XML 29 R12.htm IDEA: XBRL DOCUMENT v3.22.2.2
Financial Instruments with Off-Balance Sheet Risk and Concentrations of Credit Risk
 12 Months Ended
Sep. 30, 2022
Financial Instruments with Off-Balance Sheet Risk and Concentrations of Credit Risk [Abstract]  
Financial Instruments with Off-Balance Sheet Risk and Concentrations of Credit Risk 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 consolidated financial statements as of September 30, 2022 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 September 30, 2022. The total Financial instruments sold, not yet purchased, at fair value of $2,469.6 million as of September 30, 2022 includes $313.4 million for derivative contracts, which represent a liability to the Company based on their fair values as of September 30, 2022.
Derivatives
The Company utilizes derivative products in its trading capacity as a dealer in order to satisfy client 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 Company’s derivative positions are included in the Consolidating Balance Sheets in Deposits with and receivables from broker-dealers, clearing organizations, and counterparties; Receivables from clients, net; Financial instruments owned, net; Financial instruments sold, not yet purchased, at fair value; Payables to clients; and Payables to broker-dealers, clearing organizations and counterparties.
Listed below are the fair values of the Company’s derivative assets and liabilities as of September 30, 2022 and 2021. Assets represent net unrealized gains and liabilities represent net unrealized losses.
 September 30, 2022September 30, 2021
(in millions)
Assets (1)
Liabilities (1)
Assets (1)
Liabilities (1)
Derivative contracts not accounted for as hedges:
Exchange-traded commodity derivatives$4,520.4 $4,519.3 $3,904.1 $3,904.7 
OTC commodity derivatives756.9 695.6 803.4 761.3 
Exchange-traded foreign exchange derivatives25.6 25.7 119.9 119.9 
OTC foreign exchange derivatives577.1 549.3 216.9 185.5 
Exchange-traded interest rate derivatives2,626.8 2,626.7 245.9 249.0 
OTC interest rate derivatives168.9 205.1 56.4 54.9 
Exchange-traded equity index derivatives609.5 609.5 206.5 206.5 
OTC equity and indices derivatives164.4 95.7 148.5 94.1 
TBA and forward settling securities207.6 154.9 59.1 52.2 
Total derivative contracts not accounted for as hedges9,657.2 9,481.8 5,760.7 5,628.1 
Derivative contracts designated as hedging instruments:
Interest rate swaps— 48.8 — — 
Foreign currency forwards— 21.8 — — 
Total derivative contracts designated as hedging instruments— 70.6 — — 
Gross fair value of derivative contracts$9,657.2 $9,552.4 $5,760.7 $5,628.1 
Impact of netting and collateral (10,920.8)(10,505.0)(5,353.9)(4,955.4)
Total fair value included in Deposits with and receivables from broker-dealers, clearing organizations, and counterparties, net
$(1,455.7)$259.9 
Total fair value included in Receivables from clients, net
$(0.5)$2.6 
Total fair value included in Financial instruments owned, at fair value
$192.6 $144.3 
Total fair value included in Payables to clients
$(1,392.4)$291.5 
Total fair value included in Payables to broker-dealers, clearing organizations and counterparties
$55.8 $12.7 
Fair value included in Financial instruments sold, not yet purchased, at fair value
$384.0 $368.5 
(1)As of September 30, 2022 and 2021, the Company’s derivative contract volume for open positions was approximately 13.3 million and 11.1 million contracts, respectively.
The Company’s derivative contracts are principally held in its Institutional, Commercial, and Retail segments. The Company provides its Institutional segment clients access to exchanges at which they can carry out their trading strategies. The Company assists its Commercial segment clients 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 segment clients with exchange products, including combinations of buying and selling puts and calls. In its Retail segment, the Company provides its retail clients with access to spot foreign exchange, precious metals trading, as well as contracts for difference (“CFD”) and spread bets, where permitted. The Company mitigates its risk by generally offsetting the client’s transaction simultaneously with one of the Company’s trading counterparties or will offset that transaction with a similar but not identical position on the exchange. 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, other derivatives, or cash collateral paid or received.
Hedging Activities
The Company uses interest rate derivatives, in the form of swaps, to hedge risk related to variability in overnight rates. These hedges are designated cash flow hedges, through which the Company mitigates uncertainty in its interest income generation by converting floating-rate interest income to fixed-rate interest income. While the swaps mitigate interest rate risk, they do introduce credit risk, which is the possibility that the Company’s trading counterparty fails to meet its obligation. The Company minimizes this risk by entering into its swaps with highly-rated, multi-national institutions. In addition to credit risk, there is market risk associated with the swap positions. The Company’s market risk is limited, because any amounts the Company must pay from having exchanged variable interest will be funded by the variable interest the Company receives on its deposits. As of September 30, 2022, the Company had $1,500.0 million in notional value of its interest rate contracts hedges. As of September 30, 2022, the Company’s hedges will all mature within 2 years from the end of the current period.

The Company also uses foreign currency derivatives, in the form of forward contracts, to hedge risk related to the variability in exchange rates relative to certain of the Company’s non-USD expenditures. These hedges are designated cash flow hedges, through which the Company mitigates variability in exchange rates by exchanging foreign currency for USD at fixed exchange rates at a pre-determined future date, or several cash flows at several pre-determined future dates. While the forward contracts mitigate exchange rate variability risk, they do introduce credit risk, which is the possibility that the Company’s trading counterparty fails to meet its obligation. The Company minimizes this risk by entering into its forward contracts with highly-rated, multi-national institutions. As of September 30, 2022, the Company had foreign currency forward contracts to purchase British Pound Sterling with notional values in local currency of £168.0 million and USD of $207.3 million. These hedges will all mature within 2 years from the end of the current period.

The Company assesses the effectiveness of its hedges at each reporting period to identify any required reclassifications into current earnings. During the year ended September 30, 2022, the Company did not designate any portion of its hedges as ineffective and thus did not have any values in current earnings related to ineffective hedges. As of September 30, 2022, $9.7 million and $8.9 million of derivative liabilities related to interest rate contracts and foreign currency forward contracts, respectively, are expected to be released from Other comprehensive income into current earnings. The Company had no such hedges as of September 30, 2021 or during the year then ended. The fair values of derivative instruments designated for hedging held as of September 30, 2022 are as follow:

 September 30, 2022
(in millions)Balance Sheet LocationFair Value
Liability Derivatives
Derivatives designated as hedging instruments:
Interest rate contractsFinancial instruments sold, not yet purchased$48.8 
Foreign currency forward contractsFinancial instruments sold, not yet purchased21.8 
Total derivatives designated as hedging instruments$70.6 
The Condensed Consolidated Income Statement effects of derivative instruments designated for hedging held for the year ended September 30, 2022 are as follow:
Year Ended September 30, 2022
(in millions)Interest Expense
Total amounts in net income related to hedges
Interest rate contracts$2.4 
Total derivatives designated as hedging instruments$2.4 
Loss on cash flow hedging relationships:
Amount of loss reclassified from accumulated other comprehensive income into income$2.4 
Amount reclassified from accumulated other comprehensive income into income as a result of a forecasted transaction that is no longer probable of occurring$— 

The accumulated other comprehensive income effects of derivative instruments designated for hedging held for the year ended September 30, 2022 are as follows:

Year Ended September 30, 2022
(in millions)Amount of Loss Recognized in Other Comprehensive Income on Derivatives, net of tax
Location of Loss Reclassified from Accumulated Other Comprehensive Income into IncomeAmount of Loss Reclassified from Accumulated Other Comprehensive Income into Income
Derivatives in Cash Flow Hedging Relationships:
Interest rate contracts$37.0 Interest Income$2.4 
Foreign currency forward contracts16.5 N/A— 
Total$53.5 $2.4 

The following table sets forth the Company’s net gains/(losses) related to derivative financial instruments for the periods indicated, in accordance with the Derivatives and Hedging Topic of the ASC. The net gains/(losses) set forth below are included in Principal gains, net and Cost of sales of physical commodities in the Consolidated Income Statements.
Year Ended September 30,
(in millions)202220212020
Commodities$303.7 $207.8 $197.3 
Foreign exchange174.4 116.3 38.2 
Interest rate, equities, and indices100.4 80.8 20.4 
TBA and forward settling securities
226.8 (6.3)(49.7)
Net gains from derivative contracts$805.3 $398.6 $206.2 
Credit Risk
In the normal course of business, the Company purchases and sells financial instruments, commodities and foreign currencies as either principal or agent on behalf of its clients. If either the client 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, clients, broker-dealers and other financial institutions. These activities involve both 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 limits based upon a review of counterparties financial condition and credit ratings. The Company monitors collateral levels on a daily basis for compliance with regulatory and internal guidelines. The Company requests changes in collateral levels as appropriate.
The Company is a party to financial instruments in the normal course of its business through client and proprietary trading accounts in exchange-traded and OTC derivative instruments. These instruments are primarily the execution of orders for commodity futures, options on futures and forward foreign currency contracts on behalf of its clients, substantially all of these transactions occur 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 clients may incur. The Company controls the risks associated with these transactions by requiring clients to maintain margin deposits in compliance with individual exchange regulations and
internal guidelines. The Company monitors required margin levels daily and, therefore, may require clients to deposit additional collateral or reduce positions when necessary. The Company also establishes client credit limits, which are monitored daily. The Company evaluates each client’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 clients and counterparties are subject to master netting, or client agreements, which reduce the exposure to the Company by permitting receivables and payables with such clients to be offset in the event of a client default. Management believes that the margin deposits held as of September 30, 2022 and 2021 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.
Derivative financial instruments involve varying degrees of off-balance sheet market risk whereby changes in the fair values of underlying financial instruments may result in changes in the fair value of the financial instruments in excess of the amounts reflected in the Consolidated Balance Sheets. Exposure to market risk is influenced by a number of factors, including the relationships between the financial instruments and 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 commodity pricing and 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.