1. Securities purchased under agreements to re-sell and securities sold under agreements to re-purchase, and securities borrowed and loaned are classified as Level 2 under the fair value hierarchy as they are generally short-term in nature and are collateralized by common stock, U.S. Treasury obligations, U.S. government agency obligations, agency mortgage-backed obligations, and asset-backed obligations.

Receivables and other assets: Receivables from broker-dealers, clearing organizations, and counterparties, receivables from customers, net, notes receivables, and certain other assets are recorded at amounts that approximate fair value due to their short-term nature and are classified as Level 2 under the fair value hierarchy.

Payables: Payables to customers and payables to brokers-dealers, clearing organizations, and counterparties are recorded at amounts that approximate fair value due to their short-term nature and are classified as Level 2 under the fair value hierarchy.

Lenders under loans: Payables to lenders under loans carry variable rates of interest and thus approximate fair value and are classified as Level 2 under the fair value hierarchy.

Note 4 – Financial Instruments with Off-Balance Sheet Risk and Concentrations of Credit Risk

The Company is party to certain financial instruments with off-balance sheet risk in the normal course of its business. The Company has sold financial instruments that it does not currently own and will therefore be obliged to purchase such financial instruments at a future date. The Company has recorded these obligations in the condensed consolidated financial statements as of June 30, ~~2017~~2018 and September 30, ~~2016~~2017 at the fair values of the related financial instruments. The Company will incur losses if the fair value of the underlying financial instruments increases subsequent to June 30, ~~2017~~2018. The total financial instruments sold, not yet purchased of ~~$742.9~~$1,007.2 million and ~~$839.4~~$717.6 million as of June 30, ~~2017~~2018 and September 30, ~~2016,~~2017, respectively, includes ~~$280.0~~$305.8 million and ~~$210.9~~$317.0 million for derivative contracts, respectively, which represented a liability to the Company based on their fair values as of June 30, ~~2017~~2018 and September 30, ~~2016.~~2017.

Derivatives

The Company utilizes derivative products in its trading capacity as a dealer in order to satisfy customer needs and mitigate risk. The Company manages 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 the Company’s other trading activities. The majority of the Company’s derivative positions are included in the condensed consolidated balance sheets in ~~‘deposits with and receivables from exchange-clearing organizations’, ‘deposits~~‘Deposits with and receivables from broker-dealers, clearing organizations and counterparties’, ~~‘financial~~‘Financial instruments owned, at fair value’, ~~‘financial~~‘Financial instruments sold, not yet purchased, at fair value’ and ~~payables~~‘Payables to broker-dealers, clearing organizations and counterparties’.

The Company employs an interest rate risk management strategy using derivative financial instruments in the form of interest rate swaps as well as outright purchases of medium-term U.S. Treasury notes to manage a portion of the aggregate interest rate position. The Company’s objective when using interest rate swaps under the strategy, is to invest certain amounts of customer deposits in high quality, short-term investments and swap the resulting variable interest earnings into medium-term interest earnings. When used, the risk mitigation of these interest rate swaps are not within the documented hedging designation requirements of the Derivatives and Hedging Topic of the ASC, and as a result are recorded at fair value, with changes in the fair value of the interest rate swaps recorded within 'trading gains, net' in the condensed consolidated income statements. At September 30, 2016, the Company had $375.0 million in notional principal of interest rate swaps outstanding with a weighted-average remaining life of 15 months. During the nine months ended June 30, 2017, the Company settled these interest rate swaps in advance of their original maturity date.

Listed below are the fair values of the Company’s derivative assets and liabilities as of June 30, ~~2017~~2018 and September 30, ~~2016~~2017. Assets represent net unrealized gains and liabilities represent net unrealized losses.


	June 30, 2017						September 30, 2016						June 30, 2018						September 30, 2017
(in millions)	Assets ⁽¹⁾			Liabilities ⁽¹⁾			Assets ⁽¹⁾			Liabilities ⁽¹⁾			Assets ⁽¹⁾			Liabilities ⁽¹⁾			Assets ⁽¹⁾			Liabilities ⁽¹⁾
Derivative contracts not accounted for as hedges:
Exchange-traded commodity derivatives	$	1,641.2		$	1,719.3		$	2,022.1		$	1,920.5		$	4,789.5		$	4,771.0		$	2,094.2		$	1,975.0
OTC commodity derivatives	1,998.3			2,165.0			1,217.0			1,188.9			839.3			850.3			1,084.0			1,110.3
Exchange-traded foreign exchange derivatives	32.2			23.5			12.2			7.5			74.6			57.2			66.0			52.0
OTC foreign exchange derivatives	384.1			371.0			346.5			290.2			618.3			603.5			618.5			609.8
Exchange-traded interest rate derivatives	187.4			172.6			78.7			120.5			577.8			529.3			228.4			203.6
Equity index derivatives	35.4			39.3			39.1			50.3
OTC interest rate derivatives													40.3			40.2			—			—
Exchange-traded equity index derivatives													690.5			818.4			221.3			245.4
TBA and forward settling securities	6.5			3.4			0.3			2.6			4.4			7.2			8.8			4.9
Gross fair value of derivative contracts	4,285.1			4,494.1			3,715.9			3,580.5			7,634.7			7,677.1			4,321.2			4,201.0
Impact of netting and collateral	(4,121.8		)	(4,210.7		)	(3,653.5		)	(3,366.1		)	(7,285.5		)	(7,364.2		)	(4,205.5		)	(3,879.2		)
Total fair value included in ‘Deposits with and receivables from exchange-clearing organizations’	$	(63.0	)				$	(116.3	)
Total fair value included in ‘Deposits with and receivables from broker-dealers, clearing organizations and counterparties’	$	22.5					$	(15.2	)
Total fair value included in ‘Deposits with and receivables from broker-dealers, clearing organizations, and counterparties’													$	44.2					$	(46.4	)
Total fair value included in ‘Financial instruments owned, at fair value’	$	203.8					$	193.9					$	305.0					$	162.1
Total fair value included in ‘Payables to broker-dealers, clearing organizations and counterparties				$	3.4					$	3.5					$	7.1					$	4.8
Fair value included in ‘Financial instruments sold, not yet purchased, at fair value’				$	280.0					$	210.9					$	305.8					$	317.0


(1)	As of June 30, ~~2017~~2018 and September 30, ~~2016~~2017, the Company’s derivative contract volume for open positions were approximately ~~4.1~~9.7 million and ~~4.0~~6.1 million contracts, respectively.

The Company’s derivative contracts are principally held in its Commercial Hedging and Clearing and Execution Services segments. The Company assists its Commercial Hedging segment customers in protecting the value of their future production by entering into option or forward agreements with them on an OTC basis. The Company also provides its Commercial Hedging segment customers with option products, including combinations of buying and selling puts and calls. The Company mitigates its risk by offsetting the customer’s transaction simultaneously with one of the Company’s trading counterparties or with a similar but not identical exchange-traded position. The risk mitigation of these offsetting trades is not within the documented hedging designation requirements of the Derivatives and Hedging Topic of the ASC. These derivative contracts are traded along with cash transactions because of the integrated nature of the markets for these products. The Company manages the risks associated with derivatives on an aggregate basis along with the risks associated with its proprietary trading and market-making activities in cash instruments as part of its firm-wide risk management policies. In particular, the risks related to derivative positions may be partially offset by inventory, unrealized gains in inventory or cash collateral paid or received.

The Company has derivative instruments, which consist of mortgage-backed TBA securities and forward settling transactions that are used to manage risk exposures in the trading inventory of the Company’s domestic institutional fixed income business. The fair value on these transactions are recorded in deposits with and receivables from or payables to broker-dealers, clearing organizations and counterparties. Realized and unrealized gains and losses on securities and derivative transactions are reflected in ‘trading gains, net’.

The Company enters into TBA securities transactions for the sole purpose of managing risk associated with the purchase of mortgage pass-through securities. TBA securities are included within deposits with and receivables from and payables to broker-dealers, clearing organizations and counterparties. Forward settling securities represent non-regular way securities and are included in financial instruments owned and sold. As of June 30, ~~2017~~2018 and September 30, ~~2016~~2017, these transactions are summarized as follows:

June 30, 2017 September 30, 2016
(in millions) Gain / (Loss) Notional Amounts Gain / (Loss) Notional Amounts
Unrealized gain on TBA securities purchased within receivables from broker-dealers, clearing organizations and counterparties and related notional amounts (1) $ —
$ 16.0
$ 0.8
$ 289.8
Unrealized loss on TBA securities purchased within receivables from broker-dealers, clearing organizations and counterparties and related notional amounts (1) $ (2.7 ) $ 820.6
$ (0.8 ) $ 485.5
Unrealized gain on TBA securities sold within payables to broker-dealers, clearing organizations and counterparties and related notional amounts (1) $ 6.0
$ (1,549.1 ) $ 1.3
$ (702.3 )
Unrealized loss on TBA securities sold within payables to broker-dealers, clearing organizations and counterparties and related notional amounts (1) $ —
$ (19.4 ) $ (1.7 ) $ (754.3 )
Unrealized gain on forward settling securities purchased within receivables from broker-dealers, clearing organizations and counterparties and related notional amounts $ 0.5
$ (310.9 ) $ 0.1
$ 607.9
Unrealized (loss) gain on forward settling securities sold within receivables from and payables to broker-dealers, clearing organizations and counterparties and related notional amounts $ (0.7 ) $ 365.3
$ 0.2
$ (470.4 )
(1) The notional amounts of these instruments reflect the extent of the Company's involvement in TBA and forward settling securities and do not represent risk of loss due to counterparty non-performance.



	June 30, 2018						September 30, 2017
(in millions)	Gain / (Loss)			Notional Amounts			Gain / (Loss)			Notional Amounts
Unrealized gain on TBA securities purchased within deposits with and receivables from broker-dealers, clearing organizations and counterparties and payables to broker-dealers, clearing organizations and counterparties, respectively, and related notional amounts (1)	$	2.9		$	829.5		$	—		$	51.3
Unrealized loss on TBA securities purchased within deposits with and receivables from broker-dealers, clearing organizations and counterparties and payables to broker-dealers, clearing organizations and counterparties, respectively, and related notional amounts (1)	$	—		$	38.7		$	(2.9	)	$	1,236.8
Unrealized gain on TBA securities sold within payables to broker-dealers, clearing organizations and counterparties and deposits with and receivables from broker-dealers, clearing organizations and counterparties, respectively, and related notional amounts (1)	$	0.1		$	(90.7	)	$	5.8		$	(1,881.9	)
Unrealized loss on TBA securities sold within payables to broker-dealers, clearing organizations and counterparties and deposits with and receivables from broker-dealers, clearing organizations and counterparties, respectively, and related notional amounts (1)	$	(6.9	)	$	(1,838.2	)	$	(0.1	)	$	(404.1	)
Unrealized gain (loss) on forward settling securities purchased within deposits with and receivables from broker-dealers, clearing organizations and counterparties and payables to broker-dealers, clearing organizations and counterparties, respectively, and related notional amounts (1)	$	1.4		$	563.8		$	(2.0	)	$	882.9
Unrealized (loss) gain on forward settling securities sold within payables to broker-dealers, clearing organizations, and counterparties and deposits with and receivables from broker-dealers, clearing organizations and counterparties, respectively, and related notional amounts (1)	$	(0.3	)	$	(245.5	)	$	3.0		$	(590.2	)
(1) The notional amounts of these instruments reflect the extent of the Company's involvement in TBA and forward settling securities and do not represent risk of loss due to counterparty non-performance.

The following table sets forth the Company’s gains (losses) related to derivative financial instruments for the three and nine months ended June 30, ~~2017~~2018 and ~~2016~~2017 in accordance with the Derivatives and Hedging Topic of the ASC. The net gains set forth below are included in ~~‘trading~~‘Cost of sales of physical commodities’ and ‘Trading gains, net’ in the condensed consolidated income statements.

Three Months Ended June 30, Nine Months Ended June 30,
(in millions) 2017 2016 2017 2016
Commodities $ 22.0
$ 5.6
$ 40.8
$ 30.6
Foreign exchange 1.7
0.2
3.7
3.8
Interest rate —
1.0
(1.0 ) 2.0
TBA and forward settling securities (5.4 ) (6.6 ) 3.1
(11.6 )
Net gains from derivative contracts $ 18.3
$ 0.2
$ 46.6
$ 24.8



	Three Months Ended June 30,					Nine Months Ended June 30,
(in millions)	2018		2017			2018		2017
Commodities	$	38.1	$	22.0		$	71.9	$	40.8
Foreign exchange	2.9		1.7			7.7		3.7
Interest rate	0.5		—			1.1		(1.0		)
TBA and forward settling securities	—		(5.4		)	10.3		3.1
Net gains from derivative contracts	$	41.5	$	18.3		$	91.0	$	46.6

Credit Risk

In the normal course of business, the Company purchases and sells financial instruments, commodities and foreign currencies as either a principal or agent on behalf of its customers. If either the customer or counterparty fails to perform, the Company may be required to discharge the obligations of the nonperforming party. In such circumstances, the Company may sustain a loss if the fair value of the financial instrument or foreign currency is different from the contract value of the transaction.

The majority of the Company’s transactions and, consequently, the concentration of its credit exposure are with commodity exchanges, customers, broker-dealers and other financial institutions. These activities primarily involve collateralized and uncollateralized arrangements and may result in credit exposure in the event that a counterparty fails to meet its contractual obligations. The Company’s exposure to credit risk can be directly impacted by volatile financial markets, which may impair the ability of counterparties to satisfy their contractual obligations. The Company seeks to control its credit risk through a variety of reporting and control procedures, including establishing credit and/or position limits based upon a review of the counterparties’ financial condition and credit ratings. The Company monitors collateral levels on a daily basis for compliance with regulatory and internal guidelines and requests changes in collateral levels as appropriate.

The Company is a party to financial instruments in the normal course of its business through customer and proprietary trading accounts in exchange-traded and OTC derivative instruments. These instruments are primarily the result of the execution of orders for commodity futures, options on futures, OTC swaps and options and spot and forward foreign currency contracts on behalf of its customers, substantially all of which are transacted on a margin basis. Such transactions may expose the Company to significant credit risk in the event margin requirements are not sufficient to fully cover losses which customers may incur.

The Company controls the risks associated with these transactions by requiring customers to maintain margin deposits in compliance with individual exchange regulations and internal guidelines. The Company monitors required margin levels daily, and therefore may require customers to deposit additional collateral or reduce positions when necessary. The Company also establishes credit limits for customers, which are monitored daily. The Company evaluates each customer’s creditworthiness on a case by case basis. Clearing, financing, and settlement activities may require the Company to maintain funds with or pledge securities as collateral with other financial institutions. Generally, these exposures to both customers and exchanges are subject to master netting, or customer agreements, which reduce the exposure to the Company by permitting receivables and payables with such customers to be offset in the event of a customer default. Management believes that the margin deposits held as of June 30, ~~2017~~2018 and September 30, ~~2016~~2017 were adequate to minimize the risk of material loss that could be created by positions held at that time. Additionally, the Company monitors collateral fair value on a daily basis and adjusts collateral levels in the event of excess market exposure. Generally, these exposures to both customers and counterparties are subject to master netting or customer agreements which reduce the exposure to the Company.

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 condensed consolidated balance sheets. Exposure to market risk is influenced by a number of factors, including the relationships between the financial instruments and the Company’s 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 foreign exchange rates. The Company attempts to manage its exposure to market risk through various techniques. Aggregate market limits have been established and market risk measures are routinely monitored against these limits.

Note 5 – ~~Receivables From Customers, Net and Notes Receivable, Net~~Allowance for Doubtful Accounts

The allowance for doubtful accounts related to receivables from customers was ~~$7.6~~$9.9 million and $7.6 million as of June 30, ~~2017~~2018 and ~~$9.5 million as of~~ September 30, ~~2016~~2017., respectively. The allowance for doubtful accounts related to ~~notes receivable~~deposits with and receivables from broker-dealers, clearing organizations, and counterparties was ~~$0.0~~$48.1 million and ~~$0.2~~$47.0 million as of June 30, 2018 and September 30, 2017, respectively.

During the three months ended June 30, 2018, the Company recorded bad debt expense of $1.6 million. The bad debt expense was primarily related to agricultural OTC customer account deficits in the Company’s Commercial Hedging segment partially offset by the recovery of a precious metals customer trading account deficit in the Company’s Physical Commodities segment. During the three months ended June 30, 2017, the Company recorded bad debt expense of $0.1 million.

During the nine months ended June 30, 2018, the Company recorded bad debt expense of $2.9 million. The provision for bad debts was primarily related an additional provision of $1.0 million related to a bad debt in the physical coal business for amounts due to the Company from a coal supplier for demurrage and other charges related to contracts with delivery dates subsequent to September 30, ~~2016, respectively.~~

2017 and agricultural OTC customer account deficits in the Company’s Commercial Hedging segment. During the nine months ended June 30, 2017, the Company recorded bad debt expense of $3.9 million, primarily related to $3.8 million of LME Metals customer deficits in the Company’s Commercial Hedging segment. During the nine months ended June 30, 2016, the Company recorded bad debt expense of $4.6 million, primarily related to $1.5 million of customer receivables in the Physical Ag & Energy component of the Physical Commodities segment, $2.7 million of customer deficits in the Commercial Hedging segment and $0.3 million related to short-term notes receivable origination in the Securities segment.Segment.

The Company originates short-term notes receivable from customers with the outstanding balances typically being insured 90% to 98% by a third party, including accrued interest, subject to applicable deductible amounts. The total balance outstanding under insured notes receivable was $2.1 million and $5.0 million as of June 30, 2017 and September 30, 2016, respectively. The Company has sold $2.1 million and $4.6 million of the insured portion of the notes through non-recourse participation agreements with other third parties as of June 30, 2017 and September 30, 2016, respectively. The Company completed its exit of the majority of this activity during fiscal 2016. The Company believes the run-off of the remaining activity will have a minimal impact on the Company. See discussion of notes receivable related to commodity repurchase agreements in ~~Note 10~~.

Note 6 – Physical Commodities Inventory

The Company’s inventories consist of finished physical commodities. Inventories by component of the Company’s Physical Commodities segment are shown below.


(in millions)	June 30, 2017		September 30, 2016		June 30, 2018		September 30, 2017
Physical Ag & Energy⁽¹⁾	$	108.6	$	65.9	$	103.5	$	65.1
Precious metals - held by broker-dealer subsidiary⁽²⁾	11.6		5.3		8.9		13.3
Precious metals - held by non-broker-dealer subsidiaries⁽³⁾	52.3		52.6		100.4		46.4
Physical commodities inventory	$	172.5	$	123.8	$	212.8	$	124.8

⁽¹⁾ Physical Ag & Energy maintains agricultural ~~and energy~~ commodity inventories, including corn, soybeans, wheat, dried distillers grain, canola, sorghum, coffee, cocoa, ~~coal~~cotton, and others. The agricultural commodity inventories are carried at net realizable value, which approximates fair value less disposal costs, with changes in net realizable value included as a component of ‘cost of sales of physical commodities’ on the condensed consolidated income statements. The agricultural inventories have reliable, readily determinable and realizable market prices, have relatively insignificant costs of disposal and are available for immediate delivery. Physical Ag & Energy also maintains energy related inventory, primarily kerosene, which is valued at the lower of cost or net realizable value.

⁽²⁾ Precious metals held by the Company’s subsidiary, INTL FCStone Ltd, a United Kingdom based broker-dealer subsidiary, is measured at fair value, with changes in fair value included as a component of ‘trading gains, net’ on the condensed consolidated income statements, in accordance with U.S. GAAP accounting requirements for broker-dealers.

⁽³⁾Precious metals inventory held by subsidiaries that are not broker-dealers are valued at the lower of cost or ~~market~~net realizable value.

The Company has recorded lower of cost or ~~market~~net realizable adjustments for certain precious metals inventory of ~~$0.5~~$0.0 million and ~~$0.6~~$0.7 million as of June 30, ~~2017~~2018 and September 30, ~~2016~~2017, respectively. The adjustments are included in ‘cost of sales of physical commodities’ in the condensed consolidated income statements.

Note 7 – Goodwill

The carrying value of goodwill is allocated to the Company’s operating segments as follows:


(in millions)	June 30, 2017		September 30, 2016		June 30, 2018		September 30, 2017
Commercial Hedging	$	30.7	$	30.7	$	30.3	$	30.7
Global Payments	6.3		6.3		6.3		6.3
Physical Commodities	2.4		2.4		2.4		2.4
Securities	8.1		8.1		6.8		7.7
Goodwill	$	47.5	$	47.5	$	45.8	$	47.1

The Company recorded $1.3 million in foreign exchange revaluation adjustments on goodwill for the nine months ended June 30, 2018.

Note 8 – Intangible Assets

~~During the nine months ended June 30, 2017 , the Company recorded additional intangible assets of $6.0 million as part of the ICAP acquisition. See Note 16 - Acquisitions for additional discussion.~~

The gross and net carrying values of intangible assets as of the balance sheet dates, by major intangible asset class are as ~~follows:~~follows (in millions):


	June 30, 2017							September 30, 2016							June 30, 2018							September 30, 2017
(in millions)	Gross Amount		Accumulated Amortization			Net Amount		Gross Amount		Accumulated Amortization			Net Amount
Intangible assets subject to amortization
Trade name	$	1.1	$	(1.0	)	$	0.1	$	1.1	$	(0.6	)	$	0.5
															Gross Amount		Accumulated Amortization			Net Amount		Gross Amount		Accumulated Amortization			Net Amount
Intangible assets subject to amortization:
Software programs/platforms	2.7		(2.4		)	0.3		2.7		(2.4		)	0.3		$	2.7	$	(2.5	)	$	0.2	$	2.7	$	(2.5	)	$	0.2
Customer base	20.0		(7.4		)	12.6		14.0		(5.7		)	8.3		20.0		(9.6		)	10.4		20.0		(7.9		)	12.1
Total intangible assets	$	23.8	$	(10.8	)	$	13.0	$	17.8	$	(8.7	)	$	9.1	$	22.7	$	(12.1	)	$	10.6	$	22.7	$	(10.4	)	$	12.3

Amortization expense related to intangible assets was $~~2.1~~1.7 million and ~~$1.2~~$2.1 million for the nine months ended June 30, 2018 and 2017, respectively. Amortization expense related to intangible assets was $0.6 million and ~~2016~~,$0.7 million for the three months ended June 30, 2018 and 2017, respectively.

As of June 30, ~~2017~~2018, the estimated future amortization expense was as follows:


(in millions)
Fiscal 2017 (remaining three months)	$	0.7
Fiscal 2018	2.2
Fiscal 2018 (remaining three months)			$	0.6
Fiscal 2019	2.2		2.2
Fiscal 2020	2.0		2.0
Fiscal 2021 and thereafter	5.9
Fiscal 2021			1.9
Fiscal 2022 and thereafter			3.9
	$	13.0	$	10.6

Note 9 – Credit Facilities

Variable-Rate Credit Facilities

The Company has four committed credit facilities under which the Company and its subsidiaries may borrow up to ~~$532.0~~$594.5 million, subject to the terms and conditions for these facilities. The amounts outstanding under these credit facilities are short term borrowings and carry variable rates of interest, thus approximating fair value. The Company’s committed credit facilities consist of the following:

$262.0 million facility available to INTL FCStone Inc. for general working capital requirements. ~~In May 2017, the Company executed a fourth amendment to the credit facility increasing the available commitment from $247.0 million to $262.0 million.~~

$75.0 million facility available to the Company’s wholly owned subsidiary, INTL FCStone Financial Inc., for short-term funding of margin to commodity exchanges. The facility is subject to annual review and guaranteed by INTL FCStone Inc.

$~~170.0~~232.5 million facility available to the Company’s wholly owned subsidiary, FCStone Merchant Services, LLC, for financing traditional commodity financing arrangements and commodity repurchase agreements. The facility is ~~subject to annual review and is~~ guaranteed by INTL FCStone Inc. ~~In May 2017, the Company executed a third amendment to the credit facility increasing the available commitment from $100.0 million to $170.0 million.~~

$25.0 million facility available to the Company’s wholly owned subsidiary, INTL FCStone Ltd, for short-term funding of margin to commodity exchanges. The facility is subject to annual review and is guaranteed by INTL FCStone Inc.

The Company also has a secured, uncommitted loan facility, under which the Company’s wholly owned subsidiary, INTL FCStone Financial Inc. may borrow up to $50.0 million, collateralized by commodity warehouse receipts, to facilitate U.S. commodity exchange deliveries of its customers, subject to certain terms and conditions of the credit agreement.

~~The Company also has a secured uncommitted loan facility under which the Company’s wholly owned subsidiary, INTL FCStone~~ Ltd, may borrow up to approximately $25.0 million, collateralized by ~~commodity~~commodities warehouse receipts, to facilitate financing of commodities under repurchase agreement services to its customers, subject to certain terms and conditions of the credit agreement. There were no borrowings outstanding under this credit facility as of June 30, 2018 and September 30, 2017.

The Company also has a secured, uncommitted loan facility, under which the Company’s wholly owned subsidiary, ~~Sterne, Agee & Leach,~~INTL FCStone Financial Inc., may borrow up to $75.0 million, collateralized by commodities warehouse receipts, to facilitate U.S. commodity exchange deliveries of its customers, subject to certain terms and conditions of the credit agreement. There were zero and $23.0 million in borrowings outstanding under this credit facility as of June 30, 2018, and September 30, 2017, respectively.

The Company also has a secured, uncommitted loan facility, under which the Company’s wholly owned subsidiary, INTL FCStone Financial Inc., may borrow for short term funding of firm and customer securities margin requirements, subject to certain terms and conditions of the agreement. The uncommitted ~~maximum~~ 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 customer owned securities which have been pledged under a clearing arrangement. The amounts borrowed under the facilities are payable on demand. As of June 30, 2018, there were $48.0 million in borrowings outstanding under this credit facility and no borrowings outstanding as of September 30, 2017.

~~Sterne, Agee & Leach, Inc.~~The Company also has a secured, uncommitted loan facility, under which itthe Company’s wholly owned subsidiary, INTL FCStone Financial Inc., may borrow up to $100.0 million for short term funding of firm and customer securities margin requirements, subject to certain terms and conditions of the agreement. The borrowings are secured by first liens on firm owned marketable securities or customer owned securities which have been pledged under a clearing arrangement. The amounts borrowed under the facilities are payable on demand. There were zero and $11.0 million in borrowings outstanding under this credit facility as of June 30, 2018, and September 30, 2017, respectively.

Note Payable to Bank

The Company has a loan from a commercial bank, secured by equipment purchased with the proceeds. The note is payable in monthly installments, ending in March 2020. The note bears interest at a rate per annum equal to LIBOR plus 2.00%.

~~Senior Unsecured Notes~~

In July 2013, the Company completed an offering of $45.5 million aggregate principal amount of the Company’s 8.5% Senior Notes due 2020 (the “Notes”). The net proceeds of the sale of the Notes were used for general corporate purposes. On September 15, 2016, the Company provided notice, through the trustee of the Notes, to the record holders of the Notes that the Company would redeem the outstanding $45.5 million aggregate principal amount of the Notes in full. On October 15, 2016,

~~the Company redeemed the Notes at a price equal to 100% of the principal amount redeemed plus accrued and unpaid interest to, but not including, the redemption date of October 15, 2016.~~

The following table sets forth a listing of credit facilities, the current committed amounts as of ~~June 30, 2017~~the report date on the facilities, ~~and~~ outstanding borrowings on the facilities, as well as indebtedness on a promissory note ~~and on senior notes~~ as of June 30, ~~2017~~2018 and September 30, ~~2016~~2017:


(in millions)	(in millions)									(in millions)
Credit Facilities	Credit Facilities					Amounts Outstanding				Credit Facilities					Amounts Outstanding
										Borrower	Security	Renewal / Expiration Date	Total Commitment		June 30, 2018		September 30, 2017
Committed Credit Facilities										Committed Credit Facilities
	Borrower	Security	Renewal / Expiration Date	Total Commitment		June 30, 2017		September 30, 2016		INTL FCStone Inc.	Pledged shares of certain subsidiaries	March 18, 2019	$	262.0	$	208.7	$	150.0
	INTL FCStone Inc.	Pledged shares of certain subsidiaries	March 18, 2019	$	262.0	$	185.0	$	136.5	INTL FCStone Financial, Inc.	None	April 4, 2019	75.0		—		—
	INTL FCStone Financial Inc.	None	April 5, 2018	75.0		—		—		FCStone Merchants Services, LLC	Certain commodities assets	November 1, 2019	232.5		102.5		44.2
	INTL FCStone Financial Inc.	Commodity warehouse receipts	n/a	—		—		—		INTL FCStone Ltd.	None	November 7, 2018	25.0		—		—
	FCStone Merchants Services, LLC	Certain commodities assets	May 1, 2018	170.0		57.5		43.5					$	594.5	311.2		194.2
	INTL FCStone Ltd	None	October 27, 2017	25.0		—		—
Uncommitted Credit Facilities										Uncommitted Credit Facilities
	INTL FCStone Ltd	Commodity warehouse receipts	n/a	—		—		—		INTL FCStone Financial, Inc.	Commodities warehouse receipts and certain pledged securities	n/a	$	—	48.0		34.0
	Sterne, Agee & Leach, Inc.	Certain pledged securities	n/a	—		—		—		INTL FCStone Ltd.	Commodities warehouse receipts	n/a	$	—	—		—
				$	532.0	242.5		180.0
Note Payable to Bank	Note Payable to Bank									Note Payable to Bank
	Monthly installments, due March 2020 and secured by certain equipment					2.2		2.8		Monthly installments, due March 2020 and secured by certain equipment					1.4		2.0
Senior Unsecured Notes
	8.50% senior notes, due July 30, 2020 (redeemed on October 15, 2016)					—		44.5
Total indebtedness						$	244.7	$	227.3
Total Payables to lenders under loans										Total Payables to lenders under loans					$	360.6	$	230.2

As reflected above, ~~$270.0~~$362.0 million of the Company’s committed credit facilities are scheduled to expire within twelve months of this filing. The Company intends to renew or replace ~~this facility~~the facilities when ~~it expires,~~they expire, and based on the Company’s liquidity position and capital structure, the Company believes it will be able to do so.

The Company’s credit facility agreements contain financial covenants relating to financial measures on a consolidated basis, as well as on a certain stand-alone subsidiary basis, 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 these covenants could result in the debt becoming payable on demand. As of June 30, ~~2017~~2018, the Company was in compliance with all of its financial covenants under its credit facilities.

Note 10 – Securities and Commodity ~~and Other Repurchase Agreements and Collateralized~~Financing Transactions

~~Commodity Repurchase Arrangements~~

The Company’s outstanding notes receivable in connection with ~~sale/~~repurchase agreements for agricultural and energy commodities, whereby the customers sell to the Company certain commodity inventory and agree to repurchase the commodity inventory at a future date at a fixed ~~rate,~~price were $1.0 million and $0.8 million as of June 30, ~~2017~~2018 and September 30 ~~2016 were $0.6 million and $1.5 million,~~2017, respectively.

~~Resale and Repurchase Agreements, Securities Lending and Borrowing Agreements, and Margin Securities~~

The Company enters 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. These agreements are recorded as collateralized financings at their contractual amounts plus accrued interest. The related interest is recorded in the condensed consolidated income statements as interest income or interest expense, as applicable. In connection with these agreements and transactions, it is the policy of the Company to receive or pledge cash or securities to adequately collateralize such agreements and transactions in accordance with general industry guidelines and practices. The value of the collateral is valued daily and the Company may require counterparties to deposit additional collateral or return collateral pledged, when appropriate. The carrying amounts of these agreements and transactions approximate fair value due to their short-term nature and the level of collateralization.

The Company pledges financial instruments owned to collateralize repurchase ~~agreements and securities loaned~~ agreements. At June 30, 2018 and September 30, 2017, financial instruments owned, at fair value of ~~$171.4~~$17.3 million and $19.4 million, respectively, were pledged as collateral under repurchase ~~agreements and securities loaned~~ agreements. The counterparty has the right to repledge the collateral in connection with these transactions. These financial instruments owned have been pledged as collateral and have been parenthetically disclosed on the condensed consolidated balance sheet.

The Company also has repledged securities borrowed and customer securities held under custodial clearing arrangements to collateralize securities loaned agreements with a fair value of $193.9 million and $108.4 million as of June 30, 2018, and September 30, 2017, respectively. Additionally, the Company has also pledged customer securities held under custodial clearing arrangements with a fair value of $58.8 million and $12.7 million as of June 30, 2018, and September 30, 2017, respectively, to collateralize uncommitted loan facilities with certain banks as discussed further in Note 9.

In addition, as of June 30, 2018 and September 30, 2017, the Company pledged financial instruments owned, at fair value of ~~$1,277.9~~$1,364.5 million and $1,306.4 million, respectively, and securities received under reverse repurchase agreements of ~~which $183.4~~$252.1 million ~~is used~~and $100.2 million, respectively, to cover collateral requirements for tri-party repurchase agreements. For these securities, the ~~counterparty does~~counterparties do not have the right to sell or repledge the ~~collateral.~~collateral and, therefore, they have not been parenthetically disclosed on the condensed consolidated balance sheet.

At June 30, ~~2017,~~2018, the Company has accepted collateral that it is permitted by contract to sell or repledge. This collateral consists primarily of securities received in reverse repurchase agreements, securities borrowed agreements, and margin securities held on behalf of correspondent ~~brokers.~~brokers under custodial clearing agreements. The fair value of such collateral at June 30, 2018 and September 30, 2017, was ~~$791.7~~$1,091.3 million and $631.7 million, respectively, of which ~~$345.0~~$515.6 million and $306.9 million, respectively, was used to cover securities sold short which are recorded in financial instruments sold, not yet purchased on the condensed consolidated balance sheet. In the normal course of business, this collateral is used by the Company to cover financial instruments sold, not yet purchased, to obtain financing in the form of repurchase agreements or bank loans, and to meet counterparties’ needs under lending arrangements. At

The following tables provide the contractual maturities of gross obligations under repurchase and securities lending agreements as of June 30, 2018 and September 30, 2017 ~~substantially all~~(in millions):



	June 30, 2018
	Overnight and Open		Less than 30 Days		30-90 Days		Over 90 Days		Total
Securities sold under agreements to repurchase	$	699.1	$	584.9	$	305.0	$	10.0	$	1,599.0
Securities loaned	204.3		—		—		—		204.3
Gross amount of secured financing	$	903.4	$	584.9	$	305.0	$	10.0	$	1,803.3



	September 30, 2017
	Overnight and Open		Less than 30 Days		30-90 Days		Over 90 Days		Total
Securities sold under agreements to repurchase	$	640.2	$	432.9	$	320.0	$	—	$	1,393.1
Securities loaned	111.1		—		—		—		111.1
Gross amount of secured financing	$	751.3	$	432.9	$	320.0	$	—	$	1,504.2

The following table provides the underlying collateral types of the ~~above collateral had been delivered against financial instruments sold, not yet purchased or repledged by the Company to obtain financing.~~gross obligations under repurchase and securities lending agreements as of June 30, 2018 and September 30, 2017 (in millions):



Securities sold under agreements to repurchase:	June 30, 2018		September 30, 2017
U.S. Treasury obligations	$	3.0	$	7.0
U.S. government agency obligations	342.6		332.6
Asset-backed obligations	77.6		36.4
Agency mortgage-backed obligations	1,175.8		1,017.1
Total securities sold under agreements to repurchase	1,599.0		1,393.1

Securities loaned:
Common stock	204.3		111.1
Total securities loaned	204.3		111.1
Gross amount of secured financing	$	1,803.3	$	1,504.2

Note 11 – Commitments and Contingencies

Legal Proceedings

From time to time and in the ordinary course of business, the Company is involved in various legal actions and proceedings, including tort claims, contractual disputes, employment matters, workers’ compensation claims and collections. The Company carries insurance that provides protection against certain types of claims, up to the policy limits of the insurance.

As of June 30, ~~2017~~2018 and September 30, ~~2016~~2017, the condensed consolidated balance sheets include loss contingency accruals ~~recorded prior to these periods then ended,~~ which are not material, individually or in the aggregate, to the Company’s financial position or liquidity. In the opinion of management, possible exposure from loss contingencies in excess of the amounts accrued, is not likely to be material to the Company’s earnings, financial position or liquidity.

~~There have been no material changes~~The following is a summary of a significant legal matter involving the Company:

Sentinel Litigation

Prior to the ~~legal actions~~July 1, 2015 merger into INTL FCStone Financial, our subsidiary, FCStone, LLC, had a portion of its excess segregated funds invested with Sentinel Management Group Inc. (“Sentinel”), a registered futures commission merchant (“FCM”) and ~~proceedings as compared~~an Illinois-based money manager that provided cash management services to ~~September 30, 2016.~~

~~Contractual Commitments~~

~~Contingent Liability - Acquisition~~

~~Under the terms~~other FCMs. In August 2007, Sentinel halted redemptions to customers and sold certain of the ~~purchase agreement related~~assets it managed to an unaffiliated third party at a significant discount. On August 17, 2007, subsequent to Sentinel’s sale of certain assets, Sentinel filed for bankruptcy protection. In aggregate, $15.5 million of FCStone, LLC’s $21.9 million in invested funds were returned to it before and after Sentinel’s bankruptcy petition. A further amount of $2.0 million was held by the acquisition listed below, the Company has an obligation to pay additional consideration if specific conditions and earnings targets are met. In accordance with the Business Combinations Topic of the ASC, the fair value of the additional consideration is recognized as a contingent liability as of the acquisition date. The contingent liability for these estimated additional purchase price considerations of $0.9 million and $0.8 million are includedbankruptcy trustee in ~~‘accounts payable and other accrued liabilities’~~reserve in the ~~condensed consolidated balance sheets as~~name of ~~June 30, 2017~~FCStone, LLC.

In August 2008, the bankruptcy trustee of Sentinel filed adversary legal proceedings against FCStone, LLC and ~~September 30, 2016. The acquisition date fair value~~a number of ~~additional consideration~~other FCMs, seeking recovery of pre- and post-petition transfers totaling $15.5 million.

On April 23, 2018, following ten years of legal proceedings and a final ruling by the United States Court of Appeals for the Seventh Circuit against the trustee and in favor of INTL FCStone Financial, the United States Supreme Court denied the trustee’s petition for writ of certiorari. Following this, on May 1, 2018, INTL FCStone Financial received funds from the reserve account in the amount of $2.0 million. This amount is ~~remeasured to its fair value each reporting period, with changes~~presented in ~~fair value recorded in current earnings. The change in fair value during the~~ ~~nine months ended June 30, 2017 and 2016~~ ~~were increases of $0.1 million and $0.3 million, respectively, and are included in ‘other’~~‘other gain’ in the condensed consolidated income ~~statements.~~statement.

The ~~Company has a contingent liability relating~~Company’s assessments are based on estimates and assumptions that have been deemed reasonable by management, but that may later prove to ~~the January 2015 acquisition of G.X. Clarke, which~~be incomplete or inaccurate, and unanticipated events and circumstances may result in the payment of additional purchase price consideration. The contingent consideration in no event shall exceed $1.5 million. The estimated total purchase price, including contingent consideration, is $28.7 million as of June 30, 2017, of which $0.9 million remains outstandingoccur that might cause it to change those estimates and ~~is included in ‘accounts payable and other accrued liabilities’ in the condensed consolidated balance sheet.~~assumptions.

Contractual Commitments

Self-Insurance

The Company self-insures its costs related to medical and dental claims. The Company is self-insured, up to a stop loss amount, for eligible participating employees and retirees, and for qualified dependent medical and dental claims, subject to deductibles and limitations. As of June 30, ~~2017,~~2018, the Company had ~~$1.0~~$0.8 million accrued for self-insured medical and dental claims included in ‘accounts payable and other liabilities’ in the condensed consolidated balance sheet.

Note 12 – Capital and Other Regulatory Requirements

The Company’s activities are subject to significant governmental regulation, both in the United States and ~~overseas.~~in the international jurisdictions in which it operates. The subsidiaries of the Company were in compliance with all of their regulatory requirements as of June 30, ~~2017~~2018, as follows:


(in millions)				As of June 30, 2017							As of June 30, 2018
Subsidiary	Regulatory Authority	Jurisdiction	Requirement Type	Actual		Minimum Requirement		Regulatory Authority	Jurisdiction	Requirement Type	Actual		Minimum Requirement
INTL FCStone Financial Inc.	SEC and Commodity Futures Trading Commission ("CFTC")	United States	Net capital	$	148.3	$	77.7	SEC and Commodity Futures Trading Commission ("CFTC")	United States	Net capital	$	157.0	$	93.3
INTL FCStone Financial Inc.	CFTC	United States	Segregated funds	$	2,075.0	$	2,024.9	CFTC	United States	Segregated funds	$	2,452.9	$	2,397.0
INTL FCStone Financial Inc.	CFTC	United States	Secured funds	$	137.8	$	121.9	CFTC	United States	Secured funds	$	162.6	$	144.8
Sterne Agee Clearing Inc.	SEC	United States	Net capital	$	1.3	$	0.1
Sterne, Agee & Leach, Inc.	SEC	United States	Net capital	$	25.3	$	2.0
Sterne Agee Financial Services, Inc.	SEC	United States	Net capital	$	4.8	$	0.3
INTL FCStone Financial Inc.								SEC	United States	Customer reserve	$	—	$	—
INTL FCStone Financial Inc.								SEC	United States	PAB reserve	$	—	$	—
INTL Custody & Clearing Solutions Inc.								SEC	United States	Net capital	$	2.0	$	0.1
SA Stone Wealth Management Inc.								SEC	United States	Net capital	$	3.7	$	0.5
INTL FCStone Ltd⁽¹⁾	Financial Conduct Authority ("FCA")	United Kingdom	Net capital	$	159.5	$	98.6	Financial Conduct Authority ("FCA")	United Kingdom	Net capital	$	193.2	$	91.7
INTL FCStone Ltd(1)	FCA	United Kingdom	Segregated funds	$	93.1	$	90.1
INTL FCStone Ltd								FCA	United Kingdom	Segregated funds	$	167.4	$	163.4
INTL Netherlands BV⁽¹⁾	FCA	United Kingdom	Net capital	$	158.8	$	98.7	FCA	United Kingdom	Net capital	$	192.4	$	91.7
INTL FCStone DTVM Ltda.	Brazilian Central Bank and Securities and Exchange Commission of Brazil	Brazil	Capital adequacy	$	9.4	$	0.5	Brazilian Central Bank and Securities and Exchange Commission of Brazil	Brazil	Capital adequacy	$	11.6	$	2.2
INTL Gainvest S.A.	National Securities Commission ("CNV")	Argentina	Capital adequacy	$	5.3	$	0.2	National Securities Commission ("CNV")	Argentina	Capital adequacy	$	4.7	$	0.1
INTL Gainvest S.A.	CNV	Argentina	Net capital	$	0.5	$	0.1	CNV	Argentina	Net capital	$	1.4	$	0.1
INTL CIBSA S.A.	CNV	Argentina	Capital adequacy	$	7.4	$	1.0	CNV	Argentina	Capital adequacy	$	4.8	$	0.6
INTL CIBSA S.A.	CNV	Argentina	Net capital	$	4.3	$	0.5	CNV	Argentina	Net capital	$	0.9	$	0.4

⁽¹⁾ INTL Netherlands BV is a holding company that includes the ownership equity of INTL FCStone Ltd. The associated net capital amounts and minimum requirements should not be considered in aggregate.

Sterne, Agee & Leach, Inc. is also subject to Rule 15c3-3 of the Securities Exchange Act of 1934, as amended (“Customer Protection Rule”) inclusive of computations for proprietary accounts of broker-dealers (“PABs”). As of June 30, 2017, Sterne, Agee & Leach, Inc.~~had $1,000 of cash in a Special Reserve Bank Account (“SRBA”) for the exclusive benefit of customers under the Customer Protection Rule pursuant to SEC Rule 15c3-3,~~ ~~Computation for Determination of Reserve Requirements. Also, as of June 30, 2017, Sterne, Agee & Leach, Inc. had $1.8 million of cash in a SRBA pursuant to SEC Rule 15c3-3,~~ ~~Computation for Determination of PAB Reserve Requirements.~~ ~~As of June 30, 2017 , the amount on deposit in both the customers and the PABs SRBA was less than the reserve requirement and additional funds were deposited timely subsequent to period-end.~~

Certain other non-U.S. subsidiaries of the Company are also subject to capital adequacy requirements promulgated by authorities of the countries in which they operate. As of June 30, ~~2017~~2018, these subsidiaries were in compliance with their local capital adequacy requirements.

Note 13 – Other Expenses

Other expenses for the three and nine months ended June 30, ~~2017~~2018 and ~~2016~~2017 consisted of the following:


	Three Months Ended June 30,				Nine Months Ended June 30,				Three Months Ended June 30,				Nine Months Ended June 30,
(in millions)	2017		2016		2017		2016		2018		2017		2018		2017
Contingent consideration, net	$	—	$	—	$	0.1	$	0.3	$	—	$	—	$	—	$	0.1
Insurance	0.7		0.4		2.0		1.1		0.7		0.7		1.9		2.0
Advertising, meetings and conferences	1.0		1.2		3.1		4.2		1.0		1.0		5.3		3.1
Non-trading hardware and software maintenance and software licensing	3.2		1.8		8.9		4.6
Office supplies and printing	0.6		0.3		1.7		0.9		0.5		0.6		1.3		1.7
Other clearing related expenses	0.9		0.5		1.6		1.0		0.8		0.9		1.8		1.6
Other non-income taxes	1.2		1.1		3.5		3.2		1.3		1.2		3.8		3.5
Other	2.3		1.8		6.9		5.5		1.7		2.3		6.3		6.9
Total other expenses	$	9.9	$	7.1	$	27.8	$	20.8	$	6.0	$	6.7	$	20.4	$	18.9

Note 14 – Accumulated Other Comprehensive Loss, Net

Comprehensive income consists of net income and other gains and losses affecting stockholders’ equity that, under U.S. GAAP, are excluded from net income. Other comprehensive loss includes net actuarial losses from defined benefit pension plans and foreign currency translation adjustments.

The following table summarizes the changes in accumulated other comprehensive loss, net for the nine months ended June 30, ~~2017.~~2018.


(in millions)	Foreign Currency Translation Adjustment			Pension Benefits Adjustment			Accumulated Other Comprehensive Loss			Foreign Currency Translation Adjustment			Pension Benefits Adjustment			Accumulated Other Comprehensive Loss
Balances as of September 30, 2016	$	(20.1	)	$	(4.5	)	$	(24.6	)
Balances as of September 30, 2017										$	(21.5	)	$	(3.0	)	$	(24.5	)
Other comprehensive loss, net of tax	(2.1		)	—			(2.1		)	(8.7		)	—			(8.7		)
Balances as of June 30, 2017	$	(22.2	)	$	(4.5	)	$	(26.7	)
Balances as of June 30, 2018										$	(30.2	)	$	(3.0	)	$	(33.2	)

Note 15 – Income Taxes

~~In determining the quarterly~~The income tax provision for interim periods is comprised of tax on ordinary income ~~taxes, management~~(loss) provided at the most recent estimated annual effective tax rate, adjusted for the tax effect of discrete items. Management uses an estimated annual effective tax rate ~~which is~~ based on the ~~expected annual~~forecasted pretax income (loss) and statutory tax rates in the various jurisdictions in which it operates. The Company’s effective tax rate differs from the U.S. statutory rate primarily due to state and local taxes, and differing statutory tax rates applied to the income of non-U.S. subsidiaries. The Company records the tax effect of certain discrete items, including the effects of changes in tax laws, tax rates and adjustments with respect to valuation allowances or other unusual or nonrecurring tax adjustments, in the interim period in which they occur, as an addition to, or reduction from, the income tax provision, rather than being included in the estimated effective annual income tax rate. In addition, jurisdictions with a projected loss for the year or a year-to-date loss where no tax benefit can be recognized are excluded from the estimated annual effective income tax rate.

The Company is required to assess its deferred tax assets and the need for a valuation allowance at each reporting period. This assessment requires judgment on the part of management with respect to benefits that may be realized. The Company will record a valuation allowance against deferred tax assets when it is considered more likely than not that all or a portion of the deferred tax assets will not be realized.

Effects of the Tax Cuts and Jobs Act

On December 22, 2017, the President of the United States signed and enacted into law H.R. 1, the Tax Cuts and Jobs Act (“the Tax Reform”). Among the significant changes to the U.S. Internal Revenue Code, the Tax Reform lowers the U.S. federal corporate income tax rate from 35% to 21%, effective January 1, 2018. The Company will compute its income tax expense (benefit) for the September 30, 2018 tax year using a U.S. statutory tax rate of 24.5%. The 21% U.S. statutory tax rate will apply to fiscal years ending September 30, 2019 and thereafter. For the nine months ended June 30, 2018, the Company recorded tax expense of $8.8 million related to the remeasurement of deferred tax assets and liabilities. For the three months ended December 31, 2017, the Company recorded tax expense of $8.9 million related to the remeasurement of deferred tax assets and liabilities. Due to additional information becoming available in the three months ended March 31, 2018, the Company recorded a benefit of $0.1 million related to the remeasurement of deferred tax assets and liabilities. There were no adjustments recorded in the three months ended June 30, 2018. This amount remains provisional. The Tax Reform also includes a one-time mandatory repatriation transition tax on previously untaxed accumulated and current earnings and profits (E&P) of certain of the Company’s foreign subsidiaries. To determine the amount of the transition tax, the Company must determine, in addition to other factors, the amount of post 1986 E&P of the relevant subsidiaries, as well as the amount of non-US income taxes paid on such earnings. The Company made a reasonable estimate of the transition tax and recorded a provisional transition tax obligation of $12.0 million in the three months ended December 31, 2017. In the three months ended March 31, 2018, the Company recorded a benefit of $0.7 million due to revised E&P computations, net operating loss carryforward available, and revised non-US income taxes paid. There were no adjustments recorded in the three months ended June 30, 2018. The total provisional transition tax obligation to date is $11.3 million. The Company continues to gather additional information to more precisely compute the amount of the transition tax.

The SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118), which provides guidance on accounting for the tax effects of the Tax Reform. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Reform enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Reform for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Reform is incomplete but it can determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a

provisional estimate to be included in the financial statements, it should continue to apply ASC 740 based on the tax laws that were in effect immediately before the enactment of the Tax Reform.

While the Company can make reasonable estimates of the impact of the reduction in corporate rate and the deemed repatriation transition tax, the final impact of the Tax Reform may differ from these estimates, due to, among other things, changes in interpretations and assumptions, additional guidance that may be issued by taxing authorities, and actions the Company may take.

The Tax Reform also establishes new tax laws that will affect the fiscal year ending September 30, 2019, including, but not limited to, (1) elimination of the corporate alternative minimum tax, (2) a new provision designed to tax global intangible low-taxed income (GILTI), (3) limitations on the utilization of net operating losses generated after December 31, 2017 to 80 percent of taxable income per tax year, (4) the creation of the base erosion anti-abuse tax (BEAT), (5) a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries, and (6) limitations on the deductibility of certain executive compensation.

Effects of tax law changes where a reasonable estimate of the accounting effects has not yet been made include additional limitations on certain meals and entertainment expenses and the unlimited carryforward of net operating losses. The Company has also not yet determined the potential tax impact of provisions that are not yet effective, such as GILTI, BEAT, elimination of U.S. tax on dividends of future foreign earnings, and a limitation of the utilization of net operating losses generated after fiscal 2018 to 80 percent of taxable income per tax year. The Company expects to make the policy election to treat GILTI as a period expense in the fiscal year ending September 30, 2019.

Current and Prior Period Tax Expense

Income tax expense of $8.9 million and $2.3 million for the three months ended June 30, 2018 and 2017, respectively, and income tax expense of $41.2 million and $7.7 million for the nine months ended June 30, 2018 and 2017, respectively, reflect estimated federal, foreign, state and local taxes. Due to Tax Reform, the Company recorded discrete expense of $20.1 million. This consists of expense of $20.9 million in the three months ended December 31, 2017, and benefit of $0.8 million in the three months ended March 31, 2018. There were no adjustments recoded in the three months ended June 30, 2018. Tax expense, excluding the discrete expense related to the Tax Reform, was $8.8 million for the three months ended June 30, 2018, and $21.0 million for the nine months ended June 30, 2018.

For the three months ended June 30, 2018 and 2017, the Company’s effective tax rate was 27% and 15%, respectively. For the nine months ended June 30, 2018 and 2017, the Company’s effective tax rate was 51% and 20%, respectively. For the nine months ended June 30, 2018, the discrete expense of $20.1 million related to Tax Reform, increased the effective tax rate by 25%. The effective rate for the nine months ended June 31, 2018 was 26%, excluding the impacts of Tax Reform. The Company’s effective tax rate decreased 0.4% due to excess tax benefits on share-based compensation recognized through the first nine months of 2018 related to the adoption of ASU 2016-09. See Note 1 for more information regarding the adoption of ASU 2016-09. The effective rate, excluding the impacts of Tax Reform, was higher than the U.S. federal statutory rate due to U.S. state and local taxes and foreign permanent differences.

The valuation allowance for deferred tax assets as of June 30, ~~2017~~2018 and September 30, ~~2016~~2017 was ~~$3.6 million.~~$4.5 million and $4.0 million, respectively. The valuation allowances as of June 30, ~~2017~~2018 and September 30, ~~2016~~2017 were primarily related to U.S., state and local and foreign net operating loss carryforwards that, in the judgment of management, are not more likely than not to be realized. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some or all of the deferred tax assets will not be realized.

The Company incurred U.S. federal, state, and local taxable (losses) income ~~(losses)~~ for the fiscal years ended September 30, 2017, 2016, and 2015 ~~and 2014~~ of $(20.5) million, $(9.7) million and $16.5 million, ~~and $(18.4) million,~~ respectively. ~~There are no significant~~The differences between actual levels of past taxable (losses) income and ~~the results of operations, before~~pre-tax book (losses) income ~~taxes~~are primarily attributable to temporary differences in these jurisdictions. When evaluating if U.S. federal, state, and local deferred tax assets are realizable, the Company considered deferred tax liabilities of ~~$4.5~~$3.3 million that are scheduled to reverse from ~~2017~~2018 to ~~2019~~2020 and ~~$1.3~~$2.2 million of deferred tax liabilities associated with unrealized gains in securities which the Company could sell, if necessary. Furthermore, the Company considered its ability to implement business and tax planning strategies that would allow the remaining U.S. federal, state, and local deferred tax assets, net of valuation allowances, to be realized within approximately 115 years. Based on the tax planning strategies that are prudent and feasible, management believes that it is more likely than not that the Company will realize the tax benefit of the deferred tax assets, net of the existing valuation allowance, in the future. However, the realization of deferred income taxes is dependent on future events, and changes in estimates in future periods could result in adjustments to the valuation allowance.

~~Income tax expense of $2.3 million and~~ ~~$6.8 million~~ for the three months ended June 30, 2017 and 2016 and income tax expense of $7.7 million and $15.6 million for the nine months ended June 30, 2017 and 2016, respectively, reflect estimated federal, foreign, state and local taxes.

For the three months ended June 30, 2017 and 2016, the Company’s effective tax rate was 15% and 32%, respectively. For the nine months ended June 30, 2017 and 2016, the Company’s effective tax rate was 20% and 29%, respectively. The effective tax rate during the periods above, after consideration for discrete items, was lower than the U.S. federal statutory rate primarily due to a higher mix of earnings taxed at lower rates in foreign jurisdictions.

The Company and its subsidiaries file income tax returns with the U.S. federal jurisdiction and various state, local and foreign jurisdictions. The Company has open tax years ranging from September 30, ~~2008~~2010 through September 30, ~~2016~~2017 with U.S. federal and state and local taxing authorities. In the U.K., the Company has open tax years ~~ending~~ranging from September 30, ~~2015~~2016 to

September 30, ~~2016.~~2017. In Brazil, the Company has open tax years ranging from December 31, ~~2011~~2012 through December 31, ~~2016.~~2017. In Argentina, the Company has open tax years ranging from September 30, ~~2009~~2010 to September 30, ~~2016.~~2017. In Singapore, the Company has open tax years ranging from September 30, 2012 to September 30, 2017.

~~Note 16 –Acquisitions~~

~~ICAP’s EMEA Oils Broking Business~~

In September 2016, the Company’s subsidiary, INTL FCStone Ltd (“IFL”), reached an agreement to acquire the London-based EMEA oils business of ICAP Plc. The acquisition was effective on October 1, 2016, after IFL received approval from the U.K. Competition and Markets Authority. The business included over 30 front office employees across the fuel, crude, middle distillates, futures and options desks that have relationships with over 200 commercial and institutional customers throughout Europe, the Middle East and Africa. The terms of the agreement included cash consideration of $6.0 million paid directly to ICAP as well as incentive amounts payable to employees acquired based upon their continued employment. The cash consideration paid to ICAP was dependent upon the number of brokers who accepted IFL’s employment offer. The transaction was accounted for as an asset acquisition in accordance with FASB ASC 805-50 and FASB ASC 350. The cash consideration paid was allocated entirely to the intangible asset recognized related to the customer relationships acquired. The intangible asset was assigned to the Clearing and Execution Services segment and will be amortized over a useful life of 5 years.

Note 1716 – Segment Analysis

The Company reports its operating segments based on services provided to customers. The Company’s business activities are managed as operating segments and organized into reportable segments as follows:

Commercial Hedging (includes components Financial Agricultural (Ag) & Energy and LME Metals)

Global Payments

Securities (includes components Equity Market-Making, Debt Trading, Investment Banking, and Asset Management)

Physical Commodities (includes components Precious Metals and Physical Ag & Energy)

Clearing and Execution Services (includes components Exchange-traded Futures & Options, FX Prime Brokerage, Correspondent Clearing, Independent Wealth Management, and Derivative Voice Brokerage)

The total revenues reported combine gross revenues for the physical commodities business for subsidiaries that are not broker-dealers and net revenues for all other businesses. In order to reflect the way that the Company’s management views the results, the table below also reflects the segment contribution to ‘operating revenues’, which is shown on the face of the condensed consolidated income statements and which is calculated by deducting physical commodities cost of sales from total revenues.

Segment data includes the profitability measure of net contribution by segment. Net contribution is one of the key measures used by management to assess the performance of each segment and for decisions regarding the allocation of the Company’s resources. Net contribution is calculated as revenue less direct cost of sales, transaction-based clearing expenses, variable compensation, introducing broker commissions, and interest expense. Variable compensation paid to risk management consultants/traders generally represents a fixed percentage of ~~an amount equal to~~ revenues generated, and in some cases, revenues ~~produced~~generated less transaction-based clearing charges, base salaries and an overhead allocation.

Segment data also includes segment income which is calculated as net contribution less non-variable direct expenses of the segment. These non-variable direct expenses include trader base compensation and benefits, operational employee compensation and benefits, communication and data services, business development, professional fees, bad debt expense and other direct expenses.

Inter-segment revenues, charges, receivables and payables are eliminated upon consolidation, except revenues and costs related to foreign currency transactions undertaken on an arm’s length basis by the foreign exchange trading business for the securities business. The foreign exchange trading business competes for this business as it does any other business. If its rates are not competitive, the securities businesses buy or sell their foreign currency through other market counterparties.

On a recurring basis, the Company sweeps excess cash from certain U.S. operating segments to a centralized corporate treasury function in exchange for an intercompany receivable asset. The intercompany receivable asset is eliminated during consolidation, and therefore this practice may impact reported total assets between segments.

Information for the reportable segments is shown in accordance with the Segment Reporting Topic of the ASC as ~~follows:~~follows


	Three Months Ended June 30,						Nine Months Ended June 30,						Three Months Ended June 30,					Nine Months Ended June 30,
(in millions)	2017			2016			2017			2016			2018		2017			2018			2017
Total revenues:
Commercial Hedging	$	57.1		$	71.9		$	177.3		$	182.0		$	77.9	$	57.1		$	217.7		$	177.3
Global Payments	22.5			18.4			67.1			54.1			26.0		22.5			74.0			67.1
Securities	40.0			41.6			115.3			136.0			49.9		40.0			148.4			115.3
Physical Commodities	5,320.3			4,701.2			16,495.2			11,506.4			6,873.4		5,320.3			20,852.3			16,495.2
Clearing and Execution Services	65.4			33.3			193.2			96.4			88.9		65.4			249.1			193.2
Corporate unallocated	0.6			2.1			(7.0		)	2.4			2.2		0.6			2.4			(7.0		)
Total	$	5,505.9		$	4,868.5		$	17,041.1		$	11,977.3		$	7,118.3	$	5,505.9		$	21,543.9		$	17,041.1
Operating revenues (loss):
Commercial Hedging	$	57.1		$	71.9		$	177.3		$	182.0		$	77.9	$	57.1		$	217.7		$	177.3
Global Payments	22.5			18.4			67.1			54.1			26.0		22.5			74.0			67.1
Securities	40.0			41.6			115.3			136.0			49.9		40.0			148.4			115.3
Physical Commodities	12.0			7.7			33.0			21.5			14.9		12.0			41.0			33.0
Clearing and Execution Services	65.4			33.3			193.2			96.4			88.9		65.4			249.1			193.2
Corporate unallocated	0.6			2.1			(7.0		)	2.4			2.2		0.6			2.4			(7.0		)
Total	$	197.6		$	175.0		$	578.9		$	492.4		$	259.8	$	197.6		$	732.6		$	578.9
Net operating revenues (loss):
Commercial Hedging	$	44.2		$	57.7		$	140.3		$	145.6		$	61.0	$	44.2		$	172.0		$	140.3
Global Payments	20.3			16.4			60.0			48.2			24.7		20.3			69.6			60.0
Securities	24.6			27.7			73.8			95.5			23.6		24.6			74.7			73.8
Physical Commodities	10.2			6.2			27.3			17.7			11.4		10.2			32.3			27.3
Clearing and Execution Services	25.6			10.0			75.1			30.8			32.7		25.6			91.9			75.1
Corporate unallocated	(1.6		)	(0.7		)	(15.0		)	(4.9		)	1.2		(1.6		)	(1.3		)	(15.0		)
Total	$	123.3		$	117.3		$	361.5		$	332.9		$	154.6	$	123.3		$	439.2		$	361.5
Net contribution:
(Revenues less cost of sales of physical commodities, transaction-based clearing expenses, variable bonus compensation, introducing broker commissions and interest expense)
(Revenues less cost of sales of physical commodities, transaction-based clearing expenses, variable compensation, introducing broker commissions and interest expense)													(Revenues less cost of sales of physical commodities, transaction-based clearing expenses, variable compensation, introducing broker commissions and interest expense)
Commercial Hedging	$	32.6		$	41.4		$	102.9		$	103.6		$	44.3	$	32.6		$	125.5		$	102.9
Global Payments	16.2			13.2			47.9			38.6			19.9		16.2			55.9			47.9
Securities	20.2			21.2			58.9			75.7			17.5		20.2			55.6			58.9
Physical Commodities	7.6			3.6			19.9			12.3			8.1		7.6			23.1			19.9
Clearing and Execution Services	19.1			8.0			56.7			24.1			24.4		19.1			68.8			56.7
Total	$	95.7		$	87.4		$	286.3		$	254.3		$	114.2	$	95.7		$	328.9		$	286.3
Segment income:
(Net contribution less non-variable direct segment costs)
Commercial Hedging	$	16.3		$	25.4		$	50.4		$	54.2		$	25.3	$	16.3		$	74.0		$	50.4
Global Payments	12.9			9.9			37.8			29.2			16.0		12.9			44.1			37.8
Securities	12.9			14.4			37.5			54.5			10.3		12.9			34.1			37.5
Physical Commodities	4.3			1.3			11.2			4.2			5.1		4.3			11.8			11.2
Clearing and Execution Services	6.5			3.4			20.1			10.4			13.7		6.5			36.9			20.1
Total	$	52.9		$	54.4		$	157.0		$	152.5		$	70.4	$	52.9		$	200.9		$	157.0
Reconciliation of segment income to income before tax:	Reconciliation of segment income to income before tax:												Reconciliation of segment income to income before tax:
Segment income	$	52.9		$	54.4		$	157.0		$	152.5		$	70.4	$	52.9		$	200.9		$	157.0
Net costs not allocated to operating segments	37.9			33.0			119.3			99.0			39.5		37.9			121.9			119.3
Other gain													2.0		—			2.0			—
Income before tax	$	15.0		$	21.4		$	37.7		$	53.5		$	32.9	$	15.0		$	81.0		$	37.7

(in millions)							As of June 30, 2017			As of September 30, 2016			As of June 30, 2018		As of September 30, 2017
Total assets:
Commercial Hedging							$	1,591.0		$	1,637.5		$	1,848.5	$	1,650.3
Global Payments							257.2			191.4			284.3		199.5
Securities							2,300.7			2,130.7			2,712.7		2,101.7
Physical Commodities							304.2			258.0			307.4		339.5
Clearing and Execution Services							1,590.5			1,617.4			2,026.3		1,818.9
Corporate unallocated							152.3			115.3			105.7		133.5
Total							$	6,195.9		$	5,950.3		$	7,284.9	$	6,243.4

Note 17 - Acquisitions

On June 12, 2018, the Company executed a sale and purchase agreement to acquire Carl Kliem S.A. Carl Kliem S.A. is an independent interdealer broker based in Luxembourg, a leading European financial hub, which provides foreign exchange, interest rate and fixed income products to a diverse, institutional client base across the European Union. Carl Kliem S.A. employs approximately 40 people and has over 400 active institutional clients. The closing of the agreement is conditional upon approval of the Luxembourg financial sector supervisory authority, the Commission de Surveillance du Secteur Financier. The purchase price is equal to the net tangible book value on the completion date minus restructuring costs and is not expected to be material to the Company.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Throughout this document, unless the context otherwise requires, the terms “Company”, “we”, “us” and “our” refer to INTL FCStone Inc. and its consolidated subsidiaries. INTL FCStone Inc. is a Delaware corporation.

The following discussion and analysis should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report. This Quarterly Report on Form 10-Q 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 INTL FCStone Inc. and its subsidiaries, including adverse changes in economic, political and market conditions, losses from our market-making and trading activities arising from counter-party 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, federal and state securities laws and the impact of changes in technology in the securities and commodities trading industries. 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. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. We caution readers that any forward-looking statements are not guarantees of future performance.

Overview

INTL FCStone Inc. is a diversified global financial services organization providing execution, risk management and advisory services, market intelligence, and clearing services across asset classes and markets around the world. We help our customers access market liquidity, maximize profits and manage risk.

We are a leader in the development of specialized financial services in commodities, securities, global payments, foreign exchange and other markets. Our revenues are derived primarily from financial products and advisory services intended to fulfill our customers’ real needs and provide bottom-line benefits to their businesses. We work to create added value for our customers by providing access to global financial markets using our industry and financial expertise, deep partner and network relationships, insight and guidance, and integrity and transparency. We believe our customer-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.

Our leadership positions span markets such as commodity risk management advisory services; global payments; market-making in international equities and other securities; fixed income; correspondent securities clearing and independent wealth management; physical trading and hedging of precious metals and select other commodities; execution of listed futures and options on futures contracts on all major commodity exchanges and foreign currency trading, among others. These businesses are supported by our global infrastructure of regulated operating subsidiaries, advanced technology platform and team of more than 1,600 employees. We currently serve more than 20,000 predominantly wholesale organizations, located in more than 130 countries. Our ~~recent acquisition of the Sterne Agee~~ correspondent clearing and independent wealth management businesses ~~added~~include approximately 50 correspondent clearing relationships with more than 120,000 underlying individual securities accounts, of which 65,000 are related to the independent wealth management ~~business acquired.~~business.

Our customers include producers, processors and end-users of nearly all widely traded physical commodities; commercial counterparties who are end-users of our products and services; governmental and non-governmental organizations; and commercial banks, asset managers, introducing broker-dealers, insurance companies, brokers, institutional investors and major investment banks. We believe our customers value us for our focus on their needs, our expertise and flexibility, our global reach, our ability to provide access to hard-to-reach markets and opportunities, and our status as a well-capitalized and regulatory-compliant organization.

We believe we are well positioned to capitalize on key trends impacting the financial services sector. Among others, these trends include the impact of increased regulation on banking institutions and other financial services providers; increased

consolidation, especially of smaller sub-scale financial services providers and independent securities clearing firms; the growing importance and complexity of conducting secure cross-border transactions; and the demand among financial institutions to transact with well-capitalized counterparties.

We focus on mitigating exposure to market risk, ensuring adequate liquidity to maintain daily operations and making non-interest expenses variable, to the greatest extent possible.

Effects of the Tax Cuts and Jobs Act

Our accounting for certain elements of the Tax Reform is incomplete. However, as of June 30, 2018, we can determine a reasonable estimate for certain effects of the Tax Reform and have recorded an estimate as a provisional amount. The provisional remeasurement of the deferred tax assets and liabilities resulted in $8.8 million of discrete tax expense, which increased the effective tax rate by 11% during the nine months ended June 30, 2018. The provisional remeasurement amount is expected to change as data becomes available allowing more accurate scheduling of the deferred tax assets and liabilities.

To determine the amount of the transition tax, we must determine, in addition to other factors, the amount of post 1986 E&P of the relevant subsidiaries, as well as the amount of non-US income taxes paid on such earnings. We can make a reasonable estimate of the transition tax and recorded a provisional transition tax obligation of $11.3 million, which increased the effective tax rate by 14% during the nine months ended June 30, 2018. We continue to gather additional information to more precisely compute the amount of the transition tax.

While we can make reasonable estimates of the impact of the reduction in corporate rate and the deemed repatriation transition tax, the final impact of the Tax Reform may differ from these estimates, due to, among other things, changes in our interpretations and assumptions, additional guidance that may be issued by taxing authorities, and actions we may take.

Executive Summary

We achieved ~~operating revenues growth of 13%, or $22.6 million,~~another strong performance in the third quarter ~~compared to~~of fiscal 2018, with operating revenues of $259.8 million, representing 31% growth over the prior ~~year,~~year. Continued market volatility in our key markets resulted in increased customer activity and a widening of spreads, which combined with increases in short term interest rates and average customer balances resulted in growth in operating revenues across all of our operating segments, including record quarterly operating revenues in both our Global Payments and Clearing and Execution Services segments (“CES”)~~, Global Payments and Physical Commodities segments, partially offset by lower~~.

The growth in operating revenues inwas led by our CES segment, which increased $23.5 million versus the prior year, while our largest segment, Commercial Hedging ~~and Securities segments. Our CES segment increased~~added $20.8 million in operating revenues ~~by $32.1~~versus the prior year. The Securities segment added $9.9 million primarily related to contributions from our recent acquisitions of the correspondent securities clearing and independent wealth management businesses of Sterne Agee and ICAP plc’s London-based EMEA oil voice brokerage business of $25.3 million and $6.9 million, respectively.

~~Overall, segment income declined 3%, with the Commercial Hedging and Securities segments declining $9.1 million and $1.5 million, respectively. Partially offsetting these declines,~~while the Global Payments and Physical Commodities segments ~~each~~ increased ~~$3.0 versus~~operating revenues by $3.5 million and $2.9 million, respectively.

Overall, segment income increased 33%, or $17.5 million with the ~~prior year period,~~Commercial Hedging and CES segments adding $9.0 million and $7.2 million respectively. In addition, Global Payments segment income increased $3.1 million versus the prior year period. Our Physical Commodities increased segment income by $0.8 million versus the prior year. These gains were partially offset by a $2.6 million decline in segment income in our ~~CES segment.~~Securities segment versus the prior year.

Commercial Hedging segment income ~~declined~~increased 55%, primarily as a result of ~~an decreases~~strong growth in both exchange-traded and OTC revenues as well as a ~~modest~~$3.4 million increase in interest income. Non-variable direct expenses increased $2.7 million, primarily impacted by a $2.5 million increase in bad debt expense related to two customers in our agricultural commodities OTC business.

CES segment income increased 111%, primarily as a result of the increase in operating revenues, most notably a 77% increase in our Exchange-traded Futures & Options business, driven by a 55% increase in exchange-traded volumes as well as a $4.9 million increase in interest income. In addition, cost savings initiatives in our FX Prime Brokerage and Correspondent Clearing businesses resulted in a $1.9 million decline in non-variable direct expenses.

Global Payments segment income increased 24%, primarily as a result of the increase in operating revenues, driven by a 18% increase in the average revenue per trade versus the prior year period. In addition, introducing broker commissions declined $0.8 million, which was partially offset by a $0.6 million increase in non-variable direct expenses. ~~These declines were partially offset~~

Segment income in our Physical Commodities segment increased 19%, driven by anthe increase in operating revenues as well as a $0.3 million decline in non-variable direct expenses. While operating revenues in our Securities segment increased 25%, segment income declined $2.6 million. This decline was the result of a $4.3 million increase in transaction-based clearing expenses and a $7.8 million increase in interest ~~income, driven by~~expense due to the effect of an increase in short term interest ~~rates.~~

~~CES segment~~rates on our institutional fixed income ~~increased, primarily as a result of the acquisition of the correspondent securities clearing~~business and independent wealth management businesses of Sterne Agee in the fourth quarter of fiscal 2016 as well as the acquisition of ICAP plc’s London-based EMEA oil voice brokerage business at the beginning of our current year first quarter. The Sterne Agee businesses contributed $3.0 million in segment income in the third quarter while the Derivative Voice Brokerage business contributed $1.2 million. These increases were partially offset by $0.8 million and $0.2 million declinesan increase in our ~~Exchange-traded Futures & Options and FX Prime Brokerage businesses, respectively.~~

~~The growth~~securities lending activities. In addition, the prior year period includes a $2.5 million realized gain on the sale of exchange shares in Physical Commodities segment income was driven by $2.8 million and $0.2 million increases in our Precious Metals and Physical Ag & Energy segment incomes, respectively. Finally, the decline in Securities segment income was primarily driven by weaker operating revenues in our Equity Market-Making and Debt Trading business driven by lower market volatility which led to spread compression in these businesses.Argentina.

On the expense side, we continue to focus on maintaining our variable cost model and limiting the growth of our non-variable expenses. To that end, variable expenses were ~~57%~~63% of total expenses in the current period as compared to ~~61%~~57% in the prior ~~year.~~year period. Non-variable expenses increased ~~29%~~4%, or ~~$16.8~~$2.9 million year-over-year, primarily as a result of ~~$10.7~~a $1.5 million increase in bad debt expense as well as a $1.1 million increase in professional fees.

The third quarter results include $2.6 million in ~~incremental expenses, including non-variable compensation, trade system costs, equipment and office space rental, professional fees and market information, from~~operating revenues, presented in ‘trading gains, net’, related to economic hedges in place against the ~~acquisition~~effect of the ~~Sterne Agee~~devaluation of the Argentina peso on our Argentine operations. The Argentine peso has historically served as our functional currency in the Argentine operations, and ~~ICAP businesses.~~as such the revaluation of the net assets of our Argentine subsidiaries is recorded as a component of accumulated other comprehensive loss, net in the condensed consolidated balance sheets. Recently, the Argentinian economy was determined to be highly inflationary and as such, beginning July 1, 2018, the functional currency for our Argentine subsidiaries will change to the U.S. dollar and prospectively the corresponding revaluations of the net assets of these subsidiaries will be recorded in earnings each quarter in the condensed consolidated income statements while the highly inflationary designation continues.

Finally, the third quarter results include a gain of $2.0 million related to a judgment received in final settlement of our claim in the Sentinel Management Group Inc. bankruptcy proceeding. Please see Note 11 - Commitments and Contingencies for additional information on the Sentinel litigation.

Net income ~~declined 13%~~nearly doubled, to a record $24.0 million in the third quarter, compared to $12.7 million in the ~~third quarter as compared to the~~ prior year. While the acquired correspondent securities clearing and independent wealth management business added $3.0 million in incremental segment income, the additional Corporate unallocated expenses in these acquired businesses, resulted in a $0.7 million net loss in the current period. These acquired business were break even in the immediately preceding second quarter and a $0.6 million net loss in the first quarter of fiscal 2017. The acquired oil voice brokerage business, recognized segment income of $1.2 million in the current period with $0.3 million of acquired Corporate unallocated expenses.

Selected Summary Financial Information

Results of Operations

Total revenues reported combine gross revenues for the physical commodities business and net revenues for all other businesses. In order to reflect the way that we view the results, the table below reflects the calculation of the subtotal ‘operating revenues’, which is calculated by deducting physical commodities cost of sales from total revenues. Below is a discussion of the results of our operations, as viewed by management, for the three and nine ~~months~~month periods ended June 30, ~~2017~~2018 and ~~2016.~~2017.

Financial Information (Unaudited)


	Three Months Ended June 30,						Nine Months Ended June 30,						Three Months Ended June 30,						Nine Months Ended June 30,
(in millions)	2017		% Change		2016		2017		% Change		2016		2018		% Change		2017		2018		% Change		2017
Revenues:
Sales of physical commodities	$	5,317.0	13	%	$	4,703.2	$	16,486.3	43	%	$	11,503.8	$	6,866.2	29	%	$	5,317.0	$	20,836.4	26	%	$	16,486.3
Trading gains, net	79.9		(4	)%	83.4		246.9		1	%	243.8		103.4		29	%	79.9		296.9		20	%	246.9
Commission and clearing fees	73.0		25	%	58.2		212.5		33	%	159.4		96.6		32	%	73.0		271.6		28	%	212.5
Consulting and management fees	16.3		104	%	8.0		47.5		74	%	27.3
Consulting, management, and account fees													18.3		12	%	16.3		53.2		12	%	47.5
Interest income	19.6		26	%	15.6		47.7		11	%	42.8		33.7		72	%	19.6		85.6		79	%	47.7
Other income	0.1		—		0.1		0.2		—	%	0.2		0.1		—		0.1		0.2		—	%	0.2
Total revenues	5,505.9		13	%	4,868.5		17,041.1		42	%	11,977.3		7,118.3		29	%	5,505.9		21,543.9		26	%	17,041.1
Cost of sales of physical commodities	5,308.3		13	%	4,693.5		16,462.2		43	%	11,484.9		6,858.5		29	%	5,308.3		20,811.3		26	%	16,462.2
Operating revenues	197.6		13	%	175.0		578.9		18	%	492.4		259.8		31	%	197.6		732.6		27	%	578.9
Transaction-based clearing expenses	33.9		(4	)%	35.2		101.2		3	%	97.9		49.0		45	%	33.9		136.6		35	%	101.2
Introducing broker commissions	29.2		97	%	14.8		86.1		111	%	40.8		34.1		17	%	29.2		101.4		18	%	86.1
Interest expense	11.2		45	%	7.7		30.1		45	%	20.8		22.1		97	%	11.2		55.4		84	%	30.1
Net operating revenues	123.3		5	%	117.3		361.5		9	%	332.9		154.6		25	%	123.3		439.2		21	%	361.5
Compensation and other expenses	108.3		13	%	95.9		323.8		16	%	279.4
Compensation and benefits													86.9		15	%	75.5		252.3		13	%	222.7
Bad debts													1.6		1,500	%	0.1		2.9		(26	)%	3.9
Other expenses													35.2		8	%	32.7		105.0		8	%	97.2
Total compensation and other expenses													123.7		14	%	108.3		360.2		11	%	323.8
Other gain													2.0		nm		—		2.0		nm		—
Income before tax	15.0		(30	)%	21.4		37.7		(30	)%	53.5		32.9		119	%	15.0		81.0		115	%	37.7
Income tax expense	2.3		(66	)%	6.8		7.7		(51	)%	15.6		8.9		287	%	2.3		41.2		435	%	7.7
Net income	$	12.7	(13	)%	$	14.6	$	30.0	(21	)%	$	37.9	$	24.0	89	%	$	12.7	$	39.8	33	%	$	30.0

Balance Sheet information:							June 30, 2017		% Change		June 30, 2016								June 30, 2018		% Change		June 30, 2017
Total assets							$	6,195.9	2	%	$	6,065.9							$	7,284.9	18	%	$	6,195.9
Payables to lenders under loans							$	244.7	16	%	$	211.6							$	360.6	47	%	$	244.7
Senior unsecured notes							$	—	(100	)%	$	45.5
Stockholders’ equity							$	469.1	13	%	$	415.5							$	487.7	4	%	$	469.1

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


	Three Months Ended June 30,						Nine Months Ended June 30,						Three Months Ended June 30,						Nine Months Ended June 30,
	2017		% Change		2016		2017		% Change		2016		2018		% Change		2017		2018		% Change		2017
Volumes and Other Data:
Exchange-traded - futures and options (contracts, 000’s)	24,190.3		(8	)%	26,245.5		73,763.0		(4	)%	77,066.8		35,632.6		47	%	24,190.3		98,190.8		33	%	73,763.0
OTC (contracts, 000’s)	382.8		(17	)%	462.7		1,035.5		(4	)%	1,079.4		427.4		12	%	382.8		1,165.7		13	%	1,035.5
Global Payments (# of payments, 000’s)	175.8		54	%	113.8		476.1		53	%	310.6		171.9		(2	)%	175.8		481.1		1	%	476.1
Gold equivalent ounces traded (000’s)	36,553.6		48	%	24,658.9		88,122.2		26	%	69,798.0		72,300.6		98	%	36,553.6		160,802.8		82	%	88,122.2
Equity Market-Making (gross dollar volume, millions)	$	21,298.1	8	%	$	19,717.8	$	67,284.8	—	%	$	67,277.5	$	30,344.1	42	%	$	21,298.1	$	87,088.6	29	%	$	67,284.8
Debt Trading (gross dollar volume, millions)	$	32,176.4	5	%	$	30,674.5	$	102,651.2	30	%	$	79,258.1	$	29,922.2	(7	)%	$	32,176.4	$	91,615.0	(11	)%	$	102,651.2
FX Prime Brokerage volume (U.S. notional, millions)	$	145,679.8	(3	)%	$	149,593.4	$	487,145.5	14	%	$	428,253.5	$	93,007.8	(36	)%	$	145,679.8	$	330,178.9	(32	)%	$	487,145.5
Average assets under management in Argentina (U.S. dollar, millions)	$	653.4	21	%	$	541.4	$	570.7	—	%	$	568.4	$	458.4	(30	)%	$	653.4	$	467.3	(18	)%	$	570.7
Average customer equity - futures and options (millions)	$	1,938.7	5	%	$	1,853.8	$	2,010.8	10	%	$	1,831.9	$	2,244.0	16	%	$	1,938.7	$	2,146.9	7	%	$	2,010.8

Operating Revenues

Three Months Ended June 30, ~~2017~~2018 Compared to Three Months Ended June 30, ~~2016~~2017

Operating revenues increased ~~13%~~31% to ~~$197.6~~$259.8 million in the third quarter compared to ~~$175.0~~$197.6 million in the prior year. ~~Operating revenue~~All operating segments recorded growth was driven by a $32.1 million increase in our CES segment, primarily as a result of incremental operating revenues from our recent acquisitions. In addition, Physical Commodity and Global Payments operating revenues, grew $4.3 million and $4.1 million, respectively. Offsetting this revenue growth was a $14.8 million decline in operating revenues, ~~within~~led by our Clearing and Execution Services and Commercial Hedging segments, which increased $23.5 million and $20.8 million, respectively. In addition, the Securities segment ~~and to a lesser extent, a $1.6~~added$9.9 million ~~decline in our Securities segment.~~

~~Operating revenues for~~ versus the ~~third quarter~~ ~~include a minimal pre-tax unrealized loss on U.S. Treasury notes held as part of our interest rate management strategy. The~~ prior year, ~~period included a $2.7~~while Global Payments and Physical Commodities added $3.5 million ~~pre-tax unrealized gain on interest rate swaps~~ and U.S. Treasury notes held as part of our interest rate management strategy. On a segment basis, these unrealized gains and losses are reported in the Corporate unallocated segment, while the amortized earnings on these investments are included in the Commercial Hedging and CES segments. During the first quarter of fiscal 2017, we liquidated all of our interest rate swap positions held as part of the strategy. During the second quarter of fiscal 2017, we sold $865.0$2.9 million, of U.S. Treasury notes under this strategy, leaving $290.0 million of U.S. Treasury notes outstanding, which will mature in calendar 2017. The U.S. Treasury notes are not designated for hedge accounting treatment, and changes in their fair values, which are volatile and can fluctuate from period to period, are included in operating revenues in the current period.respectively.

Operating revenues in our CES segment increased ~~$32.1 million~~36% to ~~$65.4~~a record $88.9 million in the third quarter, primarily as a result of ~~the acquisition of the Sterne Agee Correspondent Clearing and Independent Wealth Management businesses at the beginning of the fourth quarter of fiscal 2016, which added $25.3 million~~77% growth in ~~operating revenues in~~ ~~the third quarter~~. Also contributing to the revenue growth was the acquisition of ICAP plc’s London-based EMEA oil voice brokerage business, at the beginning of the first quarter of fiscal 2017, which contributed $6.9 million to third quarter operating revenues. The Exchange-traded Futures & Options revenues, to $50.8 million, driven by increases in contract volumes, the average rate per contract earned and a $4.9 million increase in interest income. Our Correspondent Clearing business added $1.7 million versus the prior year, while the FX Prime Brokerage added $0.6 million. These gains were modestly offset by $0.6 million and $0.3 million declines in our Independent Wealth Management and Derivative Voice Brokerage businesses, ~~were relatively flat with the prior year period.~~respectively.

Operating revenues in Commercial Hedging ~~decreased $14.8 million in~~ ~~the third quarter~~increased 36%, compared to ~~$57.1 million, as exchange-traded revenues declined $4.2 million and OTC revenues declined $11.6 million versus~~ the prior ~~year. Exchange-traded revenues declined primarily as a result of the decrease in average rate per contract, due~~year to ~~the effect of lower volatility in our global grain and LME metals businesses. OTC revenues declined~~$77.9 million as a result of a ~~17% decrease~~$9.3 million increase in OTC revenues, a $7.8 million increase in exchange-traded revenues and a $3.4 million increase in interest income. OTC revenues increased as a result of a 12% increase in customer OTC volumes ~~combined with~~as well as a ~~29% decline~~39% increase in the average rate per contract, primarily ~~in the our global grain, food service and dairy businesses as well as reduced~~driven by increased customer activity in ~~interest rate swaps.~~

~~Operating~~Brazil and overall market volatility. Exchange-traded revenues ~~in our Global Payments segment~~ increased ~~22% in~~ ~~the third quarter~~ to $22.5 million, as a result of a 54% increase in the number of global payments made which was partially offset by a narrowing of spreads in this business due to an increase in volume of smaller transactions from financial institutions.

~~Our Physical Commodity segment operating revenues increased 56% to $12.0 million,~~ primarily as a result of a ~~$3.0 million~~23% increase in ~~Precious Metals operating revenues as well as an $1.3 million increase~~exchange-traded contract volume, most notably in ~~Physical Ag & Energy operating revenues driven by both increased customer volumes and a widening of spreads.~~the domestic grain markets.

Operating revenues in our Securities segment ~~declined 4%~~increased 25% to ~~$40.0~~$49.9 million in the third quarter compared to the prior year. The Equity Market-Making business ~~declined $1.2~~increased 92%, to $24.8 million, ~~despite a 8% increase in~~as the gross dollar volume traded increased 42% as ~~lower~~a result of increased market volatility, ~~drove a narrowing~~the on-boarding of ~~spreads.~~new customers and increased market share. Operating revenues in our Debt Trading business declined ~~$0.5~~4%, to $22.1 million versus the prior year ~~with revenue growth in our Latin American and Argentina businesses~~as higher domestic revenues were more than offset by ~~declines~~weaker revenues in our Argentina business driven by local economic conditions. In addition, the prior year period includes a $2.5 million realized gain on the sale of exchange shares in Argentina. These same conditions drove a $0.6 million decline in Asset Management operating revenues to $2.7 million as average assets under management declined 30% driven by the decline in the Argentine Peso. Overall, the Securities segment operating revenues benefited from a $6.6 million increase in interest income, primarily in our domestic institutional fixed income ~~business. Investment Banking~~and securities lending activities.

Operating revenues in our Global Payments segment increased 16% in the third quarter to a record $26.0 million, as the average revenue per trade increased 18% to $151.25 while the number of global payments declined modestly versus the prior year.

Our Physical Commodity segment operating revenues increased ~~$0.3~~24% to $14.9 million, ~~and Asset Management~~as a result of a $1.1 million increase in Precious Metals operating revenues ~~declined $0.2~~combined with a $1.8 million ~~as compared to the prior year period.~~increase in our Physical Ag & Energy business.

Interest income increased ~~$4.0~~$14.1 million to ~~$19.6~~$33.7 million in the third quarter compared to prior year, ~~as a result of both~~driven by an increase in short term ~~interest~~ rates ~~and our recent acquisitions. The acquisition of the Sterne Agee Correspondent Clearing business added an incremental $1.2 million~~as well as a 16% increase in ~~interest income and our domestic institutional fixed income business increased $2.7 million in the third quarter over the prior year. In addition,~~ average customer equity in the ~~Financial Ag & Energy and~~ Exchange-traded Futures & Options components of our Commercial Hedging and CES segments ~~increased 5%~~ to ~~$1.9~~$2.2 billion in the third quarter compared to the prior year, which ~~combined with an increase in short-term interest rates~~ resulted in an aggregate ~~$1.6~~$7.0 million increase in interest income in these businesses. In addition, our Securities segment added $6.6 million in interest income as a result of increases in our domestic fixed income and securities lending businesses and our correspondent clearing business added $2.2 million in interest income versus the prior year.

Finally, operating revenues for the third quarter include gains of $2.6 million related to economic hedges in place against the effect of the devaluation of the Argentina Peso on our Argentine operations.

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

Nine Months Ended June 30, ~~2017~~2018 Compared to Nine Months Ended June 30, ~~2016~~2017

Operating revenues increased ~~18%~~27% to ~~$578.9~~$732.6 million in the current nine months ended compared to ~~$492.4~~$578.9 million in the prior year. ~~Operating revenue~~All segments of our business achieved growth ~~was driven by a $96.8 million increase~~in operating revenues versus the prior year, with the largest growth coming in our CES segment ~~primarily as a result of incremental operating revenues from our recent acquisitions. In addition, Global Payments and Physical Commodities operating revenues increased $13.0~~which added $55.9 million ~~and $11.5 million, respectively. Offsetting this revenue growth was a $20.7 million decline~~ in operating ~~revenues within our Securities segment and to a lesser extent a $4.7 million decline in~~revenues. In addition, Commercial Hedging segment operating ~~revenues.~~revenues increased $40.4 million, while operating revenues in our Securities segment added $33.1 million versus the prior year. Our Physical Commodities and Global Payment segments, grew $8.0 million and $6.9 million respectively.

Operating revenues for the ~~current nine months ended~~prior year include a $5.8 million pre-tax unrealized loss on interest rate swaps and U.S. Treasury notes held as part of our interest rate management ~~strategy. The prior year period included a $2.9 million pre-tax~~strategy, while the current nine months ended include no unrealized ~~gain~~gain/losses on this program as all interest rate swaps and U.S. Treasury notes ~~held as part of our interest rate management strategy.~~had been liquidated during fiscal 2017. On a segment basis, these unrealized losses are reported in the Corporate unallocated segment, while the amortized earnings on these investments are included in the Commercial Hedging and CES segments. During the first quarter of fiscal 2017, we liquidated all of our interest rate swap positions held as part of the strategy. During the second quarter of fiscal 2017, we sold $865.0 million of U.S. Treasury notes under this strategy, leaving $290.0 million of U.S. Treasury notes outstanding, which will mature in calendar 2017. The U.S. Treasury notes and interest rate swaps are not designated for hedge accounting treatment, and changes in their fair values, which are volatile and can fluctuate from period to period, are included in operating revenues in the current period.

Operating revenues in our CES segment increased ~~100%~~29% to ~~$193.2~~$249.1 million in the current nine months ended, primarily as a result of 61% growth in Exchange-traded Futures & Options revenues, to $136.3 million, driven by increases in contract volumes, the ~~acquisition of~~average rate per contract earned and a $7.6 million, or 135% increase in interest income. Our Derivative Voice Brokerage business added $1.6 million versus the ~~Sterne Agee~~prior year, while the Correspondent Clearing and Independent Wealth Management businesses ~~at the beginning of the fourth quarter of fiscal 2016, which~~ added ~~$74.4~~$1.2 million and $0.9 million in operating revenues, respectively compared to the prior year. In addition the FX Prime Brokerage business, added $0.5 million in operating revenues versus the prior year.

Operating revenues in Commercial Hedging increased 23% in the current nine months ~~ended. Also contributing~~ended to $217.7 million, as exchange-traded revenues increased $11.7 million and OTC revenues increased $21.0 million. Customer exchange-traded volumes increased 18%, driven by increased activity from customers in the revenue growth was the acquisition of ICAP plc’s London-based EMEA oil voice brokerage business, at the beginning of the first quarter of fiscal 2017, which contributed $19.9 million to the current nine months ended operating revenues. The Exchange-traded Futures & Options business added $4.1 milliondomestic grain and energy and renewable fuels markets as well as an increase in ~~operating~~exchange-traded revenues from omnibus relationships introduced by our commercial hedging employees. OTC revenues increased as a result of anboth a 13% increase in OTC volumes and a 25% increase in the average rate per contract ~~while~~compared to the ~~FX Prime Brokerage business declined $1.6 million, despite a 14% increase in customer volumes.~~

~~Operating revenues in Commercial Hedging declined 3% in the current nine months ended to $177.3 million, as a $2.5 million increase in exchange-traded revenues was more than offset~~prior year. These increases were driven by a $10.7 million decline in OTC revenues. An increase in LME metals revenues drove the increase in exchange-traded revenues, while lower market volatility in global grain, energy and renewable fuels, food service and dairy marketsincreased activity from Brazil agricultural customers as well as ~~a decline~~increased activity in ~~interest rate swap activity drove the decline in OTC revenues.~~

Operating revenues in our Global Payments segment increased 24% in the current nine months ended to $67.1 million, as a result of a 53% increase in the number of global payments made which was partially offset by a narrowing of spreads in this business due to an increase in volume of smaller transactions from financial institutions.

Our Physical Commodity segment operating revenues increased 53% to $33.0 million, as a result of a $4.7 million increase in Precious Metals operating revenues, while Physical Ag & Energy operating revenues added $6.8 million in operating revenues.food service, dairy and cotton markets.

Operating revenues in our Securities segment ~~declined 15%~~increased 29% to ~~$115.3~~$148.4 million in the current nine months ended compared to the prior year. The Equity Market-Making business increased 61%, to $70.8 million, as the gross dollar volume traded increased 29% as a result of increased market volatility, the on-boarding of new customers and increased market share. Operating revenues in our Debt Trading ~~and Asset Management businesses declined $8.6 and $6.2~~business increased 13%, to $68.4 million ~~respectively, as~~versus the prior year, ~~period reflected strong performance~~with increases in activity in our ~~Argentina operations~~municipal securities business as well as an increase in ~~these businesses following~~interest income in our domestic institutional fixed income business, partially offset by lower operating revenues in Argentina. The prior year period includes a $2.5 million realized gain on the ~~devaluation~~sale of ~~the Argentine Peso~~exchange shares in ~~December 2015. In addition, Equity Market-Making~~Argentina. Asset Management operating revenues declined ~~$4.5~~16%, to $7.5 million in the current nine months ended, as the average assets under management declined 18%. Overall, the Securities segment operating revenues benefited from a $17.8 million increase in interest income, primarily in our domestic institutional fixed income and securities lending activities.

Our Physical Commodity segment operating revenues increased 24% to $41.0 million in the current nine months ended, primarily as a result of a $4.1 million increase in Precious Metals operating revenues as well as a $3.9 million increase in Physical Ag & Energy operating revenues driven by increased customer activity.

Operating revenues in our Global Payments segment increased 10% in the current nine months ended to $74.0 million, as a result of a ~~narrowing~~1% increase in the number of ~~spreads due to lower market volatility. Investment Banking operating revenues declined $1.4 million due both to weaker results~~global payments made as well as a 9% increase in ~~Argentina and management’s decision to exit our domestic investment banking business.~~the average revenue per trade.

Interest income increased ~~$4.9~~$37.9 million to ~~$47.7~~$85.6 million in the current nine months ended compared to prior year ~~primarily driven by the acquisition~~as a result of the ~~Sterne Agee Correspondent Clearing business, which added $3.7 million~~effect of increases in short term interest ~~income. In addition,~~rates and average customer equity as well as the $17.8 million increase in interest income in the ~~Financial Ag & Energy and~~Securities segment discussed above. Included in interest income, the prior year period includes a $4.8 million unrealized loss on U.S. Treasury notes held as part of our interest rate management strategy. Average customer equity in the Exchange-traded Futures & Options components of our Commercial Hedging and CES segments increased ~~10%~~7% to ~~$2.0~~$2.1 billion

in the current nine months ended, ~~compared to the prior year,~~ which combined with ~~an increase~~the increases in ~~short term~~short-term interest rates resulted in an aggregate ~~$5.1~~$14.0 million increase in interest income in these businesses. ~~Debt Trading interest income increased $3.7~~

Finally, operating revenues for the current nine months ended include gains of $3.1 million ~~as compared~~related to economic hedges in place against the ~~prior year period. These increases in interest income were partially offset by~~effect of the ~~$7.5 million decline in~~devaluation of the ~~mark-to-market valuation~~Argentina Peso on ~~U.S. Treasury notes.~~our Argentine operations.

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

Interest and Transactional Expenses

Three Months Ended June 30, ~~2017~~2018 Compared to Three Months Ended June 30, ~~2016~~2017

Transaction-based clearing expenses: Transaction-based clearing expenses ~~decreased 4%~~increased 45% to ~~$33.9~~$49.0 million in the third quarter compared to ~~$35.2~~$33.9 million in the prior year, and were ~~17%~~19% of operating revenues in the third quarter compared to ~~20% in~~ ~~the prior year~~. The decrease in expense is related to lower ADR conversion fees in our Equity Market-Making component and lower volumes in our Exchange-Traded Futures & Options component, partially offset by the incremental trading activity from our acquisition of the Sterne Agee Correspondent Clearing and Independent Wealth Management businesses during the fourth quarter of fiscal 2016. The decrease in transaction-based clearing expenses as a percentage of operating revenue is primarily related to the impact of the incremental revenues from these acquired businesses, as well as the acquired oil voice brokerage business.

~~Introducing broker commissions:~~ ~~Introducing broker commissions increased 97% to $29.2 million in~~ ~~the third quarter~~ ~~compared to $14.8 million in~~ ~~the prior year, and were 15% of operating revenues in~~ ~~the third quarter~~ ~~compared to 8%~~17% in the prior year. The increase in expense is ~~primarily due~~related to ~~incremental activity from our acquisition of the Sterne Agee Independent Wealth Management business and increased expense~~higher volumes in our ~~Exchange-Traded~~Financial Ag & Energy, Exchange-traded Futures & Options ~~component. The increase in introducing~~and Equity Market-Making components.

Introducing broker commissions: Introducing broker commissions ~~as a~~increased 17% to $34.1 million in the third quarter compared to $29.2 million in the prior year, and were 13% of operating revenues in the third quarter compared to 15% in the prior year. The percentage of operating revenue is inversely impacted by the growth in interest income. The increase in expense is primarily ~~related~~due to ~~this acquired~~increased business activity and ~~its cost structure.~~improved performance in our Exchange-traded Futures & Options and Financial Ag & Energy components, partially offset by lower costs in Debt Trading and Global Payments.

Interest expense: Interest expense increased ~~45%~~97% to $~~11.2~~22.1 million in the third quarter compared to $~~7.7~~11.2 million in the prior year. The increase in expense is primarily related to the trading activities of our institutional dealer in fixed income securities, which resulted in higher interest expense of ~~$2.4~~$3.8 million, and the increased activity of our securities lending business, started up during fiscal 2017 in our Equity Market-Making component, which resulted in higher interest expense of $3.5 million. Also, ~~increased activity and~~ an increase in short-term rates resulted in higher costs in our ~~Exchange-Traded~~Exchange-traded Futures & Options ~~and Equity Market-Making businesses.~~component. Additionally, ~~increased credit line capacity and~~higher short-term rates along with higher average borrowings outstanding on ~~our corporate credit facility, available for working capital needs, and~~ our physical commodity financing facility resulted in increased expense.

Nine Months Ended June 30, ~~2017~~2018 Compared to Nine Months Ended June 30, ~~2016~~2017

Transaction-based clearing expenses: Transaction-based clearing expenses increased 3%35% to ~~$101.2~~$136.6 million in the current nine months ended compared to ~~$97.9~~$101.2 million in the prior year, and were ~~17%~~19% of operating revenues in the current nine months ended compared to ~~20%~~17% in the prior year. The increase in expense is primarily related to ~~the incremental trading activity from~~higher volumes in our ~~acquisition of the Sterne Agee~~Financial Ag & Energy, Exchange-Traded Futures & Options and Equity Market-Making components, partially offset by lower costs in our LME Metals, FX Prime Brokerage and Correspondent Clearing ~~and Independent Wealth Management businesses during the fourth quarter of fiscal 2016.~~components.

Introducing broker commissions: Introducing broker commissions increased ~~111%~~18% to ~~$86.1~~$101.4 million in the current nine months ended compared to ~~$40.8~~$86.1 million in the prior year, and were ~~15%~~14% of operating revenues in the current nine months ended compared to 8%15% in the prior year. The increase in expense is primarily due to ~~incremental~~increased business activity ~~from our acquisition of the Sterne Agee Independent Wealth Management business~~ and ~~increased activity~~improved performance in our ~~Exchange-Traded~~Exchange-traded Futures & ~~Options. The increase~~Options and Financial Ag & Energy components, partially offset by lower costs in ~~introducing broker commissions as a percentage of operating revenue is primarily related to this acquired business~~Global Payments and ~~its cost structure.~~Equity Market-Making.

Interest expense: Interest expense increased ~~45%~~84% to ~~$30.1~~$55.4 million in the current nine months ended compared to ~~$20.8~~$30.1 million in the prior year. The increase in expense is primarily related to the trading activities of our institutional dealer in fixed income securities, which resulted in higher interest expense of ~~$4.7~~$11.5 million, and the increased activity of our securities lending business, started up during fiscal 2017 in our Equity Market-Making component, which resulted in higher interest expense of $8.4 million. Also, ~~increased activity and~~ an increase in short-term rates resulted in higher costs in our ~~Exchange-Traded~~Exchange-traded Futures & Options and ~~Equity Market-Making businesses, as well as incremental interest expense from our acquisition of the Sterne Agee Correspondent Clearing business.~~Financial Ag & Energy components. Additionally, ~~increased credit line capacity and~~higher short-term rates along with higher average borrowings outstanding on ~~our corporate credit facility, available for working capital needs, and~~ our physical commodity financing facility resulted in increased expense.

Net Operating Revenues

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

Three Months Ended June 30, ~~2017~~2018 Compared to Three Months Ended June 30, ~~2016~~2017

Net operating revenues increased ~~$6.0~~$31.3 million, or 5%25%, to ~~$123.3~~$154.6 million in the third quarter compared to ~~$117.3~~$123.3 million in the prior year.

Nine Months Ended June 30, ~~2017~~2018 Compared to Nine Months Ended June 30, ~~2016~~2017

Net operating revenues increased ~~$28.6~~$77.7 million, or 9%21%, to ~~$361.5~~$439.2 million in the current nine months ended compared to ~~$332.9~~$361.5 million in the prior year.

Compensation and Other Expenses

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


	Three Months Ended June 30,						Nine Months Ended June 30,						Three Months Ended June 30,						Nine Months Ended June 30,
(in millions)	2017		% Change		2016		2017		% Change		2016		2018		% Change		2017		2018		% Change		2017
Compensation and benefits:
Fixed compensation and benefits	$	41.5	34	%	$	31.0	$	118.0	28	%	$	92.5	$	40.4	(3	)%	$	41.5	$	122.7	4	%	$	118.0
Variable compensation and benefits	34.0		(11	)%	38.4		104.7		—	%	105.2		46.5		37	%	34.0		129.6		24	%	104.7
	75.5		9	%	69.4		222.7		13	%	197.7		86.9		15	%	75.5		252.3		13	%	222.7
Other non-compensation expenses:
Communication and data services	9.8		24	%	7.9		29.6		28	%	23.1
Trading systems and market information													8.6		4	%	8.3		25.7		—	%	25.7
Occupancy and equipment rental	3.9		22	%	3.2		11.1		14	%	9.7		4.2		8	%	3.9		12.5		13	%	11.1
Professional fees	3.7		12	%	3.3		11.9		34	%	8.9		4.8		30	%	3.7		13.4		13	%	11.9
Travel and business development	3.0		3	%	2.9		9.6		14	%	8.4		3.7		23	%	3.0		10.2		6	%	9.6
Non-trading technology and support													3.8		19	%	3.2		10.3		16	%	8.9
Depreciation and amortization	2.4		14	%	2.1		7.2		16	%	6.2		2.8		17	%	2.4		8.4		17	%	7.2
Communications													1.3		(13	)%	1.5		4.1		5	%	3.9
Bad debts	0.1		nm		—		3.9		(15	)%	4.6		1.6		n/m		0.1		2.9		(26	)%	3.9
Other expense	9.9		39	%	7.1		27.8		34	%	20.8		6.0		(10	)%	6.7		20.4		8	%	18.9
	32.8		24	%	26.5		101.1		24	%	81.7		36.8		12	%	32.8		107.9		7	%	101.1
Total compensation and other expenses	$	108.3	13	%	$	95.9	$	323.8	16	%	$	279.4	$	123.7	14	%	$	108.3	$	360.2	11	%	$	323.8

Three Months Ended June 30, ~~2017~~2018 Compared to Three Months Ended June 30, ~~2016~~2017

Compensation and Other Expenses: Compensation and other expenses increased $~~12.4~~15.4 million, or ~~13%~~14%, to $~~108.3~~123.7 million in the third quarter compared to $~~95.9~~108.3 million in the prior year.

Compensation and Benefits: Total compensation and benefits expense increased 9%15% to $~~75.5~~86.9 million in the third quarter compared to $~~69.4~~75.5 million in the prior year. Total compensation and benefits were ~~38%~~33% of operating revenues in the third quarter compared to ~~40%~~38% in the prior year. The variable portion of compensation and benefits ~~decrease~~increased by ~~11%~~37% to $~~34.0~~46.5 million in the third quarter compared to $~~38.4~~34.0 million in the prior year. Variable compensation and benefits were ~~28%~~30% of net operating revenues in the third quarter compared to ~~33%~~28% in the prior year. Administrative, centralized operations and executive incentive compensation was ~~$4.8~~$7.3 million in the third quarter compared to ~~$7.8~~$4.8 million in the prior year, primarily due to ~~lower~~increased incentive accruals based on higher current year ~~performance among certain business lines as well as consolidated results and fewer participants in the executive plan in the current year due to retirement.~~performance.

The fixed portion of compensation and benefits ~~increase~~decreased ~~34%~~3% to $~~41.5~~40.4 million in the third quarter compared to $~~31.0~~41.5 million in the prior year. Non-variable salaries increased ~~$6.3~~$0.3 million, or ~~28%~~1%, primarily ~~due to incremental costs from our acquisition of the Sterne Agee correspondent securities clearing~~across operations and independent wealth management businesses in the fourth quarter of fiscal 2016 and our acquisition of ICAP plc’s London-based EMEA oil voice brokerage business. Additionally, we increased headcount across several growing business lines as well as in several administrative ~~areas, most notably within our information technology department.~~areas. Employee benefits, excluding share-based compensation, increased ~~$2.8~~$0.4 million in the third quarter, primarily related to higher ~~payroll tax and health care costs due~~accruals for executive management related to ~~the increased headcount from the acquisitions and internal growth.~~a cash based-long-term incentive plan. Share-based compensation is a component of the fixed portion, and includes stock option and restricted stock expense. Share-based compensation was ~~$2.0~~$1.7 million in the third quarter compared to ~~$1.2~~$2.0 million in the prior year. The number of employees increased 2%3% to ~~1,609~~1,646 at the end of the third quarter compared to ~~1,574~~1,599 at the beginning of the third quarter. The number of employees at the end of the prior year period was ~~1,272~~1,609.

Other Non-Compensation Expenses: Other non-compensation expenses increased ~~24%~~12% to ~~$32.8~~$36.8 million in the third quarter compared to ~~$26.5~~$32.8 million in the prior year. ~~Communication~~Professional fees increased 30% related to higher legal fees, and ~~data services expenses~~higher consulting fees primarily related to administrative system evaluations. Depreciation and amortization increased ~~$1.9~~primarily due to depreciation of the new trading system for certain over-the-counter commodities business activities placed in service during the fourth quarter of 2017.

Bad debts increased $1.5 million over the prior year. During the third quarter, bad debt expense, net was $1.6 million, primarily related to incremental trade systems and market information costs associated with the acquired businesses discussed above. Occupancy and equipment rental increased $0.7 million, primarily as a result of the incremental costs from the leased office space of the acquired Sterne Agee correspondent securities clearing and independent wealth management businesses. Other expenses increased primarily due to $1.8$2.3 million of ~~incremental costs~~OTC customer deficits partially offset by the recovery of a precious metals customer account deficit. During the ~~acquired businesses including non-trading hardware and software, insurance and office expenses.~~prior year, bad debt expense was $0.1 million.

Provision for Taxes: The effective income tax rate was ~~15%~~27% in the third quarter compared to ~~32%~~15% in the prior year. There were no discrete adjustments related to the Tax Act recorded in the three months ended June 30, 2018. The effective tax rate decreased 0.2% due to excess tax benefits of share-based compensation recognized during the period related to the adoption of ASU 2016-09. The effective income tax rate ~~can vary from period to period depending on, among other factors,~~during the ~~geographic and business mix of our earnings. Our effective income tax rate during both periods~~prior year was lower than the U.S. federal statutory rate primarily due to a higher mix of earnings taxed at lower rates in foreign jurisdictions. The effective tax rate during the third quarter of fiscal year 2018 was higher than the U.S. federal statutory rate primarily due to U.S. state and local taxes and foreign permanent differences.

Nine Months Ended June 30, ~~2017~~2018 Compared to Nine Months Ended June 30, ~~2016~~2017

Compensation and Other Expenses: Compensation and other expenses increased ~~$44.4~~$36.4 million, or ~~16%~~11%, to ~~$323.8~~$360.2 million in the current nine months ended compared to ~~$279.4~~$323.8 million in the prior year.

Compensation and Benefits: Total compensation and benefits expense increased 13% to ~~$222.7~~$252.3 million in the current nine months ended compared to ~~$197.7~~$222.7 million in the prior year. Total compensation and benefits were ~~38%~~34% of operating revenues in the current nine months ended compared to ~~40%~~38% in the prior year. The variable portion of compensation and benefits ~~decreased modestly~~increased 24% to ~~$104.7~~$129.6 million in the current nine months ended compared to ~~$105.2~~$104.7 million in the prior year. Variable compensation and benefits were ~~29%~~30% of net operating revenues in the current nine months ended compared to ~~32%~~29% in the prior year. Administrative, centralized operations and executive incentive compensation was ~~$14.5~~$18.0 million in the current nine months ended compared to ~~$21.7~~$14.5 million in the prior year, primarily due to ~~lower~~increased incentive accruals based on higher current year ~~performance and fewer participants in the executive plan in the current year due to retirement.~~performance.

The fixed portion of compensation and benefits increased ~~28%~~4% to ~~$118.0~~$122.7 million in the current nine months ended compared to ~~$92.5~~$118.0 million in the prior year. Non-variable salaries increased ~~$16.6~~$2.3 million, or ~~24%~~3%, primarily ~~due to incremental~~across operations and administrative areas. Contract labor costs from our acquisition of the Sterne Agee correspondent clearing and independent wealth management businesses in the fourth quarter of fiscal 2016 and our acquisition of ICAP plc’s London-based EMEA oil voice brokerage business. Additionally, we increased ~~headcount across several growing business lines as well as in several administrative areas, most notably within our information technology department.~~$1.0 million. Employee benefits, excluding share-based compensation, increased ~~$6.9~~$2.2 million in the current nine months ended, primarily related to higher ~~payroll tax, health care and retirement costs.~~accruals for executive management related to a cash based-long-term incentive plan. Share-based compensation is a component of the fixed portion, and includes stock option and restricted stock expense. Share-based compensation was ~~$4.6~~$4.9 million in the current nine months ended compared to ~~$3.7~~$4.6 million in the prior year. The number of employees ~~increased 10% to 1,609~~was 1,646 at the end of the second quarter compared to ~~1,464~~1,607 at the beginning of the ~~first quarter.~~current fiscal year. The number of employees at the end of the prior year period was ~~1,272.~~1,609.

Other Non-Compensation Expenses: Other non-compensation expenses increased ~~24%~~7% to ~~$101.1~~$107.9 million in the current nine months ended compared to ~~$81.7~~$101.1 million in the prior year. Communication and data services expenses increased $6.5 million, primarily related to incremental trade systems and market information costs associated with the acquired businesses discussed above. Professional fees increased $3.0 million, primarily related to incremental consulting, accounting and legal services associated with the recent acquisitions and consulting fees within our technology department. Depreciation and amortization increased $1.0 million, primarily related to the increase in the amortization of intangible assets identified as part of our recent acquisitions. Other expenses increased primarily due to incremental costs from our acquisitions discussed above, including non-trading hardware and software licensing costs, insurance, and office expenses.

Bad debts decreased ~~$0.7~~$1.0 million over the prior year. During the current nine months ended, bad debt expense, net was $2.9 million, primarily related to $2.3 million of OTC customer deficits and additional bad debt expense of $1.0 million related to reimbursement due the Company from a coal supplier following our recorded charge of $47.0 million during the fourth quarter of fiscal 2017. During the prior year, bad debt expense was $3.9 million, primarily related to LME Metals customer deficits in our Commercial Hedging segment. Bad debt expense in the prior year was $4.6 million, primarily related to $1.5 million of customer receivables in our Physical Commodities segment, $2.7 million of customer deficits in our Commercial Hedging segment and $0.3 million related to short-term notes receivable origination in our Securities segment.

Provision for Taxes: The effective income tax rate was ~~20%~~51% in the current nine months ended compared to ~~29%~~20% in the prior year. The discrete expense of $20.1 million related to the Tax Reform, increased the effective ~~income~~ tax rate ~~can vary from~~by 25%. The effective rate for the current nine months ended was 26%, excluding the impacts of the Tax Reform. The effective tax rate decreased 0.4% due to excess tax benefits on share-based compensation recognized during the period related to ~~period depending on, among other factors,~~ the ~~geographic and business mix~~adoption of ~~our earnings.~~ASU 2016-09. Our effective income tax rate during ~~both periods~~the prior year was lower than the U.S. federal statutory rate primarily due to a higher mix of earnings taxed at lower rates in foreign jurisdictions. The effective income tax rate in the current nine months is higher than the U.S. federal statutory rate because of the impacts of the Tax Reform.

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.


	Three Months Ended June 30,						Nine Months Ended June 30,						Three Months Ended June 30,						Nine Months Ended June 30,
(in millions)	2017		% Change		2016		2017		% Change		2016		2018		% Change		2017		2018		% Change		2017
Compensation and benefits:
Fixed compensation and benefits	$	16.4	43	%	$	11.5	$	44.4	33	%	$	33.3	$	15.6	(5	)%	$	16.4	$	47.8	8	%	$	44.4
Variable compensation and benefits	4.2		(42	)%	7.3		13.0		(35	)%	20.0		6.6		57	%	4.2		16.3		25	%	13.0
	20.6		10	%	18.8		57.4		8	%	53.3		22.2		8	%	20.6		64.1		12	%	57.4
Other non-compensation expenses:
Communication and data services	1.9		46	%	1.3		5.4		35	%	4.0
Trading systems and market information													0.8		33	%	0.6		2.1		11	%	1.9
Occupancy and equipment rental	3.9		22	%	3.2		11.0		15	%	9.6		4.2		8	%	3.9		12.4		13	%	11.0
Professional fees	2.1		24	%	1.7		7.1		45	%	4.9		2.9		38	%	2.1		8.0		13	%	7.1
Travel and business development	0.7		—	%	0.7		2.4		33	%	1.8		0.9		29	%	0.7		2.4		—	%	2.4
Non-trading technology and support													3.0		20	%	2.5		8.2		24	%	6.6
Depreciation and amortization	2.0		11	%	1.8		6.0		18	%	5.1		2.3		15	%	2.0		6.7		12	%	6.0
Communications													1.1		(15	)%	1.3		3.7		6	%	3.5
Other expense	5.1		6	%	4.8		15.0		(3	)%	15.4		3.3		27	%	2.6		13.0		55	%	8.4
	15.7		16	%	13.5		46.9		15	%	40.8		18.5		18	%	15.7		56.5		20	%	46.9
Total compensation and other expenses	$	36.3	12	%	$	32.3	$	104.3	11	%	$	94.1	$	40.7	12	%	$	36.3	$	120.6	16	%	$	104.3

Total unallocated costs and other expenses increased ~~$4.0~~$4.4 million to ~~$36.3~~$40.7 million in the third quarter compared to ~~$32.3~~$36.3 million in the prior year. Compensation and benefits increased ~~$1.8~~$1.6 million, or ~~10%~~8% to ~~$20.6~~$22.2 million in the third quarter compared to ~~$18.8~~$20.6 million in the prior year.

Total unallocated costs and other expenses increased ~~$10.2~~$16.3 million to ~~$104.3~~$120.6 million in the current nine months ended compared to ~~$94.1~~$104.3 million in the ~~current nine months ended.~~prior year. Compensation and benefits increased ~~$4.1~~$6.7 million, or 8%12% to ~~$57.4~~$64.1 million in the current nine months ended compared to ~~$53.3~~$57.4 million in the prior year.

During the current three and nine months ended, the increase in ~~fixed~~ compensation and benefits is primarily related to ~~the incremental unallocated costs from the acquisition of the Sterne Agee correspondent clearing and independent wealth~~accruals for executive management ~~businesses and increases~~for incentives based on current year performance, as well as a cash based-long-term incentive plan. The increase in ~~several administrative departments, most notably the continued expansion of our information technology department. The decrease in variable compensation and benefits~~other expense is primarily related to lower management incentives based on current period performance, as well as fewer participants in the executive incentive plan due to retirement. The increase in communication and data services is primarily due to an increase in market information costs utilized by our risk and information technology departments and incremental costs from the recent acquisitions. The increase in professional fees is primarily due to increased consulting services used in our information technology department and incremental costs from the recent acquisitions.internal bi-annual global sales meeting held during January 2018.

Variable vs. Fixed Expenses


	Three Months Ended June 30,								Nine Months Ended June 30,								Three Months Ended June 30,								Nine Months Ended June 30,
(in millions)	2017		% of Total		2016		% of Total		2017		% of Total		2016		% of Total		2018		% of Total		2017		% of Total		2018		% of Total		2017		% of Total
Variable compensation and benefits	$	34.0	20	%	$	38.4	26	%	$	104.7	20	%	$	105.2	25	%	$	46.5	22	%	$	34.0	20	%	$	129.6	22	%	$	104.7	20	%
Transaction-based clearing expenses	33.9		20	%	35.2		24	%	101.2		20	%	97.9		23	%	49.0		24	%	33.9		20	%	136.6		23	%	101.2		20	%
Introducing broker commissions	29.2		17	%	14.8		11	%	86.1		17	%	40.8		10	%	34.1		17	%	29.2		17	%	101.4		16	%	86.1		17	%
Total variable expenses	97.1		57	%	88.4		61	%	292.0		57	%	243.9		58	%	129.6		63	%	97.1		57	%	367.6		61	%	292.0		57	%
Fixed compensation and benefits	41.5		24	%	31.0		21	%	118.0		23	%	92.5		22	%	40.4		20	%	41.5		24	%	122.7		21	%	118.0		23	%
Other fixed expenses	32.7		19	%	26.5		18	%	97.2		19	%	77.1		18	%	35.2		17	%	32.7		19	%	105.0		18	%	97.2		19	%
Bad debts and impairments	0.1		—	%	—		—	%	3.9		1	%	4.6		2	%
Bad debts																	1.6		—	%	0.1		—	%	2.9		—	%	3.9		1	%
Total non-variable expenses	74.3		43	%	57.5		39	%	219.1		43	%	174.2		42	%	77.2		37	%	74.3		43	%	230.6		39	%	219.1		43	%
Total non-interest expenses	$	171.4	100	%	$	145.9	100	%	$	511.1	100	%	$	418.1	100	%	$	206.8	100	%	$	171.4	100	%	$	598.2	100	%	$	511.1	100	%

We seek to make our non-interest expenses variable to the greatest extent possible, and to keep our fixed costs as low as possible. The table above shows an analysis of our variable expenses and non-variable expenses as a percentage of total non-interest expenses for the three and nine months ended June 30, 2018 and 2017, ~~and 2016,~~ respectively.

Our variable expenses include variable compensation paid to traders and risk management consultants, bonuses paid to operational, administrative, and executive employees, transaction-based clearing expenses and introducing broker commissions. As a percentage of total non-interest expenses, variable expenses were ~~57%~~63% in the third quarter compared to ~~61%~~ 57%

in the prior year. As a percentage of total non-interest expenses, variable expenses were ~~57%~~61% in the current nine months ended compared to ~~58%~~57% in the prior year.

Segment Information

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

INTL FCStone Inc.

Commercial Hedging

Global Payments

Securities

Physical Commodities

Clearing and Execution Services (“CES”)

Components:

Component:

Components:

- Financial Ag

& Energy

- Global Payments

- Equity Market-

Making

- Precious Metals

- Exchange-traded
Futures & Options

- LME Metals

- Debt Trading

- Physical Ag

& Energy

- FX Prime Brokerage

- Investment Banking

- Correspondent
Clearing

- Asset Management

- Independent
Wealth Management

- Derivative
Voice Brokerage

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

Segment income is calculated as net contribution less non-variable direct expenses of the segment. These non-variable direct expenses include trader base compensation and benefits, operational charges, communication and data services, business development, professional fees, bad debt expense, trade errors and direct marketing expenses.

Total Segment Results

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


	Three Months Ended June 30,						Nine Months Ended June 30,						Three Months Ended June 30,						Nine Months Ended June 30,
(in millions)	2017		% of Operating Revenues	2016		% of Operating Revenues	2017		% of Operating Revenues	2016		% of Operating Revenues	2018		% of Operating Revenues	2017		% of Operating Revenues	2018		% of Operating Revenues	2017		% of Operating Revenues
Sales of physical commodities	$	5,317.0		$	4,703.2		$	16,486.3		$	11,503.8		$	6,866.2		$	5,317.0		$	20,836.4		$	16,486.3
Trading gains, net	79.1			82.3			246.1			240.8			99.5			79.1			289.8			246.1
Commission and clearing fees	73.0			58.2			212.2			159.4			96.9			73.0			271.7			212.2
Consulting and management fees	15.9			7.8			46.6			26.5
Consulting, management, and account fees													17.8			15.9			51.7			46.6
Interest income	20.3			14.9			56.9			44.4			35.6			20.3			91.8			56.9
Other	—			—			—			—			0.1			—			0.1			—
Total revenues	5,505.3			4,866.4			17,048.1			11,974.9			7,116.1			5,505.3			21,541.5			17,048.1
Cost of sales of physical commodities	5,308.3			4,693.5			16,462.2			11,484.9			6,858.5			5,308.3			20,811.3			16,462.2
Operating revenues	197.0		100%	172.9		100%	585.9		100%	490.0		100%	257.6		100%	197.0		100%	730.2		100%	585.9		100%
Transaction-based clearing expenses	33.5		17%	34.3		20%	99.6		17%	95.9		20%	49.2		19%	33.5		17%	135.7		19%	99.6		17%
Introducing broker commissions	29.1		15%	14.8		9%	86.0		15%	40.8		8%	34.0		13%	29.1		15%	101.3		14%	86.0		15%
Interest expense	9.5		5%	5.8		3%	23.8		4%	15.5		3%	21.0		8%	9.5		5%	52.7		7%	23.8		4%
Net operating revenues	124.9			118.0			376.5			337.8			153.4			124.9			440.5			376.5
Variable direct compensation and benefits	29.2		15%	30.6		18%	90.2		15%	83.5		17%	39.2		15%	29.2		15%	111.6		15%	90.2		15%
Net contribution	95.7			87.4			286.3			254.3			114.2			95.7			328.9			286.3
Non-variable direct expenses	42.8		22%	33.0		19%	129.3		22%	101.8		21%	43.8		17%	42.8		22%	128.0		18%	129.3		22%
Segment income	$	52.9		$	54.4		$	157.0		$	152.5		$	70.4		$	52.9		$	200.9		$	157.0

Three Months Ended June 30, ~~2017~~2018 Compared to Three Months Ended June 30, ~~2016~~2017

Net contribution for all of our business segments increased 9%19% to $~~95.7~~114.2 million in the third quarter compared to $~~87.4~~95.7 million in the prior year. Segment income ~~decreased~~increased 3%33% to $~~52.9~~70.4 million in the third quarter compared to $~~54.4~~52.9 million in the prior year.

Nine Months Ended June 30, ~~2017~~2018 Compared to Nine Months Ended June 30, ~~2016~~2017

Net contribution for all of our business segments increased ~~13%~~15% to ~~$286.3~~$328.9 million in the current nine months ended compared to ~~$254.3~~$286.3 million in the prior year. Segment income increased 3%28% to ~~$157.0~~$200.9 million in the current nine months ended compared to ~~$152.5~~$157.0 million in the prior year.

Commercial Hedging

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

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

The following table provides the financial performance for Commercial Hedging for the periods indicated.


	Three Months Ended June 30,					Nine Months Ended June 30,					Three Months Ended June 30,					Nine Months Ended June 30,
(in millions)	2017		% Change	2016		2017		% Change	2016		2018		% Change	2017		2018		% Change	2017
Revenues:
Sales of physical commodities	$	—	—	$	—	$	—	—	$	—	$	—	—	$	—	$	—	—	$	—
Trading gains, net	24.0		(37)%	38.0		81.1		(13)%	92.7		34.9		45%	24.0		101.5		25%	81.1
Commission and clearing fees	26.3		(6)%	28.1		76.3		5%	72.9		32.5		24%	26.3		88.6		16%	76.3
Consulting and management fees	3.5		(3)%	3.6		10.9		6%	10.3
Consulting, management, and account fees											3.7		6%	3.5		11.5		6%	10.9
Interest income	3.3		50%	2.2		9.0		48%	6.1		6.7		103%	3.3		16.0		78%	9.0
Other	—		—%	—		—		—	—		0.1		—%	—		0.1		—	—
Total revenues	57.1		(21)%	71.9		177.3		(3)%	182.0		77.9		36%	57.1		217.7		23%	177.3
Cost of sales of physical commodities	—		—	—		—		—	—		—		—	—		—		—	—
Operating revenues	57.1		(21)%	71.9		177.3		(3)%	182.0		77.9		36%	57.1		217.7		23%	177.3
Transaction-based clearing expenses	7.7		(3)%	7.9		21.9		2%	21.4		10.1		31%	7.7		27.8		27%	21.9
Introducing broker commissions	5.0		(19)%	6.2		14.7		—%	14.7		6.3		26%	5.0		16.5		12%	14.7
Interest expense	0.2		100%	0.1		0.4		33%	0.3		0.5		150%	0.2		1.4		250%	0.4
Net operating revenues	44.2		(23)%	57.7		140.3		(4)%	145.6		61.0		38%	44.2		172.0		23%	140.3
Variable direct compensation and benefits	11.6		(29)%	16.3		37.4		(11)%	42.0		16.7		44%	11.6		46.5		24%	37.4
Net contribution	32.6		(21)%	41.4		102.9		(1)%	103.6		44.3		36%	32.6		125.5		22%	102.9
Non-variable direct expenses	16.3		2%	16.0		52.5		6%	49.4		19.0		17%	16.3		51.5		(2)%	52.5
Segment income	$	16.3	(36)%	$	25.4	$	50.4	(7)%	$	54.2	$	25.3	55%	$	16.3	$	74.0	47%	$	50.4

The following tables set forth transactional revenues and selected data for Commercial Hedging for the periods indicated.


	Exchange-traded										Exchange-traded
	Three Months Ended June 30,					Nine Months Ended June 30,					Three Months Ended June 30,					Nine Months Ended June 30,
	2017		% Change	2016		2017		% Change	2016		2018		% Change	2017		2018		% Change	2017
Transactional revenues (in millions):	Transactional revenues (in millions):										Transactional revenues (in millions):
Agricultural	$	18.7	(13)%	$	21.4	$	53.7	—%	$	53.6	$	22.1	18%	$	18.7	$	59.7	11%	$	53.7
Energy and renewable fuels	1.9		19%	1.6		4.8		7%	4.5		2.2		16%	1.9		6.5		35%	4.8
LME metals	9.9		(18)%	12.0		39.0		3%	37.7		12.1		22%	9.9		37.7		(3)%	39.0
Other	2.2		16%	1.9		5.9		16%	5.1		4.1		86%	2.2		11.2		90%	5.9
	$	32.7	(11)%	$	36.9	$	103.4	2%	$	100.9	$	40.5	24%	$	32.7	$	115.1	11%	$	103.4
Selected data:	Selected data:										Selected data:
Futures and options (contracts, 000’s)	6,013.8		(1)%	6,057.3		17,806.6		3%	17,241.6		7,399.2		23%	6,013.8		20,956.5		18%	17,806.6
Average rate per contract	$	5.33	(11)%	$	5.98	$	5.71	(1)%	$	5.74	$	5.38	1%	$	5.33	$	5.41	(5)%	$	5.71
Average customer equity - futures and options (millions)	$	922.5	—%	$	924.5	$	937.4	5%	$	893.4	$	973.0	5%	$	922.5	$	914.5	(2)%	$	937.4


	OTC										OTC
	Three Months Ended June 30,					Nine Months Ended June 30,					Three Months Ended June 30,					Nine Months Ended June 30,
	2017		% Change	2016		2017		% Change	2016		2018		% Change	2017		2018		% Change	2017
Transactional revenues (in millions):	Transactional revenues (in millions):										Transactional revenues (in millions):
Agricultural	$	12.0	(42)%	$	20.8	$	36.0	(11)%	$	40.5	$	21.0	75%	$	12.0	$	58.2	62%	$	36.0
Energy and renewable fuels	3.8		(12)%	4.3		12.3		(25)%	16.3		4.2		11%	3.8		11.1		(10)%	12.3
Other	1.8		(56)%	4.1		5.7		(28)%	7.9		1.7		(6)%	1.8		5.7		—%	5.7
	$	17.6	(40)%	$	29.2	$	54.0	(17)%	$	64.7	$	26.9	53%	$	17.6	$	75.0	39%	$	54.0
Selected data:	Selected data:										Selected data:
Volume (contracts, 000’s)	382.8		(17)%	462.7		1,035.5		(4)%	1,079.4		427.4		12%	382.8		1,165.7		13%	1,035.5
Average rate per contract	$	43.89	(29)%	$	61.43	$	49.64	(14)%	$	58.05	$	61.07	39%	$	43.89	$	62.28	25%	$	49.64

Three Months Ended June 30, ~~2017~~2018 Compared to Three Months Ended June 30, ~~2016~~2017

Operating revenues ~~decreased 21%~~increased 36% to ~~$57.1~~$77.9 million in the third quarter compared to ~~$71.9~~$57.1 million in the prior year. Exchange-traded revenues ~~decreased 11%~~increased 24%, to ~~$32.7~~$40.5 million in the third quarter, resulting primarily from ~~declines~~an increase in agricultural ~~and LME metals customer volumes. The decline~~market revenues driven by an increase in ~~agricultural volumes was primarily a result of the effect of low market~~ volatility in the ~~global~~domestic grain ~~markets, particularly as compared to a strong prior year. Lower volatility~~markets. In addition, agricultural exchange-traded revenues benefited from increased activity from customers in the global metals markets also led to the decline in the LME metals customer volumes. Energy and renewable fuels experienced strong volume growth from the addition of new institutional customers, albeit this new business was at a lower rate per contract as compared to our agricultural

business, which resulted in modest growth in energy and renewable fuels operating revenues. Overall exchange-traded contract volumes declined 1%, as the increases in energy and renewable fuels volumes were more than offset by the declines in agricultural and LME metal volumes. The average rate per contract was $5.33, an 11% decline versus the prior year quarter.

OTC revenues decreased 40%, to $17.6 million in the third quarter with OTC volumes declining 17% and the average rate per contract decreasing 29% compared to the prior year. These declines were primarily the result of lower market volatility in the global grain,both food service and dairy markets as well as ~~reduced~~in soft commodities, including coffee, cotton and sugar driven by increased market volatility. Uncertainty surrounding the effect of potential U.S. tariffs on global metals markets drove volatility and activity in our LME metals business in the third quarter. Finally, reflected

in the ‘Other” category above we saw an increase in exchange-traded revenues from omnibus relationships introduced by our commercial hedging employees in the third quarter. Overall exchange-traded contract volumes increased 23%, while the average rate per contract increased 1% versus the prior year to $5.38.

OTC revenues increased 53%, to $26.9 million in the third quarter, driven by both a 12% increase in OTC volumes and a 39% increase in the average rate per contract compared to the prior year. These increases were driven by growth in OTC contract volumes in agricultural commodities, primarily with Brazilian grain customers as well as increased activity in the food service, dairy markets and energy markets.

Consulting, management, and account fees increased 6% compared to the prior year, while interest income, increased 103%, to $6.7 million compared to the prior year. The increase in interest income was primarily driven by an increase in short-term rates as well as a result of a 5% increase versus the prior year in average customer equity to $973.0 million in the third quarter.

Segment income increased to $25.3 million in the third quarter compared to $16.3 million in the prior year, primarily as a result of the increase in operating revenues. These increases were partially offset by a $2.7 million increase in non-variable direct expenses, primarily related to a $2.2 million increase in bad debt expense versus the prior year related to two customers in our agricultural commodities OTC business. Variable expenses, excluding interest, expressed as a percentage of operating revenues were 42% in the third quarter compared to 43% in the prior year.

Nine Months Ended June 30, 2018 Compared to Nine Months Ended June 30, 2017

Operating revenues increased 23% to $217.7 million in the current nine months ended compared to $177.3 million in the prior year. Exchange-traded revenues increased 11%, to $115.1 million in the current nine months ended, driven by increased activity from customers in the domestic grain and energy and renewable fuels markets as well as an increase in exchange-traded revenues from omnibus relationships introduced by our commercial hedging employees, which are reflected in the ‘Other’ category above. These increases were partially offset by lower LME metals revenues compared to strong performance in the prior year. Overall exchange-traded contract volume increased 18% while the average rate per contract declined 5% to $5.41.

OTC revenues increased 39%, to $75.0 million in the current nine months ended, driven by both a 13% increase in OTC volumes and a 25% increase in the average rate per contract compared to the prior year. These increases were driven by growth in OTC contract volumes in agricultural commodities, primarily with Brazilian grain customers as well as increased activity in food service and dairy markets and soft commodities. These increases were offset by lower interest rate swap, ~~business.~~coffee and energy and renewable fuels revenues.

Consulting and management fees ~~declined $0.1~~increased $0.6 million versus the prior year, while interest income, increased ~~50%~~78%, to ~~$3.3~~$16.0 million compared to the prior year. The increase in interest income was primarily driven by an increase in short-term rates, as average customer equity ~~was relatively flat with~~declined 2% versus the prior year ~~period.~~to $914.5 million in the current nine months ended.

Segment income ~~decreased~~increased to ~~$16.3~~$74.0 million in the ~~third quarter~~current nine months ended compared to ~~$25.4~~$50.4 million in the prior year, primarily as a result of the ~~decline~~increase in operating revenues ~~and to~~as well as a ~~lesser extent a $0.3~~$1.0 million ~~increase~~decline in non-variable direct expenses. The ~~increase~~decline in non-variable direct expenses was primarily related to a $1.8 million decline in bad debt expense, partially offset by an increase in non-variable compensation and ~~benefits, trade errors and dues and subscriptions.~~benefits. Variable expenses, excluding interest, expressed as a percentage of operating revenues ~~increased to 43% compared to 42% in the prior year, primarily as the result of increased transaction-based clearing expenses as a result of product mix.~~

~~Nine Months Ended June 30, 2017 Compared to Nine Months Ended June 30, 2016~~

Operating revenues decreased 3% to $177.3 million in the current nine months ended compared to $182.0 million in the prior year. Exchange-traded revenues increased 2%, to $103.4 million in the current nine months ended, resulting primarily from higher LME metals revenues as agricultural and energy and renewable exchange-traded revenues were ~~relatively~~ flat with the prior ~~year. Overall exchange-traded contract volume increased 3% and the average rate per contract decreased 1% to $5.71.~~

OTC revenues declined 17%, to $54.0 million in the current nine months ended. These declines were primarily driven by lower market volatility in the global grain, energy and renewable fuels, food service and dairy markets as well as reduced activity in our interest rate swap business. Overall OTC volumes decreased 4%, while the average rate per contract decreased 14% compared to the prior year.

~~Consulting and management fees increased $0.6 million versus the prior~~ year while interest income, increased 48%, to $9.0 million compared to the prior year. The increase in interest income was primarily driven an increase in short-term rates, as well as a 5% increase in average customer equity.

Segment income decreased to $50.4 million in the current nine months ended compared to $54.2 million in the prior year, primarily as a result of the decline in operating revenues and a $3.1 million increase in non-variable direct expenses. The increase in non-variable direct expenses was primarily related to non-variable compensation and benefits, bad debt expense and operations charges. Variable expenses, excluding interest, expressed as a percentage of operating revenues decreased toperiod at 42% ~~compared to 43% in the prior year, primarily as the result of a decline in variable compensation due to product mix.~~.

Global Payments

We provide global payment solutions to banks and commercial businesses as well as charities, non-governmental organizations and government organizations. We offer payments services in more than 175 countries and 140 currencies, which we believe is more than any other payments solution provider, and provide competitive and transparent pricing.

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

Additionally, as a member of SWIFT (Society for Worldwide Interbank Financial Telecommunication), we are able to offer our services to large money center and global banks seeking more competitive international payment services.

Through this single comprehensive platform and our commitment to customer service, we believe we are able to provide simple and fast execution, ensuring delivery of funds in any of these countries quickly through our global network of approximately 300 correspondent banks. In this business, we primarily act as a principal in buying and selling foreign currencies on a spot basis. We derive revenue from the difference between the purchase and sale prices.

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

The following table provides the financial performance and selected data for Global Payments for the periods indicated.


	Three Months Ended June 30,					Nine Months Ended June 30,					Three Months Ended June 30,					Nine Months Ended June 30,
(in millions)	2017		% Change	2016		2017		% Change	2016		2018		% Change	2017		2018		% Change	2017
Revenues:
Sales of physical commodities	$	—	—	$	—	$	—	—	$	—	$	—	—	$	—	$	—	—	$	—
Trading gains, net	21.9		22%	18.0		65.3		25%	52.4		24.9		14%	21.9		71.0		9%	65.3
Commission and clearing fees	0.6		50%	0.4		1.8		6%	1.7		1.1		83%	0.6		3.0		67%	1.8
Consulting and management fees	—		—	—		—		—	—
Consulting, management, account fees											—		—	—		—		—	—
Interest income	—		—	—		—		—	—		—		—	—		—		—	—
Other income	—		—	—		—		—	—		—		—	—		—		—	—
Total revenues	22.5		22%	18.4		67.1		24%	54.1		26.0		16%	22.5		74.0		10%	67.1
Cost of sales of physical commodities	—		—	—		—		—	—		—		—	—		—		—	—
Operating revenues	22.5		22%	18.4		67.1		24%	54.1		26.0		16%	22.5		74.0		10%	67.1
Transaction-based clearing expenses	1.2		9%	1.1		3.5		9%	3.2		1.0		(17)%	1.2		3.3		(6)%	3.5
Introducing broker commissions	1.0		25%	0.8		3.4		31%	2.6		0.2		(80)%	1.0		1.0		(71)%	3.4
Interest expense	—		—	0.1		0.2		—	0.1		0.1		—	—		0.1		—	0.2
Net operating revenues	20.3		24%	16.4		60.0		24%	48.2		24.7		22%	20.3		69.6		16%	60.0
Variable direct compensation and benefits	4.1		28%	3.2		12.1		26%	9.6		4.8		17%	4.1		13.7		13%	12.1
Net contribution	16.2		23%	13.2		47.9		24%	38.6		19.9		23%	16.2		55.9		17%	47.9
Non-variable direct expenses	3.3		—%	3.3		10.1		7%	9.4		3.9		18%	3.3		11.8		17%	10.1
Segment income	$	12.9	30%	$	9.9	$	37.8	29%	$	29.2	$	16.0	24%	$	12.9	$	44.1	17%	$	37.8
Selected data:	Selected data:										Selected data:
Global Payments (# of payments, 000’s)	175.8		54%	113.8		476.1		53%	310.6		171.9		(2)%	175.8		481.1		1%	476.1
Average revenue per trade	$	127.99	(21)%	$	161.69	$	140.94	(19)%	$	174.18	$	151.25	18%	$	127.99	$	153.81	9%	$	140.94

Three Months Ended June 30, ~~2017~~2018 Compared to Three Months Ended June 30, ~~2016~~2017

Operating revenues increased ~~22%~~16% to ~~$22.5~~a record $26.0 million in the third quarter compared to ~~$18.4~~$22.5 million in the prior year. The volume of payments made increased 54% as we continued to benefit from an increase in financial institutions and other customers utilizing our electronic transaction order system, however this was partially offset by an 21% decrease indeclined 2% versus the prior year period while the average revenue per ~~trade.~~trade increased by 18% compared to the prior year period. Similar to the prior quarters of fiscal 2018, the volume of payments has declined while the average revenue per trade has increased compared to comparable periods of fiscal 2017, as certain commercial customers who had previously transacted their individual high volume but low value payments through our platform, opened their own bank accounts in certain countries to which we had made payments into on their behalf. Although this process change may lower our number of payments, we still provide the foreign currency funding payments into these customers’ accounts on an aggregated basis in these countries. Overall, operating revenues increased in the third quarter compared to the prior year period as a result of an increase in both the number of active clients and the dollar value of the payments made versus the prior year.

Segment income increased ~~30%~~24% to ~~$12.9~~$16.0 million in the third quarter compared to ~~$9.9~~$12.9 million in the prior year. This increase primarily resulted from the increase in operating revenues asand a decline in variable introducing broker commissions, partially offset by a $0.6 million increase in non-variable direct expenses ~~remained flat with~~versus the prior year ~~period.~~period, driven in large part by higher non-variable compensation and trade system costs. Variable expenses, excluding interest, expressed as a percentage of operating revenues ~~were unchanged at 28% as~~decreased to 23% in the third quarter compared to 28% in the prior ~~year.~~year, mainly as a result of a decrease in introducing broker commissions.

Nine Months Ended June 30, ~~2017~~2018 Compared to Nine Months Ended June 30, ~~2016~~2017

Operating revenues increased ~~24%~~10% to ~~$67.1~~$74.0 million in the current nine months ended compared to ~~$54.1~~$67.1 million in the prior year. The volume of payments made increased ~~53% as we continued to benefit from an increase in financial institutions~~1% and ~~other customers utilizing our electronic transaction order system, however this was partially offset by a 19% decrease in~~ the average revenue per ~~trade.~~trade increased 9% versus the prior year to $153.81

Segment income increased ~~29%~~17% to ~~$37.8~~$44.1 million in the current nine months ended compared to ~~$29.2~~$37.8 million in the prior year. This increase primarily resulted from the increase in operating revenues, partially offset by a ~~modest~~$1.7 million increase in non-variable direct expenses, primarily in compensation and benefits and trade system ~~costs, professional fees and operations charges.~~costs. Variable expenses, excluding interest, expressed as a percentage of operating revenues ~~were unchanged at~~decreased to 24% compared to 28% ~~as compared~~in the prior ~~year.~~year, primarily as a result of a decline in introducing broker commissions.

Securities

We provide value-added solutions that facilitate cross-border trading and believe our customers value our ability to manage complex transactions, including foreign exchange, utilizing our understanding of local market convention, liquidity and settlement protocols around the world. Our customers include U.S.-based regional and national broker-dealers and institutions investing or executing customer transactions in international markets and foreign institutions seeking access to the U.S. securities markets. We are one of the leading market makers in foreign securities, including unlisted ADRs, Global Depository Receipts (“GDRs”) and foreign ordinary shares. We make markets in over 3,600 ADRs, GDRs and foreign ordinary shares, of which over 2,000 trade in the OTC market. In addition, we will, on request, make prices in more than 10,000 unlisted foreign securities. We are also a broker-dealer in Argentina, where we are active in providing institutional executions in the local capital markets.

We act as an institutional dealer in fixed income securities, including U.S. Treasury, U.S. government agency, agency mortgage-backed and asset-backed securities to a customer base including asset managers, commercial bank trust and investment departments, broker-dealers, and insurance companies.

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

The following table provides the financial performance for Securities for the periods indicated.


	Three Months Ended June 30,					Nine Months Ended June 30,					Three Months Ended June 30,					Nine Months Ended June 30,
(in millions)	2017		% Change	2016		2017		% Change	2016		2018		% Change	2017		2018		% Change	2017
Revenues:
Sales of physical commodities	$	—	—	$	—	$	—	—	$	—	$	—	—	$	—	$	—	—	$	—
Trading gains, net	20.9		(21)%	26.3		63.9		(24)%	84.3		23.7		13%	20.9		74.0		16%	63.9
Commission and clearing fees	3.3		43%	2.3		7.8		(8)%	8.5		4.9		48%	3.3		15.4		97%	7.8
Consulting and management fees	3.5		—%	3.5		10.4		(26)%	14.1
Consulting, management, and account fees											2.4		(31)%	3.5		8.0		(23)%	10.4
Interest income	12.3		29%	9.5		33.2		14%	29.1		18.9		54%	12.3		51.0		54%	33.2
Other income	—		—	—		—		—	—		—		—	—		—		—	—
Total revenues	40.0		(4)%	41.6		115.3		(15)%	136.0		49.9		25%	40.0		148.4		29%	115.3
Cost of sales of physical commodities	—		—	—		—		—	—		—		—	—		—		—	—
Operating revenues	40.0		(4)%	41.6		115.3		(15)%	136.0		49.9		25%	40.0		148.4		29%	115.3
Transaction-based clearing expenses	6.4		(9)%	7.0		18.7		(4)%	19.4		10.7		67%	6.4		30.9		65%	18.7
Introducing broker commissions	2.0		(26)%	2.7		6.3		(35)%	9.7		0.8		(60)%	2.0		4.9		(22)%	6.3
Interest expense	7.0		67%	4.2		16.5		45%	11.4		14.8		111%	7.0		37.9		130%	16.5
Net operating revenues	24.6		(11)%	27.7		73.8		(23)%	95.5		23.6		(4)%	24.6		74.7		1%	73.8
Variable direct compensation and benefits	4.4		(32)%	6.5		14.9		(25)%	19.8		6.1		39%	4.4		19.1		28%	14.9
Net contribution	20.2		(5)%	21.2		58.9		(22)%	75.7		17.5		(13)%	20.2		55.6		(6)%	58.9
Non-variable direct expenses	7.3		7%	6.8		21.4		1%	21.2		7.2		(1)%	7.3		21.5		—%	21.4
Segment income	$	12.9	(10)%	$	14.4	$	37.5	(31)%	$	54.5	$	10.3	(20)%	$	12.9	$	34.1	(9)%	$	37.5

The following table sets forth operating revenues by product line and selected data for Securities for the periods indicated.


	Three Months Ended June 30,					Nine Months Ended June 30,					Three Months Ended June 30,					Nine Months Ended June 30,
	2017		% Change	2016		2017		% Change	2016		2018		% Change	2017		2018		% Change	2017
Operating revenues by product line (in millions):	Operating revenues by product line (in millions):										Operating revenues by product line (in millions):
Equity Market-Making	$	12.9	(9)%	$	14.1	$	43.9	(9)%	$	48.4	$	24.8	92%	$	12.9	$	70.8	61%	$	43.9
Debt Trading	23.1		(2)%	23.6		60.7		(12)%	69.3		22.1		(4)%	23.1		68.4		13%	60.7
Investment Banking	0.7		75%	0.4		1.8		(44)%	3.2		0.3		(57)%	0.7		1.7		(6)%	1.8
Asset Management	3.3		(6)%	3.5		8.9		(41)%	15.1		2.7		(18)%	3.3		7.5		(16)%	8.9
	$	40.0	(4)%	$	41.6	$	115.3	(15)%	$	136.0	$	49.9	25%	$	40.0	$	148.4	29%	$	115.3
Selected data:	Selected data:										Selected data:
Equity Market-Making (gross dollar volume, millions)	$	21,298.1	8%	$	19,717.8	$	67,284.8	—%	$	67,277.5	$	30,344.1	42%	$	21,298.1	$	87,088.6	29%	$	67,284.8
Equity Market-Making revenue per $1,000 traded	$	0.61	(15)%	$	0.72	$	0.65	(10)%	$	0.72	$	0.68	17%	$	0.58	$	0.70	9%	$	0.64
Debt Trading (principal dollar volume, millions)	$	32,176.4	5%	$	30,674.5	$	102,651.2	30%	$	79,258.1	$	29,922.2	(7)%	$	32,176.4	$	91,615.0	(11)%	$	102,651.2
Debt Trading revenue per $1,000 traded	$	0.72	(6)%	$	0.77	$	0.59	(32)%	$	0.87	$	0.74	3%	$	0.72	$	0.75	27%	$	0.59
Average assets under management in Argentina (millions)	$	653.4	21%	$	541.4	$	570.7	—%	$	568.4	$	458.4	(30)%	$	653.4	$	467.3	(18)%	$	570.7

Three Months Ended June 30, ~~2017~~2018 Compared to Three Months Ended June 30, ~~2016~~2017

Operating revenues ~~decreased 4%~~increased 25% to ~~$40.0~~$49.9 million in the third quarter compared to ~~$41.6~~$40.0 million in the prior year.

Operating revenues in our Securities segment are comprised of activities in four product lines, Equity Market-Making, Debt Trading, Investment Banking and Asset Management. Operating revenues in Equity Market-Making ~~decreased 9%~~increased 92% in the third quarter compared to the prior year period. Gross dollar volume traded increased 8%42%, ~~however more notably,~~driven by increased market volatility, the on-boarding of new customers and an increase in market share, while the average revenue per $1,000 traded ~~declined 15% as current third quarter volatility was relatively low leading to a tightening of spreads.~~

increased 17% versus the prior year. Equity Market-Making operating revenues include the trading profits we earn before the related expense deduction for ADR conversion fees. These ADR fees are included in the condensed consolidated income statements as ‘transaction-based clearing expenses’.

Operating revenues in Debt Trading declined 2%$1.0 million or 4% in the third quarter compared to the prior year as ~~stronger performance in our Argentina and Latin American businesses, were more than offset by declines~~higher operating revenues in our domestic institutional fixed income ~~business.~~business were offset by lower operating revenues in our Argentina operations due to difficult local economic conditions including spikes in both local interest rates and deteriorating value of the local currency. Operating revenues in ~~Investment Banking increased 75%, to $0.7~~the prior year included a $2.5 million asgain on the sale of exchange shares held in Argentina. Asset Management operating revenues declined 18% in the third quarter compared to the prior year ~~led by~~as this business faced the ~~performance in~~same headwinds as our Argentina ~~operations. Asset Management operating revenues decreased 6%~~debt trading business, resulting in the ~~third quarter as compared to the prior year. Assets~~average assets under management ~~increased 21%~~declining 30% to ~~$653.4~~$458.4 million in the third quarter compared to ~~$541.4~~$653.4 million in the prior year.

Segment income decreased ~~10%~~20% to ~~$12.9~~$10.3 million in the third quarter compared to ~~$14.4~~$12.9 million in the prior ~~year, as a result of the decline~~year. The increase in operating revenues ~~as well as~~was more than offset by an increase in interest ~~expense.~~expense in our domestic institutional fixed income and securities lending businesses as well as the prior year period inclusion of the $2.5 million gain on the sale of exchange shares in Argentina. Variable expenses, excluding interest, expressed as a percentage of operating revenues ~~decreased~~increased to ~~32%~~35% in the third quarter compared to ~~39%~~32% in the prior year, primarily as the result of ~~a decline~~an increase in ~~variable compensation due to product mix.~~transaction-based clearing expenses.

Nine Months Ended June 30, ~~2017~~2018 Compared to Nine Months Ended June 30, ~~2016~~2017

Operating revenues ~~decreased 15%~~increased 29% to ~~$115.3~~$148.4 million in the current nine months ended compared to ~~$136.0~~$115.3 million in the prior year.

Operating revenues in ~~our Securities segment are comprised of activities in four product lines,~~ Equity Market-Making ~~Debt Trading, Investment Banking and Asset Management. Operating revenues in Equity Market-Making declined 9%~~increased 61% in the current nine months ended compared to the prior year, primarily as a result of a ~~10% decline~~29% increase in the gross dollar volume traded and a 9% increase in the average revenue per $1,000 ~~traded as a result of lower market volatility, as the gross dollar volume traded was flat with the prior year to date period.~~traded. Equity Market-Making operating revenues include the trading profits we earn before the related expense deduction for ADR conversion fees. ~~These ADR fees are included in the consolidated income statements as ‘transaction-based clearing expenses’.~~

Operating revenues in Debt Trading ~~decreased 12%~~increased 13% in the current nine months ended compared to the prior year, primarily as a result of ~~a decline~~an increase in operating revenue in our Argentina operations compared to the prior year. Our Argentine operations had a strong performance in the prior year as a result of the effect of the devaluation of the Argentine Peso. These declines in Argentina were partially offset by operating revenue growthinterest income in our domestic institutional fixed income ~~business. Operating~~business as well as increased activity in our municipal securities businesses. In addition, operating revenues in ~~Investment Banking decreased 44% compared to~~ the prior year ~~primarily as~~period included a ~~result~~$2.5 million gain on the sale of ~~management’s decision to exit our domestic investment banking business.~~exchange shares held in Argentina. Asset Management operating revenues decreased ~~41%~~16% in the current nine months ended as compared to the prior ~~year. Our Asset Management business is conducted solely in Argentina and similar to our Debt Trading business,~~year as the ~~Asset Management business in the prior year benefited from the effect of the Peso devaluation. Assets~~average assets under management ~~were $570.7~~declined 18% to $467.3 million in the current nine months ended compared to ~~$568.4~~$570.7 million in the prior year.

Segment income ~~decreased 31%~~declined 9% to ~~$37.5~~$34.1 million in the current nine months ended compared to ~~$54.5~~$37.5 million in the prior year, as ~~a result of~~ the ~~decline~~increase in operating ~~revenues.~~revenues were more than offset by an increase in interest expense, primarily in our Debt Trading

business as well as in securities lending combined with an increase in transaction-based clearing expenses in Equity Market-Making. Variable expenses, excluding interest, expressed as a percentage of operating revenues ~~decreased~~increased to ~~35%~~37% in the current nine months ended compared to ~~36%~~35% in the prior ~~year.~~year, primarily as a result of an increase in transaction-based clearing expenses.

Physical Commodities

This segment consists of our physical Precious Metals trading and Physical Ag & Energy commodity businesses. In Precious Metals, we provide a full range of trading and hedging capabilities, including OTC products, to select producers, consumers, and investors. In our trading activities, we act as a principal, committing our own capital to buy and sell precious metals on a spot and forward basis.

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

Transactions where the sale and repurchase price are fixed upon execution, and meet additional required conditions, are accounted for as product financing arrangements, and accordingly no commodity inventory, purchases or sales are recorded. Transactions where the repurchase price is not fixed at execution do not meet all the criteria to be accounted for as product financing arrangements, and therefore are recorded as commodity inventory, purchases and sales.

Precious metals inventory held by INTL FCStone Ltd, a United Kingdom based broker-dealer subsidiary, is measured at fair value, with changes in fair value included as a component of ‘trading gains, net’ in the condensed consolidated income statements. INTL FCStone Ltd precious metals sales and cost of sales are presented on a net basis and included as a component of ‘trading gains, net’ in the condensed consolidated income statements. Precious metals inventory held by our subsidiaries that are not broker-dealers ~~continues to be~~are valued at the lower of cost or ~~market~~net realizable value. Precious metals sales and cost of sales for subsidiaries that are not broker-dealers ~~continue to be~~are recorded on a gross basis.

In our Physical Ag and Energy commodity business, we value our agricultural inventory at net realizable value, which approximates fair value less disposal costs. The agricultural inventories have reliable, readily determinable and

realizable market prices, have relatively insignificant costs of disposal and are available for immediate delivery. Revenues generated from our Physical Ag and Energy commodity business are recorded on a gross basis.

Operating gains and losses from our Precious Metals commodities derivatives activities are included in ‘trading gains, net’ in the condensed consolidated income statements. Operating gains and losses from our Physical Ag and Energy commodities derivatives activities are included in ‘cost of sales of physical commodities’ in the condensed consolidated income statements. We generally mitigate the price risk associated with commodities held in inventory through the use of derivatives. We do not elect hedge accounting under U.S. GAAP in accounting for this price risk mitigation. Management continues to evaluate performance and allocate resources on an operating revenue basis.

The following table provides the financial performance for Physical Commodities for the periods indicated.


	Three Months Ended June 30,						Nine Months Ended June 30,						Three Months Ended June 30,					Nine Months Ended June 30,
(in millions)	2017		% Change	2016			2017		% Change	2016			2018		% Change	2017		2018		% Change	2017
Revenues:
Sales of physical commodities	$	5,317.0	13%	$	4,703.2		$	16,486.3	43%	$	11,503.8		$	6,866.2	29%	$	5,317.0	$	20,836.4	26%	$	16,486.3
Trading gains (losses), net	1.4		n/m	(4.5		)	2.4		n/m	(4.5		)	4.6		n/m	1.4		8.2		n/m	2.4
Commission and clearing fees	0.3		(25)%	0.4			0.7		17%	0.6			0.4		33%	0.3		1.5		114%	0.7
Consulting and management fees	0.2		(33)%	0.3			1.0		11%	0.9
Consulting, management, and account fees													0.4		100%	0.2		0.8		(20)%	1.0
Interest income	1.4		(22)%	1.8			4.8		(14)%	5.6			1.8		29%	1.4		5.4		13%	4.8
Other income	—		—	—			—		—	—			—		—	—		—		—	—
Total revenues	5,320.3		13%	4,701.2			16,495.2		43%	11,506.4			6,873.4		29%	5,320.3		20,852.3		26%	16,495.2
Cost of sales of physical commodities	5,308.3		13%	4,693.5			16,462.2		43%	11,484.9			6,858.5		29%	5,308.3		20,811.3		26%	16,462.2
Operating revenues	12.0		56%	7.7			33.0		53%	21.5			14.9		24%	12.0		41.0		24%	33.0
Transaction-based clearing expenses	0.2		—%	0.2			0.6		20%	0.5			0.2		—%	0.2		0.7		17%	0.6
Introducing broker commissions	—		(100)%	0.1			0.2		—%	0.2			0.1		n/m	—		0.2		—%	0.2
Interest expense	1.6		33%	1.2			4.9		58%	3.1			3.2		100%	1.6		7.8		59%	4.9
Net operating revenues	10.2		65%	6.2			27.3		54%	17.7			11.4		12%	10.2		32.3		18%	27.3
Variable direct compensation and benefits	2.6		—%	2.6			7.4		37%	5.4			3.3		27%	2.6		9.2		24%	7.4
Net contribution	7.6		111%	3.6			19.9		62%	12.3			8.1		7%	7.6		23.1		16%	19.9
Non-variable direct expenses	3.3		43%	2.3			8.7		7%	8.1			3.0		(9)%	3.3		10.3		18%	8.7
Bad debt on physical coal													—		n/m	—		1.0		n/m	—
Segment income	$	4.3	231%	$	1.3		$	11.2	167%	$	4.2		$	5.1	19%	$	4.3	$	11.8	5%	$	11.2

The following tables set forth operating revenue by product line and selected data for Physical Commodities for the periods indicated.


	Precious Metals										Precious Metals
	Three Months Ended June 30,					Nine Months Ended June 30,					Three Months Ended June 30,					Nine Months Ended June 30,
	2017		% Change	2016		2017		% Change	2016		2018		% Change	2017		2018		% Change	2017
Total revenues	$	5,146.4	13%	$	4,572.2	$	15,938.6	42%	$	11,211.1	$	6,620.1	29%	$	5,146.4	$	20,187.9	27%	$	15,938.6
Cost of sales of physical commodities	5,139.2		13%	4,568.0		15,920.2		42%	11,197.4		6,611.8		29%	5,139.2		20,165.4		27%	15,920.2
Operating revenues	$	7.2	71%	$	4.2	$	18.4	34%	$	13.7	$	8.3	15%	$	7.2	$	22.5	22%	$	18.4
Selected data:	Selected data:										Selected data:
Gold equivalent ounces traded (000’s)	36,553.6		48%	24,658.9		88,122.2		26%	69,798.0		72,300.6		98%	36,553.6		160,802.8		82%	88,122.2
Average revenue per ounce traded	$	0.20	18%	$	0.17	$	0.21	5%	$	0.20	$	0.11	(45)%	$	0.20	$	0.14	(33)%	$	0.21


	Physical Ag & Energy										Physical Ag & Energy
	Three Months Ended June 30,					Nine Months Ended June 30,					Three Months Ended June 30,					Nine Months Ended June 30,
	2017		% Change	2016		2017		% Change	2016		2018		% Change	2017		2018		% Change	2017
Total revenues	$	173.9	35%	$	128.9	$	556.6	89%	$	295.2	$	253.3	46%	$	173.9	$	664.4	19%	$	556.6
Cost of sales of physical commodities	169.1		35%	125.4		542.0		89%	287.4		246.7		46%	169.1		645.9		19%	542.0
Operating revenues	$	4.8	37%	$	3.5	$	14.6	87%	$	7.8	$	6.6	38%	$	4.8	$	18.5	27%	$	14.6

Three Months Ended June 30, ~~2017~~2018 Compared to Three Months Ended June 30, ~~2016~~2017

Operating revenues for Physical Commodities increased ~~56%~~24% to ~~$12.0~~$14.9 million in the third quarter compared to ~~$7.7~~$12.0 million in the prior year.

Precious Metals operating revenues increased ~~71%~~15% to ~~$7.2~~$8.3 million in the third quarter compared to ~~$4.2~~$7.2 million in the prior year as a result of a 98% increase in the number of ounces traded, which was partially offset by a 45% decline in the average revenue per ounce traded compared to the prior year.

Operating revenues in Physical Ag & Energy increased 38% to $6.6 million in the third quarter compared to the prior year. The increase in operating revenues is largely due to increased trading activity in our U.S. subsidiary, FCStone Merchant Services, LLC, across multiple commodities including cotton, cocoa, edible oils and energy along with an increase in its commodity financing programs with customers.

Segment income increased 19% to $5.1 million in the third quarter compared to $4.3 million in the prior year, primarily as a result of the increase in operating revenues as well as a $0.3 million decline in non-variable direct expenses. Non-variable expenses declined $0.3 million as a result of a $0.7 million recovery of a bad debt expense in our Precious Metals business

originally recorded in the second quarter of fiscal 2018, which was partially offset by a $0.4 million increase in professional fees incurred related to our exit of our physical coal business.

Nine Months Ended June 30, 2018 Compared to Nine Months Ended June 30, 2017

Operating revenues for Physical Commodities increased 24% to $41.0 million in the current nine months ended compared to $33.0 million in the prior year.

Precious Metals operating revenues increased 22% to $22.5 million in the current nine months ended compared to $18.4 million in the prior year. Operating revenues increased from the prior year period as a result of a ~~48%~~82% increase in the number of ounces traded, ~~as well as an 18% increase in the average revenue per ounce traded.~~

Operating revenues in Physical Ag & Energy increased 37% to $4.8 million in the third quarter compared to the prior year. The increase in operating revenues is primarily due to business expansion following an internal restructuring of the business, resulting in increased operating revenues from both existing and new customer relationships.

~~Segment income increased 231% to $4.3 million in the third quarter compared to $1.3 million in the prior year, primarily as a result of the increase in operating revenues,~~ which was partially offset by a ~~$1.0 million increase in non-variable direct expenses, primarily compensation and benefits, bad debt expense and operations charges.~~

~~Nine Months Ended June 30, 2017 Compared to Nine Months Ended June 30, 2016~~

~~Operating revenues for Physical Commodities increased 53% to $33.0 million in the current nine months ended compared to $21.5 million in the prior year.~~

Precious Metals operating revenues increased 34% to $18.4 million in the current nine months ended compared to $13.7 million in the prior year. Operating revenues increased from the prior year period as a result of a 26% increase in the number of ounces traded as well as a 5% increase33% decline in the average revenue per ounce traded.

Operating revenues in Physical Ag & Energy increased ~~87%~~27% to ~~$14.6~~$18.5 million in the current nine months ended compared to $14.6 million in the prior year. The increase in operating revenues is primarily due to business expansion ~~following an internal restructuring of the business,~~in our U.S. subsidiary FCStone Merchant Services, LLC, resulting in increased ~~operating revenues~~transactions in cotton, cocoa and edible oils along with an increase in its commodity financing programs with customers from both existing and new customer relationships.

Segment income increased ~~167%~~5% to ~~$11.2~~$11.8 million in the current nine months ended compared to ~~$4.2~~$11.2 million in the prior year ~~primarily as a result of~~driven by the increase in operating revenues. The increase in operating revenues ~~which~~ was partially offset by a ~~$0.6~~$2.9 million increase in interest expense as well as a $1.6 million increase in non-variable direct expenses. ~~These increases were~~Non-variable direct expenses increased primarily due to a $0.5 million increase in compensation and benefits, ~~and operations charges, which were partially offset by~~ a ~~$1.2~~$1.1 million ~~reduction~~increase in ~~bad debt expense in~~professional fees related to our exit of the ~~Physical Ag & Energy~~physical coal business.

Clearing and Execution Services

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

As of June 30, ~~2017,~~2018, we held ~~$2.0~~$2.4 billion in required customer segregated assets, which we believe makes us the third largest independent futures commission merchant (“FCM”) in the United States not affiliated with a major financial institution or commodity intermediary, end-user or producer, as measured by required customer segregated assets. We seek to leverage our capabilities and capacity by offering facilities management or outsourcing solutions to other FCM’s.

~~Following~~ Through our ~~acquisition~~platform, customer orders are accepted and directed to the appropriate exchange for execution. We then facilitate the clearing of customer transactions. Clearing involves the matching of customer trades with the exchange, the collection and management of customer margin deposits to support the transactions, and the accounting and reporting of the ~~Sterne Agee correspondent securities clearing business, we are an independent full-service provider~~transactions to introducing broker-dealers (“IBD’s”) of clearing, custody, research, syndicated and security-based lending products and services, including a proprietary technology platform which offers seamless connectivity to ensure a positive customer experience through the clearing and settlement process. Also as part of this transaction, we acquired Sterne Agee’s independent wealth management business which offers a comprehensive product suite to retail customers nationwide. As a result we are one of the leading mid-market clearers in the securities industry, with approximately 50 correspondent clearing relationships with more than 120,000 underlying individual securities accounts with over $15 billion in assets under management or administration as of June 30, 2017.customers.

~~In addition, we~~We believe we are one of the largest non-bank prime brokers and swap dealers in the world. Through this offering, we provide prime brokerage foreign exchange (“FX”) services to financial institutions and professional traders. We provide our customers with the full range of OTC products, including 24-hour a day execution of spot, forwards and options as well as non-deliverable forwards in both liquid and exotic currencies. We also operate a proprietary foreign exchange desk that arbitrages the exchange-traded foreign exchange markets with the cash markets.

~~Following~~With our correspondent securities clearing business, we are an independent full-service provider to introducing broker-dealers (“IBD’s”) of clearing, custody, research, syndicated and security-based lending products and services, including a proprietary technology platform which offers seamless connectivity to ensure a positive customer experience through the ~~October 1, 2016 acquisition~~clearing and settlement process.

We have an independent wealth management business which offers a comprehensive product suite to retail customers nationwide. As a result we are one of ~~ICAP plc’s~~the leading mid-market clearers in the securities industry, with approximately 60 correspondent clearing relationships with over $15 billion in assets under management or administration as of June 30, 2018.

Our London-based EMEA oil voice brokerage business ~~we employ over 30 employees providing~~provides brokerage services across the fuel, crude, and middle distillates markets with over 200 well known commercial and institutional customers throughout Europe, the Middle East and Africa.

The following table provides the financial performance and selected data for Clearing and Execution Services for the periods indicated.


	Three Months Ended June 30,					Nine Months Ended June 30,					Three Months Ended June 30,					Nine Months Ended June 30,
(in millions)	2017		% Change	2016		2017		% Change	2016		2018		% Change	2017		2018		% Change	2017
Sales of physical commodities	$	—	—	$	—	$	—	—	$	—	$	—	—	$	—	$	—	—	$	—
Trading gains, net	10.9		142%	4.5		33.4		110%	15.9		11.4		5%	10.9		35.1		5%	33.4
Commission and clearing fees	42.5		57%	27.0		125.6		66%	75.7		58.0		36%	42.5		163.2		30%	125.6
Consulting and management fees	8.7		2,075%	0.4		24.3		1,925%	1.2
Consulting, management, and account fees											11.3		30%	8.7		31.4		29%	24.3
Interest income	3.3		136%	1.4		9.9		175%	3.6		8.2		148%	3.3		19.4		96%	9.9
Other	—		—	—		—		—	—		—		—	—		—		—	—
Total revenues	65.4		96%	33.3		193.2		100%	96.4		88.9		36%	65.4		249.1		29%	193.2
Cost of physical commodities sold	—		—	—		—		—	—		—		—	—		—		—	—
Operating revenues	65.4		96%	33.3		193.2		100%	96.4		88.9		36%	65.4		249.1		29%	193.2
Transaction-based clearing expenses	18.0		(1)%	18.1		54.9		7%	51.4		27.2		51%	18.0		73.0		33%	54.9
Introducing broker commissions	21.1		322%	5.0		61.4		351%	13.6		26.6		26%	21.1		78.7		28%	61.4
Interest expense	0.7		250%	0.2		1.8		200%	0.6		2.4		243%	0.7		5.5		206%	1.8
Net operating revenues	25.6		156%	10.0		75.1		144%	30.8		32.7		28%	25.6		91.9		22%	75.1
Variable direct compensation and benefits	6.5		225%	2.0		18.4		175%	6.7		8.3		28%	6.5		23.1		26%	18.4
Net contribution	19.1		139%	8.0		56.7		135%	24.1		24.4		28%	19.1		68.8		21%	56.7
Non-variable direct expenses	12.6		174%	4.6		36.6		167%	13.7		10.7		(15)%	12.6		31.9		(13)%	36.6
Segment income	$	6.5	91%	$	3.4	$	20.1	93%	$	10.4	$	13.7	111%	$	6.5	$	36.9	84%	$	20.1

The following table sets forth operating revenues by product line and selected data for Clearing and Execution Services for the periods indicated.


	Three Months Ended June 30,					Nine Months Ended June 30,					Three Months Ended June 30,					Nine Months Ended June 30,
(in millions)	2017		% Change	2016		2017		% Change	2016		2018		% Change	2017		2018		% Change	2017
Operating revenues by product line (in millions):	Operating revenues by product line (in millions):										Operating revenues by product line (in millions):
Exchange-traded Futures & Options	$	28.7	—%	$	28.8	$	84.6	5%	$	80.5	$	50.8	77%	$	28.7	$	136.3	61%	$	84.6
FX Prime Brokerage	4.5		—%	4.5		14.3		(10)%	15.9		5.1		13%	4.5		14.8		3%	14.3
Correspondent Clearing	6.4		n/m	—		19.7		n/m	—		8.1		27%	6.4		20.9		6%	19.7
Independent Wealth Management	18.9		n/m	—		54.7		n/m	—		18.3		(3)%	18.9		55.6		2%	54.7
Derivative Voice Brokerage	6.9		n/m	—		19.9		n/m	—		6.6		(4)%	6.9		21.5		8%	19.9
Operating revenues	$	65.4	96%	$	33.3	$	193.2	100%	$	96.4	$	88.9	36%	$	65.4	$	249.1	29%	$	193.2
Selected data:	Selected data:										Selected data:
Exchange-traded - futures and options (contracts, 000’s)	18,176.5		(10)%	20,188.3		55,956.4		(6)%	59,825.3		28,233.5		55%	18,176.5		77,234.3		38%	55,956.4
Exchange-traded - futures and options average rate per contract	$	1.35	8%	$	1.25	$	1.30	10%	$	1.18	$	1.51	12%	$	1.35	$	1.51	16%	$	1.30
Average customer equity - futures and options (millions)	$	1,016.2	9%	$	929.3	$	1,073.4	14%	$	938.5	$	1,271.0	25%	$	1,016.2	$	1,232.4	15%	$	1,073.4
FX Prime Brokerage volume (U.S. notional, millions)	$	145,679.8	(3)%	$	149,593.4	$	487,145.5	14%	$	428,253.5	$	93,007.8	(36)%	$	145,679.8	$	330,178.9	(32)%	$	487,145.5

Three Months Ended June 30, ~~2017~~2018 Compared to Three Months Ended June 30, ~~2016~~2017

Operating revenues increased ~~96%~~36% to ~~$65.4~~$88.9 million in the third quarter compared to ~~$33.3~~$65.4 million in the prior year.

Operating revenues in our Exchange-traded Futures & Options business ~~were relatively flat at $28.7~~increased 77% to $50.8 million in the third quarter compared to ~~$28.8~~$28.7 million in the prior year ~~despite~~as a ~~10% decrease~~result of a 55% increase in exchange-traded volumes asand a 12% increase in the average rate per contract ~~increased 8%~~ compared to the prior year period. ~~Interest~~In addition, interest income in the Exchange-traded Futures & Options business increased ~~$0.5~~$3.9 million to ~~$1.9~~$5.9 million in the third quarter ~~primarily as a result of~~due to an increase in short-term rates and a 9%25% increase in average customer equity to ~~$1.0~~$1.3 billion.

Operating revenues in our FX Prime Brokerage ~~were flat at $4.5~~increased 13% compared to the prior year to $5.1 million in the third quarter, despite a 36% decline in foreign exchange volumes, as market volatility drove a widening of spreads in this business.

Correspondent Clearing operating revenues increased 27% compared to the prior year ~~despite a 3% decrease~~to $8.1 million in ~~foreign exchange volumes as spreads widened modestly.~~

~~During the fourth fiscal quarter of 2016, we acquired the correspondent clearing and independent wealth management businesses of Sterne Agee. During~~ the third quarter, ~~the Correspondent Clearing and~~while operating revenues in Independent Wealth Management ~~businesses generated operating revenues of $6.4 million and $18.9 million, respectively.~~declined 3% versus the prior year to $18.3 million. Included within these operating revenues, Correspondent Clearing and Independent Wealth Management businesses had interest income of ~~$1.2~~$2.2 million and ~~$0.2~~$0.1 million, respectively.

~~On October 1, 2016, we acquired ICAP plc’s London-based EMEA oil voice brokerage business. In the third quarter, the~~ Operating revenues in Derivative Voice Brokerage ~~business contributed $6.9 million in operating revenues.~~

~~Segment income increased~~declined 4% to ~~$6.5~~$6.6 million in the third quarter compared to ~~$3.4~~the prior year.

Segment income increased to $13.7 million in the third quarter compared to $6.5 million in the prior year, primarily as a result of the ~~acquisition of the Correspondent Clearing, Independent Wealth Management and Derivative Voice Brokerage businesses, which were partially offset by~~increase in operating revenues as well as a $1.9 million decline in ~~segment income~~non-variable direct expenses, including a $1.2 million reduction in ~~our Exchange-traded Futures & Options~~compensation and benefits, resulting from a cost savings initiative in the FX Prime Brokerage and Correspondent Clearing businesses. Segment income in the third quarter includes a $0.9 million quarterly charge to compensation and benefits per the terms of the acquisition of the ~~oil voice brokerage~~Derivative Voice Brokerage business which will continue to be expensed through the end of fiscal 2018 based upon the employees’ continued employment. Variable expenses, excluding interest, as a percentage of operating revenues were 70% in both the third quarter ~~compared to 75% in~~and the prior year. The increase in introducing broker commissions expense was primarily driven by the acquisition of the Independent Wealth Management business which added $14.9 million of expense in the third quarter, as well as a $1.1 million increase in the Exchange-traded Futures & Options business. Non-variable direct expenses increased $8.0 million versus the prior year as the result of the acquisitions discussed above, which collectively added $7.3 million in non-variable expenses in the current period.

Nine Months Ended June 30, ~~2017~~2018 Compared to Nine Months Ended June 30, ~~2016~~2017

Operating revenues increased ~~100%~~29% to ~~$193.2~~$249.1 million in the current nine months ended compared to ~~$96.4~~$193.2 million in the prior year.

Operating revenues in our Exchange-traded Futures & Options business increased 61% to ~~$84.6~~$136.3 million in the current nine months ended compared to ~~$80.5~~$84.6 million in the prior year ~~despite~~as a ~~6% decrease~~result of a 38% increase in exchange-traded volumes asand a 16% increase in the average rate per contract ~~increased 10%~~ compared to the prior year period. Interest income in the Exchange-traded Futures & Options business increased ~~$2.1~~$7.6 million to ~~$5.7~~$13.3 million in the current nine months ended primarily as a result of an increase in short-term rates and a ~~14%~~15% increase in average customer equity to ~~$1.1~~$1.2 billion.

Operating revenues in our FX Prime Brokerage ~~declined 10%~~increased 3% to ~~$14.3~~$14.8 million in the current nine months ended compared to ~~$15.9~~$14.3 million in the prior year despite a ~~14% increase~~32% decrease in foreign exchange volumes ~~driven by~~as market volatility drove a ~~narrowing~~widening of ~~margins compared~~spreads in this business.

Operating revenues in the Correspondent Clearing increased 6% to ~~the prior period.~~

~~During the fourth fiscal quarter of 2016, we acquired the correspondent clearing and independent wealth management businesses of Sterne Agee. During~~$20.9 million in the current nine months ended, ~~period, the Correspondent Clearing and~~while Independent Wealth Management ~~businesses generated~~ operating revenues ~~of $19.7 million and $54.7 million, respectively.~~increased 2% versus the prior year period to $55.6 million. Included within these operating revenues, Correspondent Clearing and Independent Wealth Management businesses had interest income of ~~$3.7~~$5.5 million and ~~$0.4~~$0.3 million, respectively.

~~On October 1, 2016, we acquired ICAP plc’s London-based EMEA oil voice brokerage business. In the current nine months ended,~~ Operating revenues in the Derivative Voice Brokerage business ~~contributed $19.9~~increased 8% versus the prior year to $21.5 million in ~~operating revenues.~~the current nine months ended.

Segment income increased to ~~$20.1~~$36.9 million in the current nine months ended compared to ~~$10.4~~$20.1 million in the prior year, primarily as a result of the ~~acquisition of the Correspondent Clearing, Independent Wealth Management and Derivative Voice Brokerage businesses, which were partially offset by~~increase in operating revenues as well as a $4.7 million decline in ~~segment income~~non-variable direct expenses compared to the prior year period. This decline in ~~our Exchange-traded Futures & Options~~non-variable direct expenses, was primarily a result of cost savings initiatives in the FX prime brokerage and ~~FX Prime Brokerage~~Correspondent Clearing businesses. Segment income in the current nine months ended includes a quarterly charge, aggregating to $2.7 million, ~~quarterly charge~~ to compensation and benefits per the terms of the acquisition of the oil voice brokerage business which will continue to be expensed through the end of fiscal 2018 based upon the employees continued employment. Variable expenses, excluding interest, as a percentage of operating revenues were 70% in both the current nine months ended ~~compared to 74% in~~and the prior year. The increase in introducing broker commissions expense was primarily driven by the acquisition of the Independent Wealth Management business which added $43.1 million of expense in the current nine months ended, as well as a $4.3 million increase in introducing broker commissions expense in the Exchange-traded Futures & Options business. Non-variable direct expenses increased $22.9 million versus the prior year as the result of the acquisitions discussed above, which collectively added $21.5 million in non-variable expenses in the current period.

Liquidity, Financial Condition and Capital Resources

Overview

Liquidity is defined as our ability to generate sufficient amounts of cash to meet all of our cash needs. Liquidity is of critical importance to us and imperative to maintain our operations on a daily basis.

Our senior management establishes liquidity and capital policies, and monitors liquidity on a daily basis. Senior management reviews business performance relative to these policies and monitors the availability of our internal and external sources of financing. Liquidity and capital matters are reported regularly to our board of directors.

INTL FCStone Financial is registered as a broker-dealer with the Securities and Exchange Commission (“SEC”) and is a member of the Financial Industry Regulatory Authority (“FINRA”) and the Municipal Securities Rulemaking Board (“MSRB”). In addition, INTL FCStone Financial 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. INTL FCStone Financial has a responsibility to meet margin calls at all exchanges on a daily basis and intra-day basis, if necessary. We require our customers to make any required margin deposits the next business day, and we require our largest customers to make intra-day margin payments during periods of significant price movement. Margin required to be posted to the exchanges is a function of the net open positions of our customers and the required margin per contract. INTL FCStone Financial 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. These rules specify the minimum amount of capital that must

be available to support our customers’ open trading positions, including the amount of assets that INTL FCStone Financial must maintain in relatively liquid form, and are designed to measure general financial integrity and liquidity. INTL FCStone Financial is also subject to the Rule 15c3-3 of the Securities Exchange Act of 1934, as amended (“Customer Protection Rule”).

INTL FCStone Ltd, our U.K. regulated subsidiary, 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.

Our wholly owned subsidiaries, ~~Sterne, Agee & Leach, Inc.,~~ INTL Custody & Clearing Solutions Inc. (formerly Sterne Agee Clearing, Inc.) and SA Stone Wealth Management Inc. (formerly Sterne Agee Financial Services, Inc.) are subject to the SEC Uniform Net Capital Rule 15c3-1 under the Securities Exchange Act of 1934. Sterne, Agee & Leach, Inc. is also subject to the Rule 15c3-3 of the Securities Exchange Act of 1934, as amended (“Customer Protection Rule”). On July 1, 2017, we merged Sterne, Agee & Leach, Inc. into our wholly owned subsidiary, INTL FCStone Financial, Inc, and we expect to return excess net capital to the holding company to be available for other uses.

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 ~~organizations.~~counterparties.

We continuously review our overall credit and capital needs to ensure that our 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 June 30, ~~2017,~~2018, we had total equity capital of ~~$469.1~~$487.7 million and outstanding bank loans of ~~$244.7~~$360.6 million.

A substantial portion of our assets are liquid. As of June 30, ~~2017,~~2018, approximately ~~97%~~98% 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; customer receivables, marketable financial instruments and investments, and physical commodities inventory. All assets that are not customer 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, 2016, we owned debentures issued by a single asset owning company of the Suriwongse Hotel located in Chiang Mai, Thailand, and our investment in the hotel was $3.0 million. In December 2016, we sold the debentures and collected an amount approximating their carrying value.

Customer and Counterparty Credit and Liquidity Risk

Our operations expose us to credit risk of default of our customers and counterparties. The risk includes liquidity risk to the extent our customers or counterparties are unable to make timely payment of margin or other credit support. These risks expose us indirectly to the financing and liquidity risks of our customers and counterparties, including the risks that our customers and counterparties may not be able to finance their operations.

As a clearing broker, we act on behalf of our customers 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 customers. Accordingly, we are responsible for our customers’ obligations with respect to these transactions, which exposes us to significant credit risk. Our customers are required to make any required margin deposits the next business day, and we require our largest customers to make intra-day margin payments during periods of significant price movement. Our customers are required to maintain initial margin requirements at the level set by the respective exchanges, but we have the ability to increase the margin requirements for customers based on their open positions, trading activity, or market conditions.

With OTC derivative transactions, we act as a principal, which exposes us to the credit risk of both our customers and the counterparties with which we offset our customer positions. As with exchange-traded transactions, our OTC transactions require that we meet initial and variation margin payments on behalf of our customers before we receive the required payment from our customers. OTC customers are required to post sufficient collateral to meet margin requirements based on Value-at-Risk models as well as variation margin requirement based on the price movement of the commodity or security in which they

transact. Our customers are required to make any required margin deposits the next business day, and we may require our largest customers to make intra-day margin payments during periods of significant price movement. We have the ability to increase the margin requirements for customers based on their open positions, trading activity, or market conditions. On a limited basis, we provide credit thresholds to certain customers, based on internal evaluations and monitoring of customer creditworthiness.

In addition, with OTC transactions, we are at risk that a counterparty will fail to meet its obligations when due. We would then be exposed to the risk that the settlement of a transaction which is due a customer 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 value of the collateral is valued daily and we may require counterparties to deposit additional collateral or return collateral pledged, when appropriate.

In our Physical Commodities business we act as a principal, which exposes us to the credit risk of both our customers and our suppliers with which we offset our customer positions as well as provide financing to commercial commodity-related companies against physical inventories. We mitigate this risk by securing warehouse receipts and or insurance against potential default by either party.

Information related to bad debt expense for the three and nine months ended June 30, ~~2017~~2018 and ~~2016~~2017 can be found in Note 5 of the Condensed Consolidated Financial Statements.

Primary Sources and Uses of Cash

Our assets and liabilities may vary significantly from period to period due to changing customer requirements, economic and market conditions and our growth. Our total assets as of June 30, ~~2017~~2018 and September 30, ~~2016~~2017, were $~~6.2~~7.3 billion and ~~$6.0~~$6.2 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 customer activity, commodities prices and changes in the balances of financial instruments and commodities inventory. INTL FCStone Financial and INTL FCStone 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 customers.

The majority of the assets of INTL FCStone Financial and INTL FCStone Ltd 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 hold any direct investments in the general obligations of any sovereign nations.

As of June 30, ~~2017, $231.6~~2018, we had $277.2 million in undistributed foreign earnings. As a result of ~~cash, cash equivalents and available-for-sale investment securities was held by our foreign subsidiaries. If these funds are needed for operations in~~ the ~~U.S., we would be required to accrue and pay U.S. taxes~~Tax Reform, the Company now has the ability to repatriate these funds ~~up to~~tax free. While the ~~amount~~majority of these undistributed earnings have been reinvested in our foreign ~~earnings of $347.4 million. However,~~regulated subsidiaries, in particular our ~~intent is to indefinitely reinvest these funds outside of the U.S., and our current plans do not demonstrate a need~~London-based subsidiary INTL FCStone Ltd, we intend to repatriate ~~them~~available funds to ~~fund~~ our U.S. ~~operations.~~operations which will be placed into our central treasury, and available for funding.

As of June 30, ~~2017~~2018, ~~$10.5~~$31.1 million of financial instruments owned and ~~$10.5~~$31.2 million of financial instruments sold, not yet purchased, are exchangeable foreign equities, ADRs and ~~ADRs.~~GDRs.

On October 2016, we redeemed $45.5 million in aggregate principal amount of our 8.5% Senior Notes due 2020 (the “Notes”) plus accrued and unpaid interest to, but not including, the redemption date of October 15, 2016. The Notes were issued in July 2013, and bore interest at a rate of 8.5% per year.

We have a loan from a commercial bank, secured by equipment purchased with the proceeds. The note is payable in monthly installments, ending in March 2020. As of June 30, 2017, the current amount outstanding on the loan was $2.2 million.

As of June 30, ~~2017~~2018, we had four committed bank credit facilities, totaling ~~$532.0~~$594.5 million, of which ~~$242.5~~$311.2 million was outstanding. Additional information regarding our bank credit facilities can be found in Note 9 of the Condensed Consolidated Financial Statements. The credit facilities include:

A three-year syndicated loan facility, committed until March 18, 2019, under which INTL FCStone Inc. is entitled to borrow up to $262.0 million, subject to certain terms and conditions of the credit agreement. The loan proceeds are used to finance our working capital needs of us and certain subsidiaries.

An unsecured syndicated loan facility, committed until April ~~5, 2018,~~4, 2019, under which our subsidiary, INTL FCStone Financial is entitled to borrow up to $75.0 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.

A syndicated loan facility, committed until ~~May~~November 1, ~~2018,~~2019, under which our subsidiary, FCStone Merchant Services, LLC is entitled to borrow up to ~~$170.0~~$232.5 million, subject to certain terms and conditions of the credit agreement. The loan proceeds are used to finance traditional commodity financing arrangements and commodity repurchase agreements.

An unsecured syndicated loan facility, committed until ~~October 27, 2017,~~November 7, 2018, under which our subsidiary, INTL FCStone 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.

As reflected above, ~~$270.0~~$362.0 million of our committed credit facilities are scheduled to expire within twelve months of this filing. 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.

Additionally, we have a secured, uncommitted loan facility, under which our subsidiary, INTL FCStone Financial may borrow up to ~~$50.0~~$75.0 million, collateralized by ~~commodity~~commodities warehouse receipts, to facilitate U.S. commodity exchange deliveries of its customers, subject to certain terms and conditions of the credit agreement.

We also have a secured uncommitted loan facility, under which our subsidiary, INTL FCStone Ltd may borrow up to approximately $25.0 million, collateralized by ~~commodity~~commodities warehouse receipts, to facilitate financing of commodities under repurchases agreement services to its customers, subject to certain terms and conditions of the credit agreement.

We also have a secured uncommitted loan facility, under which our subsidiary, ~~Sterne, Agee & Leach, Inc.~~INTL FCStone Financial may borrow requested amounts for short term funding of firm and customer margin ~~requirements, subject to certain terms and conditions of the agreement.~~requirements. The uncommitted maximum 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 customer owned securities which have been pledged to us under a clearing arrangement.

~~Sterne, Agee & Leach, Inc. also has~~In addition, we have a secured uncommitted loan facility under which ~~they~~our subsidiary INTL FCStone Financial may borrow up to $100.0 million for short term funding of firm and customer margin ~~requirements, subject~~requirements. The borrowings are secured by first liens on firm owned marketable securities or customer owned securities which have been pledged to ~~certain terms and conditions of the agreement.~~us under a clearing arrangement.

Our facility agreements contain certain financial covenants relating to financial measures on a consolidated basis, as well as on a certain stand-alone subsidiary basis, 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 June 30, ~~2017,~~2018, we and our subsidiaries are in compliance with all of our financial covenants under the outstanding facilities.

~~We have a contingent liability relating to an acquisition completed in January 2015. See~~ ~~Note 11~~ to the Condensed Consolidated Financial Statements for additional information on this contingent liability. The contingent liability for the estimated additional discounted purchase price consideration totals ~~$0.9 million~~ ~~as of~~ ~~June 30, 2017~~, and is included in ‘accounts payable and other accrued liabilities’ in the condensed consolidated balance sheets. We estimate cash payments during the next twelve months, related to these contingent liabilities, to be $1.0 million.

Other Capital Considerations

Our activities are subject to various significant governmental regulations and capital adequacy requirements, both in the U.S. and ~~overseas.~~in the international jurisdictions in which we operate. Certain of our other non-U.S. subsidiaries are also subject to capital adequacy requirements promulgated by authorities of the countries in which they operate.

Our subsidiaries are in compliance with all of their capital regulatory requirements as of June 30, ~~2017~~2018. Additional information on these net capital and minimum net capital requirements can be found in Note 12 of the Condensed Consolidated Financial Statements.

The Dodd-Frank Act created a comprehensive new regulatory regime governing the OTC and listed derivatives markets and their participants by requiring, among other things: centralized clearing of standardized derivatives (with certain stated exceptions); the trading of clearable derivatives on swap execution facilities or exchanges; and registration and comprehensive regulation of new categories of market participants as “swap dealers” and swap “introducing brokers.” Our subsidiary, INTL FCStone Markets, LLC, is a provisionally registered swap dealer. Some important rules, such as those setting capital and margin requirements, have not been finalized or fully implemented, and it is too early to predict with any degree of certainty how we will be affected.

Cash Flows

Our cash and cash equivalents ~~decrease~~increased from $~~316.2~~314.9 million as of September 30, ~~2016~~2017 to $~~306.1~~347.8 million as of June 30, ~~2017~~2018, a net ~~decrease~~increase of $~~10.1~~32.9 million. Net cash of $~~14.9~~87.1 million was used in operating activities, $~~14.6~~9.3 million was used in investing activities and net cash of $~~19.0~~126.3 million was provided by financing activities, of which $~~62.5~~131.0 million was borrowed from lines of credit and increased the amounts payable to lenders under loans. Fluctuations in exchange rates increased our cash and cash equivalents by $~~0.4~~3.0 million.

In the commodities industry, 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 customer 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 guarantee 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, in our unregulated OTC and foreign exchange operations, cash deposits received from customers 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.

We continuously evaluate opportunities to expand our business. Investing activities include $~~8.6~~9.3 million in capital expenditures for property, plant and equipment in the current nine months ended, compared to ~~$12.1~~$8.6 million in the prior year. Fluctuations in capital expenditures are primarily due to the timing of purchases of IT equipment and trade system software as well as the timing on leasehold improvement projects.

Over the past eighteen months, we have been undergoing a trade system conversion that is in the application development stage, and is intended to replace an internally developed system as well as a current third-party provided system. We have capitalized $13.8 million of direct costs of materials and third-party services related to obtaining and developing the trade system. As of June 30, 2017, the trade system was not placed in service, and we had not begun to depreciate the capitalized assets. On August 1, 2017, we implemented the first phase of the trade system related to our OTC commodities business. The next phase of the system related to our FX prime brokerage business is in the application development stage, and is expected to be placed into service during fiscal 2018. We estimate a useful life for the trade system to be between seven and ten years.

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. Based upon our current operations, we

believe that cash flows from operations, available cash and available borrowings under our credit facilities will be adequate to meet our future liquidity needs.

Commitments

Information about our commitments and contingent liabilities is contained in Note 11 of the Condensed Consolidated Financial Statements.

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 trading activities. These financial instruments include futures, forward and foreign exchange contracts, exchange-traded and OTC options, mortgage-backed TBAs, and interest rate swaps. Derivative financial instruments involve varying degrees of off-statement of financial condition 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 statement of financial condition. 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.

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 recorded these obligations in the condensed consolidated financial

statements as of June 30, ~~2017~~2018 and September 30, ~~2016~~2017, at fair value of the related financial instruments, totaling $~~742.9~~1,007.2 million and $~~839.4~~717.6 million, respectively. These positions are held to offset the risks related to financial assets owned, and reported in our condensed 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 June 30, ~~2017~~2018, which might be partially or wholly offset by gains in the value of assets held as of June 30, ~~2017~~2018. The totals of $~~742.9~~1,007.2 million and $~~839.4~~717.6 million include a net liability of ~~$280.0~~$305.8 million and ~~$210.9~~$317.0 million for derivatives, based on their fair value as of June 30, ~~2017~~2018 and September 30, ~~2016~~2017, respectively.

Except as discussed above, there have been no material changes to the off balance sheet arrangements discussed in the Management’s Discussion and Analysis of our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2016.~~2017.

Effects of Inflation

Because our assets are, to a large extent, liquid in nature, they are not significantly affected by inflation. Increases in our expenses, such as compensation and benefits, transaction-based clearing expenses, occupancy and equipment rental, due to inflation, may not be readily recoverable from increasing the prices of our services. While 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

See our critical accounting policies discussed in the Management’s Discussion and Analysis of the most recent annual report filed on Form 10-K. There have been no material changes to these ~~policies, except as described below.~~

During the quarter ended March 31, 2017, our Securities reportable segment established a securities lending business. Securities borrowed and securities loaned are accounted for as collateralized financings. Securities borrowed and securities loaned are recorded at the amount of cash collateral advanced or received. Stock borrowed and stock loaned is reported on a gross basis as we have determined that the right of offset does not exist. Interest income and interest expense are recognized over the life of the arrangements.policies.

Accounting Development Updates

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. This ASU requires entities to recognize at the transaction date the income tax consequences of intercompany asset transfers other than inventory. This ASU is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2017. The adoption of this standard should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. We expect to adopt this guidance starting with the first quarter of fiscal year 2019. The adoption of this standard is not expected to have a material impact on the financial statements.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. This ASU requires companies to include cash and cash equivalents that have restrictions on withdrawal or use in total cash and cash equivalents on the statement of cash flows. This ASU is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2017. The adoption of this standard should be applied using a retrospective transition method to each period presented. We expect to adopt this guidance starting with the first quarter of fiscal year 2019. We have not yet determined the impact of this Update on our financial position, results of operations and cash flows.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment, which eliminates Step 2 of the goodwill impairment test. Companies will now perform their goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity will recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. This ASU is effective for public business entities for its annual or any interim goodwill impairment tests beginning in periods after December 15, 2019. We expect to adopt this guidance starting with the first quarter of fiscal year 2021. We do not expect this Update to have a significant impact on our financial position, results of operations and cash flows.

In February 2017, the FASB issued ASU 2017-05 addressing the derecognition of nonfinancial assets. The guidance defines in substance nonfinancial assets, and states that the derecognition of business activities should be evaluated under the consolidation guidance. The standard eliminates the previous exclusion for businesses that are in-substance real estate, and eliminates some differences based on whether a transferred set is that of assets or a business and whether the transfer is to a joint venture. The standard must be implemented in conjunction with the implementation date of the revenue recognition accounting standard update, which we will adopt on October 1, 2018. We plan to adopt the new standard using the modified retrospective method and are in the process of determining the impact of the guidance on the consolidated financial statements together with our evaluation of the new revenue recognition standard, as described further below.

In March 2017, the FASB issued ASU 2017-07 requiring that the service cost component of pension and postretirement benefit costs be presented in the same line item as other current employee compensation costs and other components of those benefit costs be presented separately from the service cost component and outside a subtotal of income from operations, if presented. The update also requires that only the service cost component of pension and postretirement benefit cost is eligible for capitalization. The update is effective for annual periods beginning after December 15, 2017 and interim periods within that annual period. We expect to adopt this guidance starting with the first quarter of fiscal year 2019. Application is retrospective for the presentation of the components of these benefit costs and prospective for the capitalization of only service costs. Early adoption is permitted. We do not expect application of this guidance to have a material impact on our consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting, which clarifies the changes to terms or conditions of a share-based payment award that require an entity to apply modification accounting. The amendments of this ASU are effective for annual reporting periods, and interim periods therein, beginning after December 15, 2017. Early application is permitted and prospective application is required. We expect to adopt this guidance starting with the first quarter of fiscal year 2019. We do not expect the adoption of this guidance to have a significant impact on our consolidated financial statements.

In May 2014, the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued ~~ASU~~Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 completes the joint effort by the FASB and International Accounting Standards Board (IASB) to improve financial reporting by creating common revenue recognition guidance for GAAP and International Financial Reporting Standards (IFRS). In March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net).” ASU 2016-08 clarifies the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing.” ASU 2016-10 clarifies the implementation guidance on identifying performance obligations. These ASUs apply to all companies that

enter into contracts with customers to transfer goods or services. These ASUs are effective for public entities for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. ~~We expect~~The Company expects to adopt this guidance starting with the first quarter of fiscal year 2019. Entities have the choice to apply these ASUs either retrospectively to each reporting period presented or by recognizing the cumulative effect of applying these standards at the date of initial application and not adjusting comparative information. ~~We plan~~The Company plans to adopt the new standard using the modified retrospective method which will result in a cumulative effect adjustment as of the date of adoption. By selecting this adoption method, wethe Company will disclose the amount, if any, by which each financial statement line item is affected by the standard in the current reporting period as compared with the guidance that was in effect before adoption. Our implementation efforts include identifying revenues and costs within the scope of the ASU, reviewing contracts, and analyzing any changes to its existing revenue recognition policies. As a result of the initial evaluation performed, ~~we do~~the Company does not expect that there will be material changes to the timing of revenue, but do anticipate certain changes to the classification of revenue in the consolidated income statements. WeThe Company also ~~expect~~expects additional disclosures to be provided in our consolidated financial statements after adoption of the new standard. ~~We will continue~~The Company is continuing to ~~monitor additional modifications, clarifications or~~assess the impact of the new standard as we progress through the implementation process and as industry interpretations byare resolved.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which supersedes ASC 840, Leases. The Company will adopt this guidance starting with the first quarter of fiscal year 2020 using a modified retrospective transition approach. This accounting update will require the Company as a lessee to recognize on the consolidated balance sheet all leases with terms exceeding one year, which results in the recognition of a right of use asset and corresponding lease liability, including for those leases that we currently classify as operating leases. The right of use asset and lease liability will initially be measured using the present value of the remaining rental payments.

In February 2018, the FASB issued ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The ASU provides that the stranded tax effects from the Tax Reform on the balance of other comprehensive earnings may be reclassified to retained earnings. The ASU is effective for periods beginning after December 15, 2018, with an election to adopt early. The Company expects to adopt this guidance starting with the first quarter of fiscal year 2020. The Company does not expect the adoption of this ASU to have a material impact ~~its current conclusions, and will provide further updates in future periods.~~on our consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Credit Risk

See Note 4 to the Condensed 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 customer-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.

We utilize derivative products in a trading capacity as a dealer to satisfy customer 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.

Management believes that the volatility of revenues is a key indicator of the effectiveness of our risk management techniques. The graph below summarizes volatility of our daily revenue, determined on a marked-to-market basis, during the nine months ended June 30, ~~2017~~2018.

In our Securities market-making and trading activities, we maintain inventories of equity and debt securities. In our Physical Commodities segment, our positions include physical inventories, forwards, futures and options on ~~futures.~~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 fixed income business, we maintain a significant amount of trading assets and liabilities which are sensitive to changes in interest rates. These trading activities consists primarily of securities trading in connection with U.S. Treasury, U.S. government agency, agency mortgage-backed and agency asset-backed obligations. Derivative instruments, which consist of futures, mortgage-backed “to be announced” (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 the purchase of mortgage pass-through securities.

In addition, we generate interest income from the positive spread earned on customer 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 ~~interest earning cash deposits~~ 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 and counterparty.

We employ an interest rate management strategy, where we use derivative financial instruments in the form of interest rate swaps and/or outright purchases of medium-term U.S. Treasury notes to manage a portion of our aggregate interest rate position. On a quarterly basis, we evaluate our overall level of short term investable balances, net of our of variable rate debt, and either invest a portion of these investable balances in medium-term U.S. Treasury notes or enter into interest rate swaps, ~~intended to swap out short term variable~~when a sufficient interest ~~earnings into~~rate spread between short-term and medium-term ~~interest earnings.~~rates exists. Under this strategy, we do not

actively trade in such instruments and generally intend to hold these investment to their maturity date. Under this strategy, excluding cash deposits and our investments in AA-rated money market funds, the weighted average time to maturity of our portfolio is not to exceed 24 months in duration.

~~As part of this strategy,~~

Currently we ~~currently~~ hold ~~$290 million in par value of medium-term~~no U.S. Treasury notes ~~and no~~or interest rate swap derivative contracts ~~with~~as part of this strategy. For the ~~remainder being~~three and nine months ended June 30, 2018, operating revenues include no unrealized gains or losses on the fair value of U.S. Treasury notes and interest rate swaps while the three and nine months ended June 30, 2017, include unrealized losses of $0.0 million and $5.8 million, respectively, related to the change in fair value of these U.S. Treasury notes and interest rate swaps. The U.S. Treasury notes and interest rate swaps were not designated for hedge accounting treatment, and changes in their fair values, which are volatile and can fluctuate from period to period, were included in operating revenues in the current periods.

Currently our short term investment balances are held in short term U.S. Treasury bills, interest earning cash deposits and AA-rated money market fund investments. The weighted-average time to maturity of the portfolio, excluding cash deposits and our investments in AA-rated money market funds, is less than three months. During the nine months ended June 30, 2017 and 2016, operating revenues include unrealized (losses) gains of ($5.8) million and $2.9 million, respectively, related to the change in fair value of these U.S. Treasury notes and interest rate swaps. The U.S. Treasury notes and interest rate swaps are not designated for hedge accounting treatment, and changes in their fair values, which are volatile and can fluctuate from period to period, are included in operating revenues in the current period.

We manage interest expense using a combination of variable and fixed rate debt as well as including the average outstanding borrowings in our calculations of the notional value of interest rate swaps to be entered into as part of our interest rate management strategy discussed above. The debt instruments are carried at their unpaid principal balance which approximates fair value. At June 30, ~~2017~~2018, $~~242.5~~359.2 million of our debt was variable-rate debt. We are subject to earnings and liquidity risks for changes in the interest rate on this debt. As of June 30, ~~2017~~2018, we had $~~2.2~~1.4 million outstanding in fixed-rate long-term debt. There are no earnings or liquidity risks associated with our fixed-rate debt.

Highly Inflationary Economy

At June 30, 2018, we have wholly owned subsidiaries in Argentina which employ approximately 80 people, and primarily conduct debt trading and asset management business activities for customers. The Argentinian economy was recently determined to be highly inflationary. A highly inflationary economy is one where the cumulative inflation rate for the three years preceding the beginning of the reporting period, including interim reporting periods, is in excess of 100 percent. Argentina’s inflation rate reached this threshold with the quarterly period ended June 30, 2018. For the interim periods ended June 30, 2018, the functional currency for certain of our subsidiaries is the Argentinian peso, the local currency of these subsidiaries. In accordance with this designation, we will report the financial results of the subsidiaries in Argentina at the functional currency of its parent, which is the U.S. dollar, effective July 1, 2018.

Item 4. Controls and Procedures

In connection with the filing of this Form 10-Q, our management, including the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as ~~amended)~~amended (the “Exchange Act”)) as of June 30, ~~2017~~2018. Our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of June 30, ~~2017~~2018.

There are limitations inherent in any internal control, such as the possibility of human error and the circumvention or overriding of controls. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are ~~met.~~met, and may not prevent or detect misstatements. As conditions change over time, so too may the effectiveness of internal controls. As a result, there can be no assurance that a control system will succeed in preventing all possible instances of error and fraud. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives, and the conclusions our Chief Executive Officer and Chief Financial Officer are made at the “reasonable assurance” level.

There were no changes in our internal controls over financial reporting during the quarter ended June 30, ~~2017~~2018 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

Item 1. Legal Proceedings

From time to time and in the ordinary course of business, we are involved in various legal and regulatory actions and proceedings, including tort claims, contractual disputes, employment matters, workers’ compensation claims and collections. We carry insurance that provides protection against certain types of claims, up to the policy limits of our insurance.

~~There~~The following is a summary of a significant legal matter.

Sentinel Litigation

Prior to the July 1, 2015 merger into INTL FCStone Financial, our subsidiary, FCStone, LLC, had a portion of its excess segregated funds invested with Sentinel Management Group Inc. (“Sentinel”), a registered futures commission merchant (“FCM”) and an Illinois-based money manager that provided cash management services to other FCMs. In August 2007,

Sentinel halted redemptions to customers and sold certain of the assets it managed to an unaffiliated third party at a significant discount. On August 17, 2007, subsequent to Sentinel’s sale of certain assets, Sentinel filed for bankruptcy protection. In aggregate, $15.5 million of FCStone, LLC’s $21.9 million in invested funds were returned to it before and after Sentinel’s bankruptcy petition. A further amount of $2.0 million was held by the bankruptcy trustee in reserve in the name of FCStone, LLC.

In August 2008, the bankruptcy trustee of Sentinel filed adversary legal proceedings against FCStone, LLC and a number of other FCMs, seeking recovery of pre- and post-petition transfers totaling $15.5 million.

Our assessments are based on estimates and assumptions that have been ~~no material changes~~deemed reasonable by management, but that may later prove to ~~our disclosures included in Item 3. Legal Proceedings of our Annual Report on Form 10-K for the fiscal year ended September 30, 2016.~~be incomplete or inaccurate, and unanticipated events and circumstances may occur that might cause us to change those estimates and assumptions.

Item 1A. Risk Factors

In addition to the other information set forth in this report, information regarding risks affecting us appears in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2016.~~2017. These are not the only risks we face. Additional risks and uncertainties not currently known to us or that management currently considers to be non-material may in the future adversely affect our business, financial condition and operating results. There have been no material changes to our risk factors since the filing of our Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On August ~~18, 2016,~~17, 2017, our Board of Directors authorized for fiscal year ~~2017,~~2018, the repurchase of up to 1.0 million shares of our outstanding common stock from time to time in open market purchase and private transactions, commencing on October 1, ~~2016~~2017 and ending on September 30, ~~2017,~~2018, subject to the discretion of the senior management team to implement our stock repurchase plan, and subject to market conditions and as permitted by securities laws and other legal, regulatory and contractual requirements and covenants.

Our common stock repurchase program activity for the three months ended June 30, ~~2017~~2018 was as follows.



Period	Total Number of Shares Purchased⁽¹⁾	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program	Maximum Number of Shares Remaining to be Purchased Under the Program
April 1, ~~2017~~2018 to April 30, ~~2017~~2018	—	$	—	—	1,000,000
May 1, ~~2017~~2018 to May 31, ~~2017~~2018	—	—		—	1,000,000
June 1, ~~2017~~2018 to June 30, ~~2017~~2018	—	—		—	1,000,000
Total	—	$	—	—

Item 6. Exhibits



31.1		Certification of Chief Executive Officer, pursuant to Rule 13a—14(a).

31.2		Certification of Chief Financial Officer, pursuant to Rule 13a—14(a).

32.1		Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

INTL FCStone Inc.



Date:	August ~~8, 2017~~6, 2018	/s/ Sean M. O’Connor
		Sean M. O’Connor
		Chief Executive Officer

Date:	August ~~8, 2017~~6, 2018	/s/ William J. Dunaway
		William J. Dunaway
		Chief Financial Officer

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