We are a leading intermediary offering customized solutions in the global cash and derivatives markets. We provide execution and clearing services for products in the exchange-traded and over-the-counter, or OTC, derivative markets, as well as for products in the cash market. We provide our clients with access to many of the largest and fastest growing markets and products throughout the world.
Our business model is global and product-driven, which allows us to centrally manage our resources while offering clients an expansive array of products across a broad range of markets and geographies. Our history dates back over 200 years ago to a brokerage business that was a founding member of some of the world’s first futures exchanges. After an initial public offering in July 2007, we separated from Man Group plc, our former parent, and became an independent public company with shares listed on the New York Stock Exchange. We seek to discover and capitalize on market opportunities for clients through our international network of offices and relationships, expansive product offerings, value-added product expertise and consistent, high-quality service.
Description of Business
We believe we are one of the largest intermediaries in the global cash and derivatives markets, based on the amount of volume we direct to many of the world’s largest derivatives exchanges, the number of clients we serve, the client balances we maintain, and the extent of our global presence. As of March 31, 2009, we had more than 137,000 active clients worldwide and offices in 13 countries including Bermuda, Chicago, Dubai, Hong Kong, London, Mumbai, New York, Paris, Singapore, Switzerland, Sydney, Taipei, Tokyo, and Toronto. We provide our clients with global market access to more than 70 exchanges through our broker networks, relationships with introducing brokers and online trading platforms. As of March 31, 2009, we had approximately 3,200 employees.
Our clients include institutions, hedge funds and other asset managers, as well as professional traders and private clients. We act as an intermediary principally for five types of products: fixed income, commodities, foreign exchange, equities and interest rate products, and support a retail products group. Our principal executive offices are in New York, and our registered office is in Hamilton, Bermuda.
We generally execute orders for our clients on an agency or matched-principal basis. When we execute for a client on an agency basis, we typically direct the order to an exchange or OTC market where it is matched with a corresponding order for execution. When we execute a client order on a matched-principal basis, we take the other side of the trade for our own account and relatively quickly (often within minutes and generally on the same trading day) enter into an offsetting trade with another party. We engage in matched-principal execution, which generally yields higher profit margins than agency execution, primarily in the OTC markets, but also in certain listed markets outside the United States.
Except for corporate hedging and investment management transactions, we enter into transactions for our own account generally in response to or in anticipation of client demand, primarily to facilitate the execution of existing client orders or in the expectation that future client orders will become available to fill the other side of the transaction, and not primarily for directional purposes.
We also act as a clearing firm for clients who execute trades in futures and options on exchanges where we are approved as a clearing member. These include all major derivatives exchanges in the U.S. and Europe as well as certain Asia/Pacific markets. We may act as the clearing firm for clients who use us to execute their orders, as well as for clients who use other executing brokers or execute their orders directly on the exchange. We also provide clearing services for a growing number of transactions executed in the OTC markets.
We derive revenues from four main sources: commissions from agency execution; commissions from clearing services; markups from principal transactions, primarily consisting of client trades executed on a matched-principal basis; and net interest income on (i) cash balances in our clients’ accounts, most of which are maintained by our clearing clients to meet margin requirements as well as (ii) interest related to our fixed income and principal transaction activities.
We have established a set of strategic considerations to provide a consistent, clear framework for executing our growth strategy. With any initiative we pursue, we seek to achieve all or a combination of the following objectives:
Maximize Profitability—We expect to focus on our high-growth, high-margin businesses to maximize profitability.
Drive Growth—We intend to take selective advantage of opportunities to build our business, either organically or by strategic acquisitions.
Allocate Capital Effectively—We plan to direct our human and financial capital to those areas that we believe will enhance our operating infrastructure and create more profitable client relationships.
Deliver Scale—We believe that a flexible and scalable infrastructure provides an improved offering for our clients, more efficient front and back office systems and lower overhead costs.
Balance risk and reward—Our enterprise risk management guidelines are designed to ensure that our risk exposure does not outweigh the value of any initiative we may pursue. We continuously manage our risk on a firm-wide basis, which we believe is critical to managing the levels of risk necessary to achieve desired profitability.
We believe we are well positioned to expand our business in future years both through organic growth and selected acquisitions. We intend to build upon our competitive strengths by pursuing the following strategies:
Expand High-Growth Products
We believe that there is significant opportunity to expand some of our existing products. With our retail clients, we intend to take advantage of the growing demand for exchange-traded derivatives by retail investors. The globalization of financial products and widespread acceptance of electronic trading as a means of accessing world markets have resulted in increased demand for trading. We believe that retail investors seek the access and liquidity we provide, which we believe differentiates us from many of our competitors. We are actively working to expand our retail presence by providing a consistent retail offering, which we believe our existing clients appreciate for its quality. We also believe that we are well positioned to take advantage of increased demand among retail traders, and we intend to capitalize on our strengths to increase our market share, particularly in North America and Asia.
In addition, we believe that governments around the world are likely to increase their issuance of debt to make up for shortfalls precipitated by the challenging economic environment. We believe our fixed income group would benefit from greater debt issuances, which could in turn encourage more trading of government-backed securities and hence greater trading volumes and liquidity. At the same time, we have taken steps to expand our fixed income group, including adding brokerage teams in products in which we historically did not have a presence, such as agency debt and high-yield corporate bonds.
Diversify Our Business
In a rapidly evolving marketplace, we seek to diversify our business and expand into new markets, products and geographies creating new areas of opportunity for us and our clients. We continue to add new products and experienced teams to existing product divisions in order to expand our presence or to enter new markets that our clients would like to access. We plan to extend our product offerings into a variety of areas, including commodities, foreign exchange and fixed income markets.
Further, we believe that our plans to diversify our business with fee-based revenue, from asset management fees in alternative investment products for accredited investors represent a significant opportunity for us. We believe that varying our sources and types of revenue will strengthen our business and provide earnings resiliency through future market cycles. We also believe that the recent industry trend toward market convergence—that is, an increasing demand for diversified trading across complementary markets, such as listed and OTC derivatives and non-derivative cash products, provides an opportunity to broaden the range of products and strategies we offer our clients. As financial markets converge, a growing number of investors demand sophisticated trading strategies that rely on buying and selling a wide range of instruments and contracts in an array of markets. As a specialized broker with strong positions in listed and OTC derivatives as well as cash markets around the world, we are well positioned to assist our clients in executing complex transactions in multiple markets. We seek to capture a growing share of the cross-market activity resulting from the increasing market convergence. In addition, by expanding the range of products we execute and clear and by joining additional financial exchanges, we believe we will continue to be able to offer our clients opportunities to invest in new and developing trading instruments.
Finally, we expect both regulation and market demand to support increased migration of activity from OTC markets to centrally cleared environments, as participants and regulators seek the greater certainty and transparency offered by these facilities. Given our leadership position in OTC and exchange-based derivatives execution and clearing, as well as experience in those areas, we expect to benefit from this trend.
Expand Our Geographic Footprint
Because we operate our business on a global basis, we are committed to participating or expanding our presence in developing markets, such as those in the Asia/Pacific region and South America. Global economic development has led to significant growth in a number of local financial markets around the world in recent years. We intend to continue to participate in the development of domestic commodities markets and to provide greater access to equity markets, including the establishment of direct market access.
We are actively expanding into these markets, bringing our proven skills in broking, clearing and account management. In addition to providing local investors in developing markets with access to global markets, as well as their own where permitted, we intend to continue to grow our business by providing expertise and access to foreign investors in these emerging markets.
Asia has been a focal point of our geographic expansion. We have built businesses in Australia, Hong Kong, India, Japan, Singapore, and Taiwan. We believe there will be substantial additional growth opportunities in several countries in the Asia/Pacific region if local regulations are eased, and we stand ready to capitalize on opportunities as they emerge, although we do not know whether or how quickly they may occur in any particular country.
Pursue Strategic Acquisitions
We intend to continue to expand our client base and brokerage capabilities by pursuing acquisitions that deliver scale to our business.
MF Global and its predecessor businesses have successfully acquired roughly 20 companies during the past two decades. We have made acquisitions both to extend our presence into new markets as well as to deliver scale within existing markets. These acquisitions have expanded the depth and breadth of the products we offer our clients, while also contributing to our growth and profitability. We have repeatedly transferred expertise developed in a particular product or market and applied it in new settings, significantly enhancing the value of an acquisition. We have also been successful at retaining and integrating select teams of professionals from the operations we have acquired.
Our business model is global and product-driven, which allows us to offer customized solutions to our diverse client base across a vast array of products, markets and geographic regions and through multiple distribution channels. We centrally manage our businesses as a global organization and offer clients the ease of trading multiple products through a single intermediary with a worldwide presence.
We provide three primary types of service to our clients: execution-only, matched-principal execution and clearing. We are able to provide these services to clients either as a bundled package (including both execution and clearing) or separately (execution-only, but not clearing or vice versa), depending upon our clients’ needs.
We provide our clients with access to a wide array of products in a broad range of markets. Our primary offerings are equities, interest rate products, fixed income, foreign exchange and commodities. We classify currency futures within foreign exchange and equity index futures within equities.