# StoneX Group Inc. (SNEX) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from StoneX Group Inc.'s 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/913760/000091376021000189/intl-20210930.htm
Accession: 0000913760-21-000189
Filing date: 2021-11-29
Report date: 2021-09-30
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/SNEX/
All MD&A years: /company/SNEX/mda/
Next year: /company/SNEX/mda/fy2022/ (FY 2022)

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

The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report. This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements involve known and unknown risks and uncertainties, many of which are beyond the control of the Company, including adverse changes in economic, political and market conditions, losses from our market-making and trading activities arising from counterparty failures and changes in market conditions, the possible loss of key personnel, the impact of increasing competition, the impact of changes in government regulation, the possibility of liabilities arising from violations of foreign, U.S. federal and U.S. state securities laws, the impact of changes in technology in the securities and commodities trading industries, the failure to successfully integrate the operations of businesses acquired and the potential impact of the COVID-19 pandemic on our business, operations, results of operations, financial condition, workforce or the operations or decisions of our customers, suppliers or business customers. Although we believe that our forward-looking statements are based upon reasonable assumptions regarding our business and future market conditions, there can be no assurances that our actual results will not differ materially from any results expressed or implied by our forward-looking statements. Factors that might cause such a difference include, among other things, those set forth under “Risk Factors” and those appearing elsewhere in this Form 10-K. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. We caution readers that any forward-looking statements are not guarantees of future performance.

Overview

We operate a global financial services network that connects companies, organizations, traders and investors to the global market ecosystem through a unique blend of digital platforms, end-to-end clearing and execution services, high touch service and deep expertise. We strive to be the one trusted partner to our clients, providing our network, product and services to allow them to pursue trading opportunities, manage their market risks, make investments and improve their business performance. Our businesses are supported by our global infrastructure of regulated operating subsidiaries, our advanced technology platform and our team of more than 3,200 employees as of September 30, 2021. We believe our client-first approach differentiates us from large banking institutions, engenders trust and has enabled us to establish leadership positions in a number of complex fields in financial markets around the world. For additional information, see Overview of Business and Strategy within Item 1. Business section of this Annual Report on Form 10-K.

Our operating segments are based primarily on the nature of the clients we serve, consisting of Commercial, Institutional, Retail, and Global Payments clients. This structure allows us to efficiently serve clients in more than 180 countries and manage our large global footprint. See Segment Information for a listing of business activities performed within our reportable segments.

StoneX Group Inc. and its trade name "StoneX" carries forward the foundation established by Saul Stone in 1924 to today's modern financial services firm. Today, we provide an institutional-grade financial services ecosystem, connecting our clients to 36 derivatives exchanges, 185 foreign exchange markets, nearly every global securities marketplace, and a number of bi-lateral liquidity venues via our networks of highly integrated digital platforms and experienced professionals. Our platform delivers support throughout the entire lifecycle of a transaction, from consulting and boots-on-the-ground intelligence, to efficient execution, to post-trade clearing, custody and settlement.

COVID Impact

Beginning in the second quarter of fiscal 2020 and continuing through the fourth quarter of fiscal 2021, worldwide social and economic activity has been severely impacted by the spread and threat of COVID-19. In March 2020, COVID-19 was recognized as a global pandemic and spread to many regions of the world, including all countries in which we have operations. The responses by governments and societies to the COVID-19 pandemic, which include temporary closures of businesses, social distancing, travel restrictions, “shelter in place” and other governmental regulations and various economic stimulus programs, have significantly impacted market volatility and general economic conditions. We have and continue to closely track the evolving impact of COVID-19 and are focused on helping our customers and employees through these difficult times.

Current Results of Operations

The COVID-19 pandemic has resulted in significant market volatility and unprecedented market conditions. Our fourth quarter results continue to reflect revenue growth in Equity and Debt Capital Markets over the prior year primarily related to increased customer flow to our equity market making desk and a widening of spreads in fixed income products, albeit to a lesser extent than in the third quarter of fiscal 2020, as a result of periods of higher volatility in the global markets due to economic concerns related to the COVID-19 pandemic. We have also seen a significant increase in customer demand for precious metals in light of

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the COVID-19 global pandemic and the resulting effect on the global economy. This revenue growth has been partially offset by the effect of the actions of the Federal Open Market Committee (“FOMC”), which immediately reduced short term interest rates by 100 basis points in March 2020 in response to the economic effect of the pandemic and the resulting effect on our interest and fee income earned on client balances as well as increases in bad debt expense, reflective of the effect of the global pandemic on our client base.

Employees

We have taken actions to minimize risk to our employees, including restricting travel and providing secure and efficient remote work options for our team members. These steps leveraged our existing operational contingency plans at every level of the organization, ensuring business process and control continuity, while preventing major disruption to our clients and operations.

Business Continuity Plans

We deployed business continuity plans to ensure we continue to serve our customers while maintaining operational flexibility through the evolving conditions described above, including the ability to work remotely for all of our staff, as needed.

The full extent to which the COVID-19 pandemic will impact our business and operating results will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, including variants of COVID-19 emerging from time-to-time, and the mitigation efforts by government entities, as well as our own immediate and continuing COVID-19 operational response. We have taken, and will continue to take, active and decisive steps in this time of uncertainty and remain committed to the safety of our employees, while also continuing to serve our customers.

Executive Summary

In fiscal 2021 we continued to benefit from our diversified product offering and client base, achieving operating revenue growth across all of our operating segments. Increased volatility in commodity prices drove significant growth in operating revenues from both listed and OTC derivatives, and while spreads in securities products have declined versus the prior year, which benefited from volatility related to the onset of the COVID-19 pandemic, we experienced significant growth in securities volumes leading to growth in operating revenues from securities contracts. We continue to face the headwind of historically low short-term interest rates, with interest and fee income on client balances declining $16.7 million, or 39%, to $26.0 million in the year ended September 30, 2021, however we experienced strong growth in our client balances, as average client equity and average money-market/FDIC sweep balances increased 39% and 30%, respectively compared to the year ended September 30, 2020.

Operating revenues increased $364.8 million, or 28%, to $1,673.1 million in the year ended September 30, 2021 compared to $1,308.3 million in the year ended September 30, 2020, led by our Retail segment, which added $208.0 million compared to the year ended September 30, 2020, principally related to the acquisition of Gain, effective August 1, 2020. In addition, our Commercial and Institutional segments added $103.3 million and $44.3 million, respectively, compared to the year ended September 30, 2020, while our Global Payments segment added $19.9 million.

Overall segment income increased $111.1 million, or 28%, compared to the year ended September 30, 2020. This growth in segment income was led by our Commercial segment which increased $50.3 million, or 35% compared to the year ended September 30, 2020, as a result of strong growth in operating revenues, benefiting from increased volatility and customer activity, primarily in agricultural and metal commodity markets.

Institutional segment income increased $14.8 million, or 10% compared to the year ended September 30, 2020. This growth was principally driven by an 7% increase in operating revenues, most notably in securities transactions, where securities average daily volumes (“ADV”) increased 61% compared to the year ended September 30, 2020, which was partially offset by a 28% decline in securities rate per million (“RPM”) earned. In addition, bad debts, net of recoveries and impairments in the Institutional segment declined $9.2 million compared to the year ended September 30, 2020. These net positive variances were partially offset by a $16.3 million decline in interest and fee income earned on average client equity and FDIC sweep balances compared to the year ended September 30, 2020.

Segment income in our Retail segment increased $36.1 million or 114% compared to the year ended September 30, 2020, primarily as a result of the acquisition of Gain as well as an increase in customer activity in our retail precious metal and independent wealth management businesses.

Finally, Global Payments segment income increased $9.9 million, or 14% compared to the year ended September 30, 2020, as average daily volumes increased 20% compared to the year ended September 30, 2020. This was partially offset by a $4.2 million increase in non-variable direct expenses, primarily fixed compensation and benefits.

Interest expense related to corporate funding purposes increased $17.7 million to $41.3 million in the year ended September 30, 2021 compared to $23.6 million in the year ended September 30, 2020, primarily due to incremental interest related to the

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issuance of senior secured notes during June 2020, partially offset by lower short-term interest rates on our senior secured syndicated loan facility.

On the expense side, we continue to focus on maintaining our variable cost model and limiting the growth of our non-variable

expenses. Reflecting such efforts, variable expenses were 56% of total expenses in the current period compared to 59% in the prior year period. Non-variable expenses, excluding bad debts increased $183.5 million compared to the year ended September 30, 2020, principally due to the Gain acquisition in the fourth quarter of fiscal 2020.

Net income decreased $53.3 million to $116.3 million in the year ended September 30, 2021 compared to $169.6 million in the year ended September 30, 2020. Diluted earnings per share were $5.74 for the year ended September 30, 2021 compared to $8.61 in the year ended September 30, 2020. Net income includes gains on acquisitions of $3.3 million and $81.9 million for the years ended September 30, 2021 and 2020, respectively. These gains on acquisitions are non-taxable, and accordingly there is no corresponding income tax provision amounts recorded related to the gains.

Selected Summary Financial Information

Results of Operations

Set forth below is our discussion of the results of our operations, as viewed by management, for the periods indicated.

Financial Overview

[[GREPCENT_TABLE]]
[["","Year Ended September 30,"],["(in millions)","2021","","% Change","","2020","","% Change","","2019"],["Revenues:"],["Sales of physical commodities","$","40,961.6","","","(23)%","","$","52,899.2","","","66%","","$","31,830.3"],["Principal gains, net","892.0","","","43%","","622.2","","","50%","","415.8"],["Commission and clearing fees","487.2","","","21%","","403.6","","","8%","","372.4"],["Consulting, management, and account fees","91.0","","","9%","","83.7","","","5%","","79.6"],["Interest income","102.4","","","(22)%","","130.9","","","(34)%","","198.9"],["Total revenues","42,534.2","","","(21)%","","54,139.6","","","65%","","32,897.0"],["Cost of sales of physical commodities","40,861.1","","","(23)%","","52,831.3","","","66%","","31,790.9"],["Operating revenues","1,673.1","","","28%","","1,308.3","","","18%","","1,106.1"],["Transaction-based clearing expenses","271.7","","","22%","","222.5","","","21%","","183.5"],["Introducing broker commissions","160.5","","","41%","","113.8","","","(1)%","","114.7"],["Interest expense","49.6","","","(38)%","","80.4","","","(43)%","","142.0"],["Interest expense on corporate funding","41.3","","","75%","","23.6","","","86%","","12.7"],["Net operating revenues","1,150.0","","","32%","","868.0","","","33%","","653.2"],["Compensation and benefits","679.1","","","31%","","518.7","","","32%","","393.1"],["Bad debts, net of recoveries and impairments","10.4","","","(44)%","","18.7","","","648%","","2.5"],["Recovery of bad debt on physical coal","\u2014","","","\u2014%","","\u2014","","","(100)%","","(12.4)"],["Other expenses","309.8","","","51%","","205.8","","","25%","","164.5"],["Total compensation and other expenses","999.3","","","34%","","743.2","","","36%","","547.7"],["Gain on acquisitions and other gains","3.4","","","(96)%","","81.9","","","1,389%","","5.5"],["Income before tax","154.1","","","(25)%","","206.7","","","86%","","111.0"],["Income tax expense","37.8","","","2%","","37.1","","","43%","","25.9"],["Net income","$","116.3","","","(31)%","","$","169.6","","","99%","","$","85.1"]]
[[/GREPCENT_TABLE]]

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

[[GREPCENT_TABLE]]
[["","Year Ended September 30,"],["","2021","","% Change","","2020","","% Change","","2019"],["Operating Revenues (in millions):"],["Listed derivatives","$","387.6","","","18%","","$","328.5","","","4%","","$","317.1"],["OTC derivatives","143.4","","","29%","","111.2","","","13%","","98.3"],["Securities","533.6","","","16%","","458.3","","","39%","","329.3"],["FX / Contract for Difference (\u201cCFD\u201d) contracts(1)","242.0","","","262%","","66.9","","","207%","","21.8"],["Global payments","133.8","","","17%","","114.6","","","3%","","110.8"],["Physical contracts","152.6","","","25%","","122.4","","","65%","","74.0"],["Interest / fees earned on client balances","26.0","","","(39)%","","42.7","","","(49)%","","83.9"],["Other","69.5","","","2%","","68.4","","","(9)%","","75.2"],["Corporate Unallocated","1.7","","","(88)%","","14.6","","","(30)%","","20.8"],["Eliminations","(17.1)","","","(11)%","","(19.3)","","","(23)%","","(25.1)"],["","$","1,673.1","","","28%","","$","1,308.3","","","18%","","$","1,106.1"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","Operating revenues from FX / CFD contracts for the year ended September 30, 2020 includes 43 trading days of Gain activity from the period post-acquisition of Gain, which was acquired effective August 1, 2020. Gain activity is shown in our Retail segment, along with our pre-existing FX activities, which are shown in our Institutional segment. Both had a full year of trading days during the year ended September 30, 2020."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","Year Ended September 30,"],["","2021","","% Change","","2020","","% Change","","2019"],["Volumes and Other Select Data (all $ amounts are U.S. dollar or U.S. dollar equivalents):"],["Listed derivatives (contracts, 000\u2019s)","146,101","","","(6)%","","154,652","","","20%","","128,898"],["Listed derivatives, average rate per contract (1)","$","2.55","","","29%","","$","1.98","","","(9)%","","$","2.17"],["Average client equity - listed derivatives (millions)","$","3,842","","","39%","","$","2,765","","","33%","","$","2,073"],["Over-the-counter (\u201cOTC\u201d) derivatives (contracts, 000\u2019s)","2,557","","","21%","","2,113","","","19%","","1,772"],["OTC derivatives, average rate per contract","$","55.70","","","7%","","$","52.19","","","(5)%","","$","55.19"],["Securities average daily volume (\u201cADV\u201d) (millions)","$","2,776","","","61%","","$","1,729","","","20%","","$","1,440"],["Securities rate per million (\u201cRPM\u201d) (2)","$","610","","","(28)%","","$","845","","","23%","","$","685"],["Average money market / FDIC sweep client balances (millions)","$","1,471","","","30%","","$","1,130","","","43%","","$","791"],["FX / CFD contracts ADV (millions) (3)","$","10,636","","","10%","","$","9,679","","","611%","","$","1,361"],["FX / CFD contracts RPM","$","89","","","(8)%","","$","97","","","70%","","$","57"],["Global Payments ADV (millions)","$","54","","","20%","","$","45","","","\u2014%","","$","45"],["Global Payments RPM","$","9,921","","","(2)%","","$","10,092","","","3%","","$","9,805"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","Give-up fees, as well as cash and voice brokerage revenues are excluded from the calculation of listed derivatives, average rate per contract."],["(2)","Interest income related to securities lending is excluded from the calculation of Securities RPM."],["(3)","ADV for the year ended September 30, 2020 includes 43 trading days of Gain activity from the period post-acquisition of Gain, which was acquired effective August 1, 2020. Gain activity is shown in our Retail segment, along with our pre-existing FX activities, which are shown in our Institutional segment. Both had a full year of trading days during the year ended September 30, 2020."]]
[[/GREPCENT_TABLE]]

Operating Revenues

Year Ended September 30, 2021 Compared to Year Ended September 30, 2020

Operating revenues increased $364.8 million, or 28%, to $1,673.1 million in the year ended September 30, 2021 compared to $1,308.3 million in the year ended September 30, 2020. The table above displays operating revenues disaggregated across the key products we provide to our clients.

Operating revenues derived from listed derivatives increased $59.1 million, or 18%, to $387.6 million in the year ended September 30, 2021 compared to $328.5 million in the year ended September 30, 2020, principally driven by a 29% increase in the average rate per contract, which was partially offset by a 6% decline in listed derivative volumes.

Operating revenues in OTC derivatives increased $32.2 million, or 29%, to $143.4 million in the year ended September 30, 2021 compared to $111.2 million in the year ended September 30, 2020. This growth was principally driven by increased customer activity in agricultural markets which drove a 21% increase in OTC contract volumes.

Operating revenue from securities transactions increased $75.3 million, or 16%, to $533.6 million in the year ended September 30, 2021 compared to $458.3 million in the year ended September 30, 2020. This was principally a result of a 61% increase in securities ADV driven by increased customer activity in fixed income markets and to a lesser extent equity products, which was partially offset by a 28% decline in RPM as a result of lower spreads in fixed income products.

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Operating revenues from FX/CFD contracts increased $175.1 million, or 262%, to $242.0 million in the year ended September 30, 2021 compared to $66.9 million in the year ended September 30, 2020, as a result of an incremental $183.0 million increase in FX/CFD contracts operating revenues in our Retail segment resulting from the acquisition of Gain, which was partially offset by lower FX operating revenues in our Institutional FX prime brokerage business.

Operating revenues from global payments increased by $19.2 million, or 17%, to $133.8 million in the year ended September 30, 2021 compared to $114.6 million in the year ended September 30, 2020, principally as a result of a 20% increase in ADV.

Operating revenues from physical contracts increased $30.2 million, or 25%, to $152.6 million in the year ended September 30, 2021 compared to $122.4 million in the year ended September 30, 2020, principally due to increased customer activity in agricultural and energy commodities as well as continued strong customer demand for precious metals.

Interest and fee income earned on client balances, which is associated with our listed and OTC derivative businesses, as well as our correspondent clearing and independent wealth management businesses, declined $16.7 million, or 39%, to $26.0 million in the year ended September 30, 2021 compared to $42.7 million in the year ended September 30, 2020, principally as a result of a significant decline in short term interest rates related to the FOMC’s actions to reduce the federal funds rate in March 2020. Partially offsetting the decline in short term interest rates was an increase in average client equity and average FDIC sweep client balances of 39% and 30%, respectively.

Finally, related to the transfer of the majority of the operations of Gain’s U.K. domiciled subsidiaries into StoneX Financial Ltd., a U.S. dollar denominated entity, which was completed during the quarter ended March 2021, operating revenues for the year ended September 30, 2021 include a $5.0 million loss on derivative positions entered into to mitigate our exposure to the British Pound in the Gain subsidiaries in advance of the transfer as well as a $0.4 million foreign currency gain on revaluation related to the Gain U.K. domiciled subsidiaries. Prior to the transfer, the assets and liabilities of Gain’s U.K. subsidiaries were subject to translation to the U.S. dollar, and for the period beginning October 2020 through March 31, 2021, the foreign currency translation adjustment related to Gain’s U.K. subsidiaries resulted in a $10.3 million increase in “accumulated other comprehensive income”.

Year Ended September 30, 2020 Compared to Year Ended September 30, 2019

Operating revenues increased 18% to $1,308.3 million in the year ended September 30, 2020 compared to $1,106.1 million in the year ended September 30, 2019.

The table above displays operating revenues disaggregated across the products in which we conduct our business. Operating revenues in listed derivatives increased $11.4 million, or 4% to $328.5 million in the year ended September 30, 2020 compared to $317.1 million in the year ended September 30, 2019, primarily a result of a 20% increase in listed derivative volumes while the average rate per contract declined 9%.

Operating revenues in OTC derivatives increased $12.9 million, or 13% to $111.2 million in the year ended September 30, 2020 compared to $98.3 million in the year ended September 30, 2019, driven by a 19% increase in OTC derivative volumes driven by heightened volatility in energy and renewable fuels markets.

Operating revenue from Securities transactions increased $129.0 million, or 39% to $458.3 million in the year ended September 30, 2020 compared to $329.3 million in the year ended September 30, 2019, primarily as a result of a 20% increase in securities ADV as well as a 23% increase in RPM, each of which were driven by heightened volatility in the global equity and fixed income markets due to economic concerns related to the COVID-19 pandemic.

Operating revenues from FX/CFD contracts increased $45.1 million, or 207% to $66.9 million in the year ended September 30, 2020 compared to $21.8 million in the year ended September 30, 2019, as a result of a $42.9 million increase in retail FX/CFD contracts operating revenues driven by the acquisition of Gain in the fourth quarter fiscal 2020.

Operating revenues from global payments increased by $3.8 million, or 3% to $114.6 million in the year ended September 30, 2020 compared to $110.8 million in the year ended September 30, 2019, as a result of a 3% increase in the RPM as the ADV was relatively flat with the prior year at $45 as the results of the global economic slowdown related to the COVID-19 pandemic inhibited growth.

Operating revenues from physical contracts increased $48.4 million, or 65% to $122.4 million in the year ended September 30, 2020 compared to $74.0 million in the year ended September 30, 2019, primarily due to a significant increase in customer demand for precious metals as well as a widening of spreads due to market dislocations related to the COVID-19 pandemic. This was partially offset by a $7.6 million loss on a lower of cost or net realizable value adjustment for certain physical inventories in energy commodities in the year ended September 30, 2020.

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Finally, interest and fee income earned on client balances, which is associated with our listed and OTC derivative businesses, as well as our correspondent clearing and independent wealth management businesses, declined $41.2 million, or 49% to $42.7 million in the year ended September 30, 2020 compared to $83.9 million in the year ended September 30, 2019 as a result of a significant decline in short term interest rates related to FOMC actions to reduce the federal funds rate beginning in August 2019. Partially offsetting the decline in short term interest rates was an increase in average client equity and average FDIC sweep client balances of 33% and 43%, respectively.

Interest and Transactional Expenses

Year Ended September 30, 2021 Compared to Year Ended September 30, 2020

Transaction-based clearing expenses

[[GREPCENT_TABLE]]
[["","Year Ended September 30,"],["","2021","","2020","","$ Change","","% Change"],["Transaction-based clearing expenses","$","271.7","","","$","222.5","","","$","49.2","","","22","%"],["Percentage of operating revenues","16","%","","17","%"]]
[[/GREPCENT_TABLE]]

The increase in transaction-based clearing expense is principally due to incremental costs in the retail forex business within our Retail segment related to the acquisition of Gain effective August 1, 2020, and also from higher clearing and exchange fees within our Institutional segment, resulting from the increase in securities ADV, and our Commercial segment, resulting from the increase in listed derivative contract volumes.

Introducing broker commissions

[[GREPCENT_TABLE]]
[["","Year Ended September 30,"],["","2021","","2020","","$ Change","","% Change"],["Introducing broker commissions","$","160.5","","","$","113.8","","","$","46.7","","","41","%"],["Percentage of operating revenues","10","%","","9","%"]]
[[/GREPCENT_TABLE]]

The increase in introducing broker commissions is principally due to increases in our Retail and Institutional segments related to incremental expense from the Gain acquisition. Additionally, higher revenues have resulted in increased costs within our Commercial segment and our Independent Wealth Management business.

Interest expense

[[GREPCENT_TABLE]]
[["","Year Ended September 30,"],["","2021","","2020","","$ Change","","% Change"],["Interest expense attributable to:"],["Trading activities:"],["Institutional dealer in fixed income securities","$","9.6","","","$","33.5","","","$","(23.9)","","","(71)","%"],["Securities borrowing","17.6","","","25.0","","","(7.4)","","","(30)","%"],["Short-term financing facilities of subsidiaries and other direct interest of operating segments","22.4","","","21.9","","","0.5","","","2","%"],["","49.6","","","80.4","","","(30.8)","","","(38)","%"],["Corporate funding","41.3","","","23.6","","","17.7","","","75","%"],["Total interest expense","$","90.9","","","$","104.0","","","$","(13.1)","","","(13)","%"]]
[[/GREPCENT_TABLE]]

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

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Year Ended September 30, 2020 Compared to Year Ended September 30, 2019

Transaction-based clearing expenses

[[GREPCENT_TABLE]]
[["","Year Ended September 30,"],["","2020","","2019","","$ Change","","% Change"],["Transaction-based clearing expenses","$","222.5","","","$","183.5","","","$","39.0","","","21","%"],["Percentage of operating revenues","17","%","","17","%"]]
[[/GREPCENT_TABLE]]

The increase in transaction-based clearing expenses primarily resulted from higher listed derivative contracts, higher clearing and exchange fees within Equity Capital Markets and incremental costs in Retail Forex related to the acquisition of Gain effective August 1, 2020.

Introducing broker commissions

[[GREPCENT_TABLE]]
[["","Year Ended September 30,"],["","2020","","2019","","$ Change","","% Change"],["Introducing broker commissions","$","113.8","","","$","114.7","","","$","(0.9)","","","(1)","%"],["Percentage of operating revenues","9","%","","10","%"]]
[[/GREPCENT_TABLE]]

The decrease in expense is primarily due to decreased activity of listed derivatives within our Institutional and Commercial segments, partially offset by expense increases in our Retail segment due to incremental expense from the Gain acquisition and increased activity in our Independent Wealth Management business as a result of higher revenues.

Interest expense

[[GREPCENT_TABLE]]
[["","Year Ended September 30,"],["","2020","","2019","","$ Change","","% Change"],["Interest expense attributable to:"],["Trading activities:"],["Institutional dealer in fixed income securities","$","33.5","","","$","73.9","","","$","(40.4)","","","(55)","%"],["Securities borrowing","25.0","","","35.8","","","(10.8)","","","(30)","%"],["Short-term financing facilities of subsidiaries and other direct interest of operating segments","21.9","","","32.3","","","(10.4)","","","(32)","%"],["","80.4","","","142.0","","","(61.6)","","","(43)","%"],["Corporate funding","23.6","","","12.7","","","10.9","","","86","%"],["Total interest expense","104.0","","","154.7","","","(50.7)","","","(33)","%"]]
[[/GREPCENT_TABLE]]

Interest expense attributable to trading activities decreased principally due to the impact of changes in the short-term interest rate environment. Interest expense on short-term financing facilities of subsidiaries and other direct interest expense of operating segments decreased principally due to the decrease in short-term interest rates along with lower average borrowings outstanding on our physical commodities financing facilities.

Interest expense related to corporate funding purposes increased principally to incremental interest related to the June 2020 issuance and sale of $350 million in aggregate principal amount of the Company’s 8.625% Senior Secured Notes due 2025 at the offering price of 98.5% of the aggregate principal amount.

Net Operating Revenues

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

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The table below presents a disaggregation of consolidated net operating revenues used by management in evaluating our performance, for the periods indicated:

[[GREPCENT_TABLE]]
[["","Year Ended September 30,"],["","2021","","% Change","","2020","","% Change","","2019"],["Net Operating Revenues (in millions):"],["Listed derivatives","$","173.8","","","21%","","$","143.9","","","\u2014%","","$","143.4"],["OTC derivatives","143.4","","","29%","","111.2","","","13%","","98.2"],["Securities","357.8","","","24%","","287.9","","","112%","","135.7"],["FX / CFD contracts","193.2","","","249%","","55.4","","","195%","","18.8"],["Global Payments","126.4","","","16%","","108.7","","","4%","","105.0"],["Physical contracts","136.2","","","27%","","107.1","","","90%","","56.5"],["Interest, net / fees earned on client balances","22.9","","","(35)%","","35.4","","","(47)%","","67.3"],["Other","51.1","","","19%","","42.9","","","10%","","39.1"],["Corporate Unallocated","(54.8)","","","124%","","(24.5)","","","127%","","(10.8)"],["","$","1,150.0","","","32%","","$","868.0","","","33%","","$","653.2"]]
[[/GREPCENT_TABLE]]

Compensation and Other Expenses

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

[[GREPCENT_TABLE]]
[["","Year Ended September 30,"],["(in millions)","2021","","% Change","","2020","","% Change","","2019"],["Compensation and benefits:"],["Variable compensation and benefits","$","377.7","","","27%","","$","296.8","","","40%","","$","211.6"],["Fixed compensation and benefits","301.4","","","36%","","221.9","","","22%","","181.5"],["","679.1","","","31%","","518.7","","","32%","","393.1"],["Other expenses:"],["Trading systems and market information","58.8","","","27%","","46.3","","","19%","","38.8"],["Professional fees","40.9","","","35%","","30.2","","","44%","","21.0"],["Non-trading technology and support","46.0","","","62%","","28.4","","","41%","","20.1"],["Occupancy and equipment rental","34.2","","","46%","","23.5","","","21%","","19.4"],["Selling and marketing","33.3","","","173%","","12.2","","","135%","","5.2"],["Travel and business development","4.5","","","(49)%","","8.9","","","(45)%","","16.2"],["Communications","9.3","","","33%","","7.0","","","6%","","6.6"],["Depreciation and amortization","36.5","","","85%","","19.7","","","41%","","14.0"],["Bad debts, net of recoveries and impairment","10.4","","","(44)%","","18.7","","","648%","","2.5"],["Recovery of bad debt on physical coal","\u2014","","","\u2014%","","\u2014","","","(100)%","","(12.4)"],["Other","46.3","","","56%","","29.6","","","28%","","23.2"],["","320.2","","","43%","","224.5","","","45%","","154.6"],["Total compensation and other expenses","$","999.3","","","34%","","$","743.2","","","36%","","$","547.7"]]
[[/GREPCENT_TABLE]]

40

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Year Ended September 30, 2021 Compared to Year Ended September 30, 2020

Compensation and Other Expenses: Compensation and other expenses increased $256.1 million, or 34%, to $999.3 million in the year ended September 30, 2021 compared to $743.2 million in the year ended September 30, 2020.

Compensation and Benefits:

[[GREPCENT_TABLE]]
[["","Year Ended September 30,"],["(in millions)","2021","","2020","","$ Change","","% Change"],["Compensation and benefits:"],["Variable compensation and benefits"],["Front office","$","333.5","","","$","251.0","","","$","82.5","","","33","%"],["Administrative, executive, and centralized and local operations","44.2","","","45.8","","","(1.6)","","","(3)","%"],["Total variable compensation and benefits","377.7","","","296.8","","","80.9","","","27","%"],["Variable compensation and benefits as a percentage of net operating revenues","33","%","","34","%"],["Fixed compensation and benefits:"],["Non-variable salaries","204.7","","","159.0","","","45.7","","","29","%"],["Employee benefits and other compensation, excluding share-based compensation","82.8","","","52.6","","","30.2","","","57","%"],["Share-based compensation","13.9","","","10.3","","","3.6","","","35","%"],["Total fixed compensation and benefits","301.4","","","221.9","","","79.5","","","36","%"],["Total compensation and benefits","679.1","","","518.7","","","160.4","","","31","%"],["Total compensation and benefits as a percentage of operating revenues","41","%","","40","%"],["Number of employees, end of period","3,242","","","2,950","","","292","","","10","%"]]
[[/GREPCENT_TABLE]]

Non-variable salaries increased principally due to a full year of the costs associated with the Gain acquisition in the fourth quarter of the year ended September 30, 2020.

Employee benefits and other compensation, excluding share-based compensation, increased principally due to higher payroll, benefits, and retirement costs from the increased headcount. Share-based compensation is a component of the fixed portion, and includes stock option and restricted stock expense.

Fixed compensation and benefits during the year ended September 30, 2021 include severance costs of $7.7 million, principally due to the departure of certain senior officers. During the during the year ended September 30, 2020, severance costs were $1.5 million.

Other Expenses: Other non-compensation expenses increased $95.7 million, or 43%, to $320.2 million in the year ended September 30, 2021 compared to $224.5 million in the year ended September 30, 2020.

Trading systems and market information costs increased $12.5 million, principally due to incremental costs in the retail forex business acquired as part of the Gain acquisition in the fourth quarter of fiscal 2020 and higher costs in our Institutional segment.

Professional fees increased $10.7 million, principally due to higher legal, consulting and accounting services fees.

Non-trading technology and support increased $17.6 million, principally due to incremental costs related to the Gain acquisition in the fourth quarter of fiscal 2020 in addition to higher non-trading software implementation costs related to various IT, client engagement, and accounting systems.

Occupancy and equipment rental increased $10.7 million, principally due to additional leased office space.

Selling and marketing costs increased $21.1 million, principally due to incremental costs related to the acquired retail forex business, partially offset by the prior year including costs for the bi-annual global sales meeting held in February 2020.

Travel and business development decreased $4.4 million principally as a result of the impact of the response by governments and regulatory bodies to the COVID-19 pandemic, which included social distancing; travel restrictions, “shelter in place” and other governmental regulations.

Communications increased $2.3 million, principally due to incremental costs related to the Gain acquisition in the fourth quarter of fiscal 2020.

Depreciation and amortization increased $16.8 million, principally due to the amortization costs of the acquired intangible assets related to the Gain acquisition, as well as increases in depreciation of IT hardware, third-party software, internally developed software, and amortization of leasehold improvements.

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Other expenses increased $16.7 million, primarily due to incremental costs from recent acquisitions most notably related to higher non-income taxes, insurance and recruiting costs.

Bad debts, net of recoveries and impairment decreased $8.3 million year-over-year. During the year ended September 30, 2021, bad debts, net of recoveries were $10.4 million, principally related to client trading account deficits in our Commercial, Institutional, and Retail segments of $3.4 million, $0.6 million, and $1.1 million, respectively. Additionally, we recorded bad debt expense of $5.1 million related to trade receivables with physical clients.

During the year ended September 30, 2020, bad debts, net of recoveries were $13.0 million, primarily related to client trading account deficits in our Commercial, Institutional, and Retail segments of $3.5 million, $5.7 million, and $0.6 million, respectively. Additionally, we recorded bad debt expense of $3.2 million related to trade receivables with physical clients.

In connection with the integration of Gain, the Company re-evaluated all trading systems utilized across the organization in order to identify duplicative systems. In connection with this process, the Company determined that certain legacy capitalized developed software costs within our OTC foreign exchange and physical metals business would no longer be placed into service and utilized as expected prior to the merger with Gain. As a result, the Company recorded impairment charges of $5.7 million in the year ended September 30, 2020.

Gain on Acquisitions and Other Gains: The results of the year ended September 30, 2021 include a gain of $3.3 million related to an adjustment to the liabilities assumed as part of the Gain acquisition initially determined values, as of August 1, 2020. The results of the year ended September 30, 2020 included gain on acquisitions of $81.9 million, principally related to the acquisition of Gain.

Provision for Taxes: The effective income tax rate was 25% in the year ended September 30, 2021 compared to 18% in the year ended September 30, 2020. The gains on acquisitions of $3.3 million and $81.9 million in the year ended September 30, 2021 and 2020, respectively, are not taxable and reduced the effective income tax rate 0.5% and 8.3% in the year ended September 30, 2021 and 2020, respectively.

The effective income tax rate for the year ended September 30, 2021 was higher than the U.S. federal statutory rate of 21% due to U.S. state and local taxes, global intangible low-taxed income (“GILTI”), U.S. and foreign permanent differences, and the amount of foreign earnings taxed at higher tax rates. The effective rate for the year ended September 30, 2020 was lower than the U.S. federal statutory rate of 21% due to the non-taxable gain recognized upon the acquisition of Gain.

Year Ended September 30, 2020 Compared to Year Ended September 30, 2019

Compensation and Other Expenses: Compensation and other expenses increased $195.5 million, or 36%, to $743.2 million in the year ended September 30, 2020 compared to $547.7 million in the year ended September 30, 2019.

Compensation and Benefits:

[[GREPCENT_TABLE]]
[["","Year Ended September 30,"],["(in millions)","2020","","2019","","$ Change","","% Change"],["Compensation and benefits:"],["Variable compensation and benefits"],["Front office","$","251.0","","","$","179.5","","","$","71.5","","","40","%"],["Administrative, executive, and centralized and local operations","45.8","","","32.1","","","13.7","","","43","%"],["Total variable compensation and benefits","296.8","","","211.6","","","85.2","","","40","%"],["Variable compensation and benefits as a percentage of net operating revenues","34","%","","32","%"],["Fixed compensation and benefits:"],["Non-variable salaries","159.0","","","128.3","","","30.7","","","24","%"],["Employee benefits and other compensation, excluding share-based compensation","52.6","","","45.1","","","7.5","","","17","%"],["Share-based compensation","10.3","","","8.1","","","2.2","","","27","%"],["Total fixed compensation and benefits","221.9","","","181.5","","","40.4","","","22","%"],["Total compensation and benefits","518.7","","","393.1","","","125.6","","","32","%"],["Total compensation and benefits as a percentage of operating revenues","40","%","","36","%"],["Number of employees, end of period","2,950","","","2,012","","","938","","","47","%"]]
[[/GREPCENT_TABLE]]

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

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Employee benefits and other compensation, excluding share-based compensation, increased principally due to higher payroll, health care and retirement costs from the increased headcount. Share-based compensation is a component of the fixed portion, and includes stock option and restricted stock expense.

Other Expenses: Other non-compensation expenses increased $69.9 million, or 45%, to $224.5 million in the year ended September 30, 2020 compared to $154.6 million in the year ended September 30, 2019. Other non-compensation expenses related to acquisitions and new business initiatives began after September 2018 added $27.7 million.

Trading systems and market information costs increased $7.5 million, of which $6.1 million was related to incremental costs from recent acquisitions and new business initiatives.

Professional fees increased $9.2 million, primarily related to acquisition-specific closing costs.

Non-trading technology and support increased $8.3 million, primarily due to higher costs from non-trading software as a service arrangements related to various IT, client engagement, accounting and human resources systems, higher costs from external data center services, and incremental costs due to acquisitions and new business initiatives during the year ended September 30, 2020.

Occupancy and equipment rental increased $4.1 million, primarily related to higher office lease costs of $3.7 million, including $1.5 million in incremental costs from recent acquisitions.

Selling and marketing costs increased $7.0 million, primarily related to incremental costs from the acquisition of Gain.

Travel and business development decreased $7.3 million primarily as a result of the impact of the response by governments and regulatory bodies to the COVID-19 pandemic, which included social distancing; travel restrictions, “shelter in place” and other governmental regulations.

Depreciation and amortization increased primarily due to higher depreciation expense of leaseholds and IT equipment, and higher amortization expense of intangible assets recorded as part of the acquisitions completed during the year ended September 30, 2020.

Excluding the recovery of bad debt on physical coal discussed below, bad debts, net of recoveries and impairment increased $16.2 million year-over-year. During the year ended September 30, 2020, bad debts, net of recoveries were $13.0 million, primarily related to client trading account deficits in our Commercial, Institutional, and Retail segments of $3.5 million, $5.7 million, and $0.6 million, respectively. Additionally, we recorded bad debt expense of $3.2 million related to trade receivables with physical clients. During the year ended September 30, 2019, bad debts, net of recoveries were $2.5 million, primarily related to $2.7 million of OTC client account deficits, partially offset by a $1.4 million client recovery, in the Commercial segment and $1.4 million in the Institutional segment.

In connection with the integration of Gain, the Company re-evaluated all trading systems utilized across the organization in order to identify duplicative systems. In connection with this process, the Company determined that certain legacy capitalized developed software costs within our OTC foreign exchange and physical metals business would no longer be placed into service and utilized as expected prior to the merger with Gain. As a result, the Company recorded impairment charges of $5.7 million in the year ended September 30, 2020.

Recovery of Bad Debt on Physical Coal: During the year ended September 30, 2019, we recorded recoveries on the bad debt on physical coal of $12.4 million related to settlements reached with clients and proceeds received through an insurance policy claim related to a physical coal bad debt.

Gain on Acquisitions and Other Gains: The results of the year ended September 30, 2020 included a gain of $81.8 million related to the acquisition of Gain. The results of the year ended September 30, 2019 included gains of $5.5 million, primarily related to the acquisition of the former subsidiary GMP Securities LLC, which was subsequently merged into StoneX Financial Inc.

Provision for Taxes: The effective income tax rate was 18% in the year ended September 30, 2020 compared to 23% in the year ended September 30, 2019. The effective income tax rate for the year ended September 30, 2020 was lower than the U.S. federal statutory rate of 21% due to the non-taxable bargain purchase gain recognized upon the acquisition of Gain. State income tax, GILTI, U.S. and foreign permanent differences, and an increase to foreign valuation allowances increased the effective income tax rate. The bargain purchase gain on acquisitions of $81.9 million is not taxable and reduced the effective income tax rate 8%. The estimated federal expense from GILTI increased the effective income tax rate approximately 0.7%. State income tax expense increased the effective income tax rate 1.0%. U.S. and foreign permanent differences increased the effective income tax rate approximately 1.4%. The increase in foreign valuation allowances also increased the effective income tax rate 1.0%. The effective income tax rate for fiscal 2019 was 23%. It was higher than the U.S. federal statutory rate of 21% due to GILTI, earnings taxed at a higher rate, foreign permanent differences, and an increase in foreign valuation allowances.

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The effective income tax rate can vary from period to period depending on, among other factors, the geographic and business mix of our earnings.

Variable vs. Fixed Expenses

The table below sets forth our variable expenses and non-variable expenses as a percentage of total non-interest expenses for the periods indicted.

[[GREPCENT_TABLE]]
[["","Year Ended September 30,"],["(in millions)","2021","","% of Total","","2020","","% of Total","","2019","","% of Total"],["Variable compensation and benefits","$","377.7","","","26%","","$","296.8","","","27%","","$","211.6","","","25%"],["Transaction-based clearing expenses","271.7","","","19%","","222.5","","","21%","","183.5","","","22%"],["Introducing broker commissions","160.5","","","11%","","113.8","","","11%","","114.7","","","14%"],["Total variable expenses","809.9","","","56%","","633.1","","","59%","","509.8","","","61%"],["Fixed compensation and benefits","301.4","","","21%","","221.9","","","20%","","181.5","","","21%"],["Other fixed expenses","309.8","","","22%","","205.8","","","19%","","164.5","","","19%"],["Bad debts, net of recoveries and impairment","10.4","","","1%","","18.7","","","2%","","2.5","","","\u2014%"],["Recovery of bad debt on physical coal","\u2014","","","\u2014%","","\u2014","","","\u2014%","","(12.4)","","","(1)%"],["Total non-variable expenses","621.6","","","44%","","446.4","","","41%","","336.1","","","39%"],["Total non-interest expenses","$","1,431.5","","","100%","","$","1,079.5","","","100%","","$","845.9","","","100%"]]
[[/GREPCENT_TABLE]]

Our variable expenses include variable compensation paid to traders and risk management consultants, bonuses paid to operational, administrative, and executive employees, transaction-based clearing expenses and introducing broker commissions. We seek to make our non-interest expenses variable to the greatest extent possible, and to keep our fixed costs as low as possible.

During the year ended September 30, 2021, non-variable expenses, excluding bad debts, net of recoveries and impairment, increased $183.5 million, or 43%, compared to the year ended September 30, 2020, primarily driven by incremental costs from the Gain acquisition in the fourth quarter of the year ended September 30, 2020.

During the year ended September 30, 2020, non-variable expenses, excluding bad debts, net of recovery and impairment and the recovery of bad debt on physical coal, increased $81.7 million, or 24%, compared to the year ended September 30, 2019, primarily driven by incremental costs from the acquisitions of UOB Bullion and Futures Limited, Tellimer, GIROXX, and Gain during the year, as well as certain transaction costs related to our acquisition of Gain.

Segment Information

Our operating segments are based principally on the nature of the clients we serve (commercial, institutional, and retail), and a fourth operating segment, our global payments business. We manage our business in this manner due to our large global footprint, in which we have more than 3,200 employees allowing us to serve clients in more than 180 countries.

Our business activities are managed as operating segments and organized into reportable segments as shown below.

[[GREPCENT_TABLE]]
[["StoneX Group Inc."],["Commercial","","Institutional","","Retail","","Global Payments"],["Primary Activities:","","Primary Activities:","","Primary Activities:","","Primary Activities:"],["Financial Ag & Energy","","Equity Capital Markets","","Retail Forex","","Global Payments"],["Physical Ag & Energy","","Debt Capital Markets","","Retail Precious Metals","","Payment Technology Services"],["Precious Metals","","FX Prime Brokerage","","Independent Wealth Management"],["Derivative Voice Brokerage","","Exchange-Traded Futures & Options"],["","","Correspondent Clearing"]]
[[/GREPCENT_TABLE]]

44

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Operating revenues, net operating revenues, net contribution and segment income are some of the key measures used by management to assess the performance of each segment and for decisions regarding the allocation of our resources. Operating revenues are calculated as total revenues less cost of sales of physical commodities.

Net operating revenue is calculated as operating revenue less transaction-based clearing expenses, introducing broker commissions and interest expense.

Net contribution is calculated as net operating revenues less variable compensation. Variable compensation paid to risk management consultants and traders generally represents a fixed percentage, that can vary by revenue type, of an amount equal to revenues generated, and in some cases, revenues generated less transaction-based clearing expenses, base salaries and an overhead allocation.

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

Total Segment Results

The following table presents summary information concerning all of our business segments on a combined basis, excluding unallocated overhead, for the periods indicated.

[[GREPCENT_TABLE]]
[["","Year Ended September 30,"],["(in millions)","2021","","% of Operating Revenues","","2020","","% of Operating Revenues","","2019","","% of Operating Revenues"],["Sales of physical commodities","$","40,961.6","","","","","$","52,899.2","","","","","$","31,830.3"],["Principal gains, net","899.0","","","","","620.8","","","","","412.8"],["Commission and clearing fees","488.4","","","","","405.1","","","","","373.0"],["Consulting, management, and account fees","86.5","","","","","79.2","","","","","77.2"],["Interest income","114.1","","","","","140.0","","","","","208.0"],["Total revenues","42,549.6","","","","","54,144.3","","","","","32,901.3"],["Cost of sales of physical commodities","40,861.1","","","","","52,831.3","","","","","31,790.9"],["Operating revenues","1,688.5","","","100%","","1,313.0","","","100%","","1,110.4","","","100%"],["Transaction-based clearing expenses","270.3","","","16%","","221.0","","","17%","","182.6","","","16%"],["Introducing broker commissions","161.2","","","10%","","113.6","","","9%","","114.6","","","10%"],["Interest expense","52.2","","","3%","","85.9","","","7%","","149.2","","","13%"],["Net operating revenues","1,204.8","","","","","892.5","","","","","664.0"],["Variable direct compensation and benefits","336.1","","","20%","","253.0","","","19%","","181.2","","","16%"],["Net contribution","868.7","","","","","639.5","","","","","482.8"],["Fixed compensation and benefits","162.3","","","","","117.7","","","","","93.5"],["Other fixed expenses","189.8","","","","","108.0","","","","","93.5"],["Bad debts, net of recoveries and impairment","10.4","","","","","18.7","","","","","2.5"],["(Recovery) bad debt on physical coal","\u2014","","","","","\u2014","","","","","(12.4)"],["Total non-variable direct expenses","362.5","","","21%","","244.4","","","19%","","177.1","","","16%"],["Segment income","$","506.2","","","","","$","395.1","","","","","$","305.7"]]
[[/GREPCENT_TABLE]]

Year Ended September 30, 2021 Compared to Year Ended September 30, 2020

Net contribution for all of our business segments increased $229.2 million, or 36%, to $868.7 million in the year ended September 30, 2021 compared to $639.5 million in the year ended September 30, 2020. Segment income increased $111.1 million, or 28%, to $506.2 million in the year ended September 30, 2021 compared to $395.1 million in the year ended September 30, 2020.

Year Ended September 30, 2020 Compared to Year Ended September 30, 2019

Net contribution for all of our business segments increased $156.7 million, or 32%, to $639.5 million in the year ended September 30, 2020 compared to $482.8 million in the year ended September 30, 2019. Segment income increased $89.4 million, or 29%, to $395.1 million in the year ended September 30, 2020 compared to $305.7 million in the year ended September 30, 2019.

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Commercial

We offer our commercial clients a comprehensive array of products and services, including risk management and hedging services, execution and clearing of exchange-traded and OTC products, voice brokerage, market intelligence and physical trading, as well as commodity financing and logistics services. We believe our ability to provide these high-value-added products and services differentiates us from our competitors and maximizes our ability to retain clients.

The tables below present the financial performance, a disaggregation of operating revenues, and select operating data and metrics used by management in evaluating the performance of the Commercial segment, for the periods indicated.

[[GREPCENT_TABLE]]
[["","Year Ended September 30,"],["(in millions)","2021","","% Change","","2020","","% Change","","2019"],["Revenues:"],["Sales of physical commodities","$","39,420.3","","","(25)%","","$","52,593.9","","","66%","","$","31,759.3"],["Principal gains, net","245.5","","","26%","","194.1","","","24%","","156.7"],["Commission and clearing fees","178.3","","","27%","","140.1","","","(7)%","","150.5"],["Consulting, management and account fees","19.7","","","5%","","18.8","","","1%","","18.6"],["Interest income","20.2","","","(13)%","","23.2","","","(42)%","","40.3"],["Total revenues","39,884.0","","","(25)%","","52,970.1","","","65%","","32,125.4"],["Cost of sales of physical commodities","39,349.2","","","(25)%","","52,538.6","","","66%","","31,721.0"],["Operating revenues","534.8","","","24%","","431.5","","","7%","","404.4"],["Transaction-based clearing expenses","54.0","","","32%","","40.8","","","5%","","38.9"],["Introducing broker commissions","34.7","","","45%","","24.0","","","(10)%","","26.8"],["Interest expense","13.0","","","(2)%","","13.3","","","(24)%","","17.5"],["Net operating revenues","433.1","","","23%","","353.4","","","10%","","321.2"],["Variable direct compensation and benefits","133.4","","","20%","","111.2","","","15%","","96.6"],["Net contribution","299.7","","","24%","","242.2","","","8%","","224.6"],["Fixed compensation and benefits","49.9","","","3%","","48.5","","","3%","","47.0"],["Other fixed expenses","49.1","","","13%","","43.5","","","(2)%","","44.3"],["Bad debts, net of recoveries and impairment","8.5","","","2%","","8.3","","","655%","","1.1"],["Recovery of bad debt on physical coal","\u2014","","","\u2014%","","\u2014","","","(100)%","","(12.4)"],["Total non-variable direct expenses","107.5","","","7%","","100.3","","","25%","","80.0"],["Segment income","$","192.2","","","35%","","$","141.9","","","(2)%","","$","144.6"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","Year Ended September 30,"],["","2021","","% Change","","2020","","% Change","","2019"],["Operating Revenues (in millions):"],["Listed derivatives","$","223.5","","","26%","","$","176.9","","","(4)%","","$","184.5"],["OTC derivatives","143.4","","","29%","","111.0","","","13%","","98.3"],["Physical contracts","132.2","","","21%","","109.6","","","49%","","73.5"],["Interest / fees earned on client balances","14.6","","","1%","","14.5","","","(50)%","","29.0"],["Other","21.1","","","8%","","19.5","","","2%","","19.1"],["","$","534.8","","","24%","","$","431.5","","","7%","","$","404.4"],["Select data (all $ amounts are U.S. dollar equivalent):"],["Listed derivatives (contracts, 000\u2019s)","30,904","","","6%","","29,255","","","5%","","27,985"],["Listed derivatives, average rate per contract (1)","$","6.92","","","26%","","$","5.48","","","\u2014%","","$","5.49"],["Average client equity - listed derivatives (millions)","$","1,648","","","62%","","$","1,019","","","8%","","$","948"],["Over-the-counter (\u201cOTC\u201d) derivatives (contracts, 000\u2019s)","2,557","","","21%","","2,113","","","19%","","1,772"],["OTC derivatives, average rate per contract","$","55.70","","","7%","","$","52.19","","","(5)%","","$","55.19"],["(1) Give-up fees as well as cash and voice brokerage are excluded from the calculation of listed derivatives, average rate per contract."]]
[[/GREPCENT_TABLE]]

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

Year Ended September 30, 2021 Compared to Year Ended September 30, 2020

Operating revenues increased $103.3 million, or 24%, to $534.8 million in the year ended September 30, 2021 compared to $431.5 million in the year ended September 30, 2020. Net operating revenues increased $79.7 million, or 23%, to $433.1 million in the year ended September 30, 2021 compared to $353.4 million in the year ended September 30, 2020.

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Operating revenues derived from listed derivatives increased $46.6 million, or 26%, to $223.5 million in the year ended September 30, 2021 compared to $176.9 million in the year ended September 30, 2020. This increase was principally driven by a 26% increase in the average rate per contract, as well as a 6% increase in contract volumes as a result of increased volatility in agricultural and base metal markets. This increase was partially offset by a $6.7 million decline in derivative voice brokerage revenues.

Operating revenues derived from OTC transactions increased $32.4 million, or 29%, to $143.4 million in the year ended September 30, 2021 compared to $111.0 million in the year ended September 30, 2020. This increase was driven by a 21% increase in OTC volumes as well as a 7% increase in the average rate per contract as a result of increased customer activity in agricultural markets.

Operating revenues derived from physical transactions increased $22.6 million, or 21%, to $132.2 million in the year ended September 30, 2021 compared to $109.6 million in the year ended September 30, 2020, principally due to increased customer activity in agricultural and energy commodities as well as continued strong customer demand for precious metals. The years ended September 30, 2021 and 2020 include unrealized losses on derivative positions held against physical inventories carried at the lower of cost or net realizable value of $2.2 million and $0.7 million, respectively. In addition, the years ended September 30, 2021 and 2020 included losses on the liquidation of certain physical inventories of crude oil and low sulfur fuel oil as a result of quality degradation and additional costs to sell of $1.9 million and $7.6 million, respectively.

Interest and fee income earned on client balances was $14.6 million and $14.5 million, respectively, in the years ended September 30, 2021 and 2020. A 62% increase in average client equity to $1,648 million was offset by a significant decline in short term interest rates.

Variable expenses, excluding interest, expressed as a percentage of operating revenues was 42% in the year ended September 30, 2021 compared to 41% in the year ended September 30, 2020.

Segment income increased $50.3 million, or 35%, to $192.2 million in the year ended September 30, 2021 compared to $141.9 million in the year ended September 30, 2020, principally driven by the growth in operating revenues which was partially offset by a $1.4 million increase in fixed compensation and benefits as well as a $5.6 million increase in other fixed expenses including a $1.6 million increase in professional fees and a $1.2 million increase in trading systems and market information.

Year Ended September 30, 2020 Compared to Year Ended September 30, 2019

Operating revenues increased $27.1 million, or 7% to $431.5 million in the year ended September 30, 2020 compared to $404.4 million in the year ended September 30, 2019. Net operating revenues increased $32.2 million, or 10% to $353.4 million in the year ended September 30, 2020 compared to $321.2 million in the year ended September 30, 2019.

The increase in operating revenues derived from physical transactions led the overall increase, benefiting from a significant increase in customer demand for precious metals and a widening of spreads due to market dislocations related to the COVID-19 global pandemic and the resulting effect on the global precious metals market. Partially offsetting the increase in physical contract operating revenues, we recorded lower of cost or net realizable value adjustments for certain physical inventories of crude oil and low sulfur fuel oil primarily based on quality degradation and consideration of costs to sell of $7.6 million. These adjustments are included in Cost of sales of physical commodities. We are continuing to pursue all legal avenues to collect this from our supplier, however there is substantial uncertainty as to whether we will be successful.

The increase in operating revenues derived from OTC transactions were driven by a 19% increase in OTC volumes, which was partially offset by a 5% decline in the average rate per contract. The increase in OTC revenues was primarily driven by an increase in energy and renewable fuels operating revenues as a result of increased volatility caused by economic concerns over the COVID-19 pandemic.

The decrease in operating revenues derived from listed derivatives was primarily driven by a $13.6 million decline in derivative voice brokerage revenues. Derivative voice brokerage data is not included in the listed derivatives volume or average rate per contract in the select data table above. This decline was partially offset by a 5% increase in listed derivatives contract volumes while the average rate per contract was relatively flat with the prior year period.

Interest and fee income earned on client balances declined 50% as compared to the prior year as a result of a significant declines in short term interest rates related to FOMC actions to reduce the federal funds rate beginning in August 2019. Partially offsetting the decline in short term interest rates was an 8% increase in average client equity to $1,019 million.

Variable expenses, excluding interest, expressed as a percentage of operating revenues were 41% in the year ended September 30, 2020 compared to 40% in the year ended September 30, 2019.

During 2020, we recorded bad debts, net of recoveries of $6.7 million, including $3.2 million related to trade receivables with physical clients and $3.5 million related to client deficits in our OTC and listed derivatives businesses. Also, in the year ended September 30, 2020 we recorded an impairment charge of $1.6 million related to capitalized development on a back-office

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software system not yet placed into service, that will be replaced with an alternative system we acquired as part of our acquisition of Gain.

During the year ended September 30, 2019, we recorded recoveries on the bad debt on physical coal of $12.4 million related to settlements reached with clients and proceeds received through an insurance policy claim related to the physical coal matter, as described further detail below.

Segment income decreased 2% to $141.9 million in the year ended September 30, 2020 compared to $144.6 million in the year ended September 30, 2019, as growth in operating revenues were offset by the bad debts, impairment, and impact of fiscal 2019’s recovery. Fixed compensation and benefits and other fixed expenses increased modestly.

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Institutional

We provide institutional clients with a complete suite of equity trading services to help them find liquidity with best execution, consistent liquidity across a robust array of fixed income products, competitive and efficient clearing and execution in all major futures and securities exchanges globally as well as prime brokerage in equities and major foreign currency pairs and swap transactions. In addition, we originate, structure and place debt instruments in the international and domestic capital markets. These instruments include asset-backed securities (primarily in Argentina) and domestic municipal securities.

The tables below present the financial performance, a disaggregation of operating revenues, and select operating data and metrics used by management in evaluating the performance of the Institutional segment, for the periods indicated.

[[GREPCENT_TABLE]]
[["","Year Ended September 30,"],["(in millions)","2021","","% Change","","2020","","% Change","","2019"],["Revenues:"],["Sales of physical commodities","$","\u2014","","","\u2014%","","$","\u2014","","","\u2014%","","$","\u2014"],["Principal gains, net","312.0","","","14%","","273.6","","","83%","","149.5"],["Commission and clearing fees","246.0","","","17%","","211.1","","","24%","","170.0"],["Consulting, management, and account fees","18.0","","","(23)%","","23.3","","","(18)%","","28.3"],["Interest income","92.4","","","(20)%","","116.1","","","(31)%","","167.2"],["Total revenues","668.4","","","7%","","624.1","","","21%","","515.0"],["Cost of sales of physical commodities","\u2014","","","\u2014%","","\u2014","","","\u2014%","","\u2014"],["Operating revenues","668.4","","","7%","","624.1","","","21%","","515.0"],["Transaction-based clearing expenses","184.1","","","9%","","168.7","","","23%","","136.7"],["Introducing broker commissions","27.5","","","38%","","19.9","","","(25)%","","26.7"],["Interest expense","37.4","","","(48)%","","71.7","","","(45)%","","131.5"],["Net operating revenues","419.4","","","15%","","363.8","","","65%","","220.1"],["Variable compensation and benefits","158.5","","","38%","","114.9","","","82%","","63.1"],["Net contribution","260.9","","","5%","","248.9","","","59%","","157.0"],["Fixed compensation and benefits","46.1","","","(2)%","","47.2","","","45%","","32.6"],["Other fixed expenses","46.5","","","19%","","39.0","","","13%","","34.4"],["Bad debts, net of recoveries and impairment","0.6","","","(94)%","","9.8","","","600%","","1.4"],["Total non-variable direct expenses","93.2","","","(3)%","","96.0","","","40%","","68.4"],["Segment income","$","167.7","","","10%","","$","152.9","","","73%","","$","88.6"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","Year Ended September 30,"],["","2021","","% Change","","2020","","% Change","","2019"],["Operating Revenues (in millions):"],["Listed derivatives","$","164.1","","","8%","","$","151.6","","","14%","","$","132.6"],["OTC derivatives","\u2014","","","(100)%","","0.2","","","n/m","","\u2014"],["Securities","436.0","","","16%","","376.1","","","48%","","253.6"],["FX contracts","16.1","","","(33)%","","24.0","","","10%","","21.8"],["Interest / fees earned on client balances","10.2","","","(62)%","","26.5","","","(50)%","","52.9"],["Other","42.0","","","(8)%","","45.7","","","(16)%","","54.1"],["","$","668.4","","","7%","","$","624.1","","","21%","","$","515.0"],["Volumes and Other Select Data (all $ amounts are U.S. dollar equivalents):"],["Listed derivatives (contracts, 000\u2019s)","115,197","","","(8)%","","125,397","","","24%","","100,913"],["Listed derivatives, average rate per contract (1)","$","1.38","","","18%","","$","1.17","","","(6)%","","$","1.25"],["Average client equity - listed derivatives (millions)","$","2,195","","","26%","","$","1,746","","","55%","","$","1,125"],["Securities ADV ( millions)","$","2,776","","","61%","","$","1,729","","","20%","","$","1,440"],["Securities RPM (2)","$","610","","","(28)%","","$","845","","","23%","","$","685"],["Average money market / FDIC sweep client balances (millions)","$","1,471","","","30%","","$","1,130","","","43%","","$","791"],["FX contracts ADV ( millions)","$","1,647","","","25%","","$","1,322","","","(3)%","","$","1,361"],["FX contracts RPM","$","38","","","(47)%","","$","72","","","26%","","$","57"],["n/m = not meaningful to present as a percentage"],["(1) Give-up fee revenue are excluded from the calculation of listed derivative, average rate per contract."],["(2) Interest income related to securities lending is excluded from the calculation of Securities RPM."]]
[[/GREPCENT_TABLE]]

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

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Year Ended September 30, 2021 Compared to Year Ended September 30, 2020

Operating revenues increased $44.3 million, or 7%, to $668.4 million in the year ended September 30, 2021 compared to $624.1 million in the year ended September 30, 2020. Net operating revenues increased $55.6 million, or 15%, to $419.4 million in the year ended September 30, 2021 compared to $363.8 million in the year ended September 30, 2020.

Operating revenues derived from listed derivatives increased $12.5 million, or 8%, to $164.1 million in the year ended September 30, 2021 compared to $151.6 million in the year ended September 30, 2020, principally driven by an 18% increase in the average rate per contract, which was partially offset by an 8% decline in listed derivative contract volumes in the year ended September 30, 2021 compared to the year ended September 30, 2020.

Operating revenues derived from securities transactions increased $59.9 million, or 16%, to $436.0 million in the year ended September 30, 2021 compared to $376.1 million in the year ended September 30, 2020. The ADV of securities traded increased 61%, principally driven by increased customer activity in fixed income markets and to a lesser extent equity products, however the RPM traded declined 28% in the year ended September 30, 2021 principally driven by lower spreads in fixed income products compared to the year ended September 30, 2020 which benefited from wider spreads driven by the onset of the COVID-19 pandemic.

Operating revenues derived from FX contracts declined $7.9 million, or 33%, to $16.1 million in the year ended September 30, 2021 compared to $24.0 million in the year ended September 30, 2020, as a 25% increase in the ADV of FX contracts traded was more than offset by a 47% decline in the average rate per contract due to a decline in foreign currency volatility.

Finally, interest and fee income earned on client balances, which is associated with our listed derivative business, as well as our correspondent clearing and independent wealth management businesses, declined $16.3 million, or 62%, to $10.2 million in the year ended September 30, 2021 compared to $26.5 million in the year ended September 30, 2020, principally as a result of a significant decline in short term interest rates. Partially offsetting the decline in short term interest rates was a 26% increase in average client equity and a 30% increase in average FDIC sweep client balances.

Also primarily as a result of the decline in short term interest rates, interest expense declined 48% compared to the prior year, with interest expense directly associated with serving as an institutional dealer in fixed income securities declining $23.9 million and interest expense directly attributable to securities lending activities declining $7.4 million compared to the prior year period.

Variable expenses, excluding interest, expressed as a percentage of operating revenues increased to 55% in the year ended September 30, 2021 compared to 49% in the year ended September 30, 2020, primarily as the result of the decline in interest income and higher variable compensation.

Segment income increased $14.8 million, or 10%, to $167.7 million in the year ended September 30, 2021 compared to $152.9 million in the year ended September 30, 2020, primarily as a result of the increase in operating revenues noted above. Non-variable direct expenses, excluding bad debts, increased $6.4 million, or 7% versus the year ended September 30, 2020, primarily related to an increase in market information, professional fees and depreciation of internally developed software which was partially offset by lower travel and business development expenses.

Year Ended September 30, 2020 Compared to Year Ended September 30, 2019

Operating revenues increased $109.1 million, or 21% to $624.1 million in the year ended September 30, 2020 compared to $515.0 million in the year ended September 30, 2019. Net operating revenues increased $143.7 million, or 65% to $363.8 million in the year ended September 30, 2020 compared to $220.1 million in the year ended September 30, 2019.

The increase in operating revenues was primarily driven by the growth in operating revenues from securities transactions. The ADV of securities traded increased 20% and the RPM traded increased 23%, each of which were driven by heightened volatility in the global equity and fixed income markets due to economic concerns related to the COVID-19 pandemic.

Operating revenues derived from listed derivatives increased 14% as listed derivative contract volumes increased 24% in the year ended September 30, 2020 compared to the year ended September 30, 2019, however the average rate per contract declined 6%. The increase in derivative contract volume was primarily driven by increased market volatility as a result of the COVD-19 pandemic.

The increase in operating revenues derived from FX contracts resulted from a 26% increase in the RPM, driven by volatility in foreign exchange markets during the year ended September 30, 2020 related to the effect of COVID-19 which was partially offset by a 3% decrease in the ADV traded compared to the year ended September 30, 2019. The prior year period also includes a $2.7 million settlement received related to the Barclays PLC ‘last look’ class action matter.

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Finally, interest and fee income earned on client balances, which is associated with our listed derivative business, as well as our correspondent clearing and independent wealth management businesses, declined 50% as compared to the prior year as a result of a significant decline in short term interest rates related to FOMC actions to reduce the federal funds rate beginning in August 2019. Partially offsetting the decline in short term interest rates was an increase in average client equity and average FDIC sweep client balances of 55% and 43%, respectively.

Variable expenses, excluding interest, expressed as a percentage of operating revenues increased to 49% in the year ended September 30, 2020 compared to 44% in the year ended September 30, 2019, primarily as the result of the decline in interest income and higher variable compensation as a result of improved performance.

During the year ended September 30, 2020, we recorded bad debts of $5.7 million, primarily related to client deficits in our listed derivatives businesses. Also, in the year ended September 30, 2020 we recorded an impairment charge of $4.1 million related to capitalized development on a back-office software system not yet placed into service,that will be replaced with an alternative system we acquired as part of our acquisition of Gain.

Segment income increased $64.3 million, or 73% to $152.9 million in the year ended September 30, 2020 compared to $88.6 million in the year ended September 30, 2019, primarily as a result of the increase in operating revenues noted above, and partially offset by the increase in bad debts and impairment. Non-variable direct expenses, excluding bad debts, increased $19.2 million, or 29% versus the year ended September 30, 2019, primarily related to fixed compensation and trade system costs associated with the continued build out of several recent acquisitions and initiatives, including equity prime brokerage.

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Retail

We provide our retail clients around the world access to over 18,000 global financial markets, including spot foreign exchange ("forex"), both financial trading and physical investment in precious metals, as well as contracts for difference (“CFDs”), which are investment products with returns linked to the performance of underlying assets. In addition, our independent wealth management business offers a comprehensive product suite to retail investors in the United States.

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

[[GREPCENT_TABLE]]
[["","Year Ended September 30,"],["(in millions)","2021","","% Change","","2020","","% Change","","2019"],["Sales of physical commodities","$","1,541.3","","","405%","","$","305.3","","","330%","","$","71.0"],["Principal gains, net","212.7","","","403%","","42.3","","","n/m","","(0.5)"],["Commission and clearing fees","58.9","","","18%","","49.8","","","2%","","48.7"],["Consulting, management, and account fees","45.5","","","32%","","34.6","","","21%","","28.5"],["Interest income","1.5","","","114%","","0.7","","","75%","","0.4"],["Total revenues","1,859.9","","","330%","","432.7","","","192%","","148.1"],["Cost of physical commodities sold","1,511.9","","","417%","","292.7","","","319%","","69.9"],["Operating revenues","348.0","","","149%","","140.0","","","79%","","78.2"],["Transaction-based clearing expenses","25.7","","","302%","","6.4","","","205%","","2.1"],["Introducing broker commissions","98.2","","","42%","","69.0","","","14%","","60.3"],["Interest expense","1.7","","","113%","","0.8","","","700%","","0.1"],["Net operating revenues","222.4","","","249%","","63.8","","","306%","","15.7"],["Variable compensation and benefits","18.0","","","260%","","5.0","","","355%","","1.1"],["Net contribution","204.4","","","248%","","58.8","","","303%","","14.6"],["Fixed compensation and benefits","51.6","","","406%","","10.2","","","149%","","4.1"],["Other fixed expenses","83.9","","","415%","","16.3","","","298%","","4.1"],["Bad debts, net of recoveries","1.1","","","83%","","0.6","","","n/m","","\u2014"],["Total non-variable direct expenses","136.6","","","404%","","27.1","","","230%","","8.2"],["Segment income","$","67.8","","","114%","","$","31.7","","","395%","","$","6.4"]]
[[/GREPCENT_TABLE]]

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

[[GREPCENT_TABLE]]
[["","Year Ended September 30,"],["","2021","","% Change","","2020","","% Change","","2019"],["Operating Revenues (in millions):"],["Securities","$","97.6","","","19%","","$","82.2","","","9%","","$","75.7"],["FX / CFD contracts","225.9","","","427%","","42.9","","","n/m","","\u2014"],["Physical contracts","20.4","","","59%","","12.8","","","2,460%","","0.5"],["Interest / fees earned on client balances","1.2","","","(29)%","","1.7","","","(15)%","","2.0"],["Other","2.9","","","625%","","0.4","","","n/m","","\u2014"],["","$","348.0","","","149%","","$","140.0","","","79%","","$","78.2"],["Select data (all $ amounts are U.S. dollar equivalents):"],["FX / CFD contracts ADV (millions) (1)","$","8,989","","","8%","","$","8,357","","","n/m","","$","\u2014"],["FX / CFD contracts RPM (2)","$","98","","","(18)%","","$","120","","","n/m","","$","\u2014"],["(1) The ADV for the year ended September 30, 2020 is reflective of the ADV post-acquisition of Gain, and is calculated based on 43 trading days with the activities of Gain, acquired effective August 1, 2020."]]
[[/GREPCENT_TABLE]]

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

Year Ended September 30, 2021 Compared to Year Ended September 30, 2020

Operating revenues increased $208.0 million, or 149%, to $348.0 million in the year ended September 30, 2021 compared to $140.0 million in the year ended September 30, 2020. Net operating revenues increased $158.6 million, or 249%, to $222.4 million in the year ended September 30, 2021 compared to $63.8 million in the year ended September 30, 2020.

Operating revenues derived from FX / CFD contracts increased $183.0 million, or 427% to $225.9 million, and represent the incremental revenues from the acquisition of Gain, effective August 1, 2020. For Gain, the year ended September 30, 2021 includes 259 trading days compared to 43 trading days post acquisition, during the year ended September 30, 2020.

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Operating revenues derived from securities transactions relates to our independent wealth management activities which increased $15.4 million, or 19%, to $97.6 million in the year ended September 30, 2021 compared to $82.2 million in the year ended September 30, 2020.

Operating revenues derived from physical contracts increased $7.6 million, or 59%, to $20.4 million in the year ended September 30, 2021 compared to $12.8 million in the year ended September 30, 2020, principally driven by continued strong customer demand for precious metals.

Interest and fee income earned on client balances declined $0.5 million, or 29%, to $1.2 million primarily as a result of the decline in short term interest rates.

Variable expenses, excluding interest, as a percentage of operating revenues were 41% in the year ended September 30, 2021 compared to 57% in the year ended September 30, 2020, with the decrease in the variable rate percentage being driven by the Gain acquisition effective August 1, 2020, which brought a large lower variable rate cost base.

Segment income increased $36.1 million, or 114% to $67.8 million in the year ended September 30, 2021 compared to $31.7 million in the year ended September 30, 2020, primarily as a result of the increase in net operating revenues noted above. The increase in non-variable direct expenses, was primarily a result of incremental costs from the Gain acquisition.

Year Ended September 30, 2020 Compared to Year Ended September 30, 2019

Operating revenues increased $61.8 million, or 79%, to $140.0 million in the year ended September 30, 2020 compared to $78.2 million in the year ended September 30, 2019. Net operating revenues were $63.8 million in the year ended September 30, 2020 compared to $15.7 million in the year ended September 30, 2019.

Operating revenues derived from FX / CFD contracts represent the incremental revenues from the Gain acquisition.

Operating revenues from securities transactions and other primarily relate to our independent wealth management activities which increased 9% to $82.2 million in the year ended September 30, 2020 as compared to $75.7 million in the year ended September 30, 2019.

The increase in operating revenues derived from physical contracts was a result of the acquisition of Coininvest GmbH and European Precious Metal Trading GmbH, which was completed in April 2019, which benefited from increased customer demand for precious metals transactions through our online platform.

Interest and fee income earned on client balances declined 15% to $1.7 million primarily as a result of the decline in short term interest rates.

Variable expenses, excluding interest, as a percentage of operating revenues were 57% in the year ended September 30, 2020 compared to 81% in the year ended September 30, 2019, with the decrease in the variable rate percentage being driven by the Gain acquisition in August 2020 which brought a large lower variable rate cost base.

Segment income increased 395% to $31.7 million in the year ended September 30, 2020 compared to $6.4 million in the year ended September 30, 2019, primarily as a result of the increase in net operating revenues noted above. The increase in non-variable direct expenses, as stated above, was primarily a result of incremental costs from the Gain acquisition.

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Global Payments

We provide customized foreign exchange and treasury services to banks and commercial businesses as well as charities and non-governmental and government organizations. We provide transparent pricing and offer payments services in more than 185 countries and 140 currencies, which we believe is more than any other payments solutions provider.

The tables below present the financial performance, a disaggregation of operating revenues, and select operating data and metrics used by management in evaluating the performance of the Global Payments segment for the periods indicated.

[[GREPCENT_TABLE]]
[["","Year Ended September 30,"],["(in millions)","2021","","% Change","","2020","","% Change","","2019"],["Revenues:"],["Sales of physical commodities","$","\u2014","","","\u2014","","$","\u2014","","","\u2014","","$","\u2014"],["Principal gains, net","128.8","","","16%","","110.8","","","3%","","107.1"],["Commission and clearing fees","5.2","","","27%","","4.1","","","8%","","3.8"],["Consulting, management, account fees","3.3","","","32%","","2.5","","","39%","","1.8"],["Interest income","\u2014","","","\u2014%","","\u2014","","","(100)%","","0.1"],["Total revenues","137.3","","","17%","","117.4","","","4%","","112.8"],["Cost of sales of physical commodities","\u2014","","","\u2014","","\u2014","","","\u2014","","\u2014"],["Operating revenues","137.3","","","17%","","117.4","","","4%","","112.8"],["Transaction-based clearing expenses","6.5","","","27%","","5.1","","","4%","","4.9"],["Introducing broker commissions","0.8","","","14%","","0.7","","","(13)%","","0.8"],["Interest expense","0.1","","","\u2014%","","0.1","","","\u2014%","","0.1"],["Net operating revenues","129.9","","","17%","","111.5","","","4%","","107.0"],["Variable compensation and benefits","26.2","","","20%","","21.9","","","7%","","20.4"],["Net contribution","103.7","","","16%","","89.6","","","3%","","86.6"],["Fixed compensation and benefits","14.7","","","25%","","11.8","","","20%","","9.8"],["Other fixed expenses","10.3","","","12%","","9.2","","","(14)%","","10.7"],["Bad debts","0.2","","","n/m","","\u2014","","","\u2014%","","\u2014"],["Total non-variable direct expenses","25.2","","","20%","","21.0","","","2%","","20.5"],["Segment income","$","78.5","","","14%","","$","68.6","","","4%","","$","66.1"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","Year Ended September 30,"],["","2021","","% Change","","2020","","% Change","","2019"],["Operating Revenues (in millions):"],["Payments","$","133.8","","","17%","","$","114.6","","","3%","","$","110.8"],["Other","3.5","","","25%","","2.8","","","40%","","2.0"],["","$","137.3","","","17%","","$","117.4","","","4%","","$","112.8"],["Select data (all $ amounts are U.S. dollar equivalents):"],["Global Payments ADV (millions)","$","54","","","20%","","$","45","","","\u2014%","","$","45"],["Global Payments RPM (1)","$","9,921","","","(2)%","","$","10,092","","","3%","","$","9,805"],["(1) Rate per million is based on principal gains, net and commission and clearing fees revenues and the ADV shown above."]]
[[/GREPCENT_TABLE]]

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

Year Ended September 30, 2021 Compared to Year Ended September 30, 2020

Operating revenues increased $19.9 million, or 17%, to $137.3 million in the year ended September 30, 2021 compared to $117.4 million in the year ended September 30, 2020. Net operating revenues increased $18.4 million, or 17% to $129.9 million in the year ended September 30, 2021 compared to $111.5 million in the year ended September 30, 2020.

The increase in operating revenues was primarily driven by a 20% increase in the average daily notional payment volume which was partially offset by a 2% decline in the rate per million dollars traded.

Variable expenses, excluding interest, expressed as a percentage of operating revenues were 24% in both the year ended September 30, 2021 and the year ended September 30, 2020.

Segment income increased $9.9 million, or 14%, to $78.5 million in the year ended September 30, 2021 compared to $68.6 million in the year ended September 30, 2020. This increase primarily resulted from the increase in net operating revenues, partially offset by a $4.2 million increase in non-variable direct expenses versus the prior year period, which includes a $2.9 million increase in fixed compensation and benefits.

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Year Ended September 30, 2020 Compared to Year Ended September 30, 2019

Operating revenues increased 4% to $117.4 million in the year ended September 30, 2020 compared to $112.8 million in the year ended September 30, 2019. Net operating revenues increased 4% to $111.5 million in the year ended September 30, 2020 compared to $107.0 million in the year ended September 30, 2019.

The increase in operating revenues were primarily driven by a 3% increase in the rate per million dollars traded, while the average daily notional payment volume was relatively unchanged year-over-year, as larger debt capital market transactions from our international banking clients decreased in the year ended September 30, 2020 compared to the year ended September 30, 2019 due to the global economic slowdown impact of the COVID-19 pandemic.

Variable expenses, excluding interest, expressed as a percentage of operating revenues were 24% in the year ended September 30, 2020 compared to 23% in the year ended September 30, 2019, primarily as a result of an increase in variable compensation.

Segment income increased 4% to $68.6 million in the year ended September 30, 2020 compared to $66.1 million in the year ended September 30, 2019. This increase primarily resulted from the increase in net operating revenues, partially offset by a $0.5 million increase in non-variable direct expenses versus the prior year period.

Unallocated Costs and Expenses

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

[[GREPCENT_TABLE]]
[["","Year Ended September 30,"],["(in millions)","2021","","% Change","","2020","","% Change","","2019"],["Compensation and benefits:"],["Variable compensation and benefits","$","37.6","","","(7)%","","$","40.5","","","46%","","$","27.7"],["Fixed compensation and benefits","119.1","","","37%","","86.8","","","19%","","72.8"],["","156.7","","","23%","","127.3","","","27%","","100.5"],["Other expenses:"],["Occupancy and equipment rental","33.1","","","41%","","23.4","","","21%","","19.3"],["Non-trading technology and support","31.8","","","43%","","22.2","","","47%","","15.1"],["Professional fees","23.0","","","5%","","22.0","","","65%","","13.3"],["Depreciation and amortization","19.0","","","15%","","16.5","","","53%","","10.8"],["Communications","6.5","","","5%","","6.2","","","\u2014%","","6.2"],["Selling and marketing","1.7","","","(59)%","","4.1","","","273%","","1.1"],["Trading systems and market information","4.2","","","62%","","2.6","","","(4)%","","2.7"],["Travel and business development","1.3","","","(43)%","","2.3","","","(39)%","","3.8"],["Other","23.4","","","22%","","19.2","","","16%","","16.6"],["","144.0","","","22%","","118.5","","","33%","","88.9"],["Total compensation and other expenses","$","300.7","","","22%","","$","245.8","","","30%","","$","189.4"]]
[[/GREPCENT_TABLE]]

Year Ended September 30, 2021 Compared to Year Ended September 30, 2020

Total unallocated costs and other expenses increased $54.9 million, or 22%, to $300.7 million in the year ended September 30, 2021 compared to $245.8 million in the year ended September 30, 2020. Compensation and benefits increased $29.4 million, or 23%, to $156.7 million in the year ended September 30, 2021 compared to $127.3 million in the year ended September 30, 2020.

During the year ended September 30, 2021, the increase in fixed compensation and benefits was primarily related to the increase in headcount, principally due to the acquisition of Gain, across nearly all administrative departments, including IT, compliance, accounting, human resources, as well as credit and risk. Fixed compensation and benefits during the year ended September 30, 2021 include severance costs of $3.5 million, principally due to the departure of certain senior officers. During the year ended September 30, 2020, severance costs were $0.5 million.

During the year ended September 30, 2021, the increase in other expenses is primarily due higher occupancy costs, principally related to an increase in leased office space. Additionally, non-trading technology and support increased due to higher support and maintenance costs related to various IT, client engagement, accounting, and human resources systems.

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Year Ended September 30, 2020 Compared to Year Ended September 30, 2019

Total unallocated costs and other expenses increased $56.4 million, or 30%, to $245.8 million in the year ended September 30, 2020 compared to $189.4 million in the year ended September 30, 2019. Compensation and benefits increased $26.8 million, or 27%, to $127.3 million in the year ended September 30, 2020 compared to $100.5 million in the year ended September 30, 2019.

During the year ended September 30, 2020, the increase in fixed compensation and benefits was primarily related to a 35% increase in headcount across several administrative departments, including IT, compliance and accounting, of which 61% of the increase in headcount was acquisition related, adding $5.4 million. The increase in variable compensation and benefits was primarily due to improved overall company performance, along with an incremental $3.4 million related to recent acquisitions.

Other non-compensation expenses related to acquisitions and new business initiatives begun after fiscal 2018 added $11.0 million. During the year ended September 30, 2020, the increase in fixed compensation and benefits and variable compensation and benefits is also related to headcount increases across several administrative departments. Additionally, non-trading technology and support increased due to higher support and maintenance costs related to various IT, client engagement, accounting, and human resources systems.

Liquidity, Financial Condition and Capital Resources

Overview

Liquidity is our ability to generate funds sufficient to meet all of our cash needs. Liquidity is of critical importance to us and imperative to maintaining our daily operations. Senior management establishes liquidity and capital policies, which we monitor on a daily basis and review for funding availability, from both internal and external sources, and policy efficacy in supporting our business operations. We have historically financed our liquidity and capital needs principally with funds generated from our subsidiaries' operations, issuing debt and equity securities, and access to committed credit facilities. We plan to finance our future operating liquidity and regulatory capital needs in a manner consistent with our past practice. Liquidity and capital matters are reported regularly to our board of directors.

StoneX Financial Inc. is registered as a broker-dealer with the SEC and is a member of both FINRA and MSRB. In addition, StoneX Financial Inc. is registered as a futures commission merchant with the CFTC and NFA, and a member of various commodities and futures exchanges in the U.S. and abroad. StoneX Financial Inc. has a responsibility to meet margin calls at all exchanges on a daily basis, and on an intra-day basis, if deemed necessary by relevant regulators or exchanges. We require our clients to make margin deposits the next business day, and we require our largest clients to make intra-day margin payments during periods of significant price movement. Margin required to be posted to the exchanges is a function of our clients’ net open positions and required margin per contract. StoneX Financial Inc. is subject to minimum capital requirements under Section 4(f)(b) of the Commodity Exchange Act, Part 1.17 of the rules and regulations of the CFTC and the SEC Uniform Net Capital Rule 15c3-1 under the Securities Exchange Act of 1934. StoneX Financial Inc. is also subject to the Rule 15c3-3 of the Securities Exchange Act of 1934, as amended (“Customer Protection Rule”).

Gain Capital Group, LLC is registered as both a futures commission merchant and registered foreign exchange dealer, subject to minimum capital requirements under Section 4(f)(b) of the Commodity Exchange Act, Part 1.17 of the rules and regulations of the CFTC and NFA Financial Requirements, Sections 1 and 11.

These rules specify the minimum amount of capital that must be available to support our clients’ open trading positions, including the amount of assets that StoneX Financial Inc. and Gain Capital Group, LLC must maintain in relatively liquid form, and are designed to maintain general financial integrity and liquidity.

StoneX Financial Ltd is regulated by the FCA, the regulator of the financial services industry in the U.K. and is subject to regulations which impose regulatory capital requirements. StoneX Financial Ltd is a member of various commodities and futures exchanges in the U.K. and Europe and has the responsibility to meet margin calls at all exchanges on a daily basis and intra-day basis, as necessary. StoneX Financial Ltd is required to be compliant with the U.K.’s Individual Liquidity Adequacy Standards (“ILAS”). To comply with these standards, we have implemented daily liquidity procedures, conduct periodic reviews of liquidity by stressed scenarios, and have created liquidity buffers. During the year ended September 30, 2021, StoneX Financial Ltd finalized the transfer of substantially all business formerly within Gain’s U.K. operating entity, Gain Capital U.K., Ltd.

The regulations discussed above limit funds available for dividends to StoneX. As a result, we may be unable to access funds which are generated by our operating subsidiaries when we need them.

In addition, in our physical commodities trading, commercial hedging OTC, securities and foreign exchange trading activities, we may be called upon to meet margin calls with our various trading counterparties based upon the underlying open transactions we have in place with those counterparties.

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We continuously review our overall credit and capital needs to ensure that our capital base, both stockholders’ equity and debt, as well as available credit facilities can appropriately support the anticipated financing needs of our operating subsidiaries.

As of September 30, 2021, we had total equity of $904.0 million, outstanding loans under revolving credit facilities of $248.6 million, outstanding senior secured term loan of $170.1 million and $336.9 million outstanding on our senior secured notes, net of deferred financing costs.

A substantial portion of our assets are liquid. As of September 30, 2021, approximately 97% of our assets consisted of cash; securities purchased under agreements to resell; securities borrowed; deposits with and receivables from exchange-clearing organizations, broker-dealers, clearing organizations and counterparties; client receivables; marketable financial instruments and investments; and physical commodities inventory. All assets that are not client and counterparty deposits are financed by our equity capital, bank loans, short-term borrowings from financial instruments sold, not yet purchased and under repurchase agreements, securities loaned and other payables.

As of September 30, 2021, we had deferred tax assets totaling $35.1 million. We are required to assess our deferred tax assets and the need for a valuation allowance at each reporting period. In assessing the realizability of deferred tax assets, we consider whether we are more likely than not to realize some or all of the deferred tax assets. We are required to record a valuation allowance against deferred tax assets when it is considered more likely than not that all or a portion of our deferred tax assets will not be realized. The valuation allowance for deferred tax assets as of September 30, 2021 and 2020 was $15.0 million and $12.4 million, respectively. The valuation allowances as of September 30, 2021 and 2020 were primarily related to U.S. state and local, and foreign net operating loss carryforwards and foreign tax credits acquired through the merger with Gain that, in the judgment of management, are not more likely than not to be realized.

Client and Counterparty Credit and Liquidity Risk

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

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

As it relates to OTC derivative transactions, we act as a principal, which exposes us to the credit risk of both our clients and the counterparties with which we offset our client positions. As with exchange-traded transactions, our OTC transactions require that we meet initial and variation margin payments on behalf of our clients before we receive the required payment from our clients. OTC clients are required to post sufficient collateral to meet margin requirements based on value-at-risk models as well as variation margin requirements based on the price movement of the commodity or security in which they transact. Our clients are required to make any margin deposits the next business day, and we may require our largest clients to make intra-day margin payments during periods of significant price movement. In this business as well, we have the ability to increase the margin requirements for clients based on their open positions, trading activity, or market conditions. On a limited basis, we provide credit thresholds to certain clients, based on internal evaluations and monitoring of client creditworthiness.

In addition, with OTC transactions, we are at risk that a counterparty will fail to meet its obligations to us when due. We would then be exposed to the risk that the settlement of a transaction which is due a client will not be collected from the respective counterparty with which the transaction was offset. We continuously monitor the credit quality of our respective counterparties and mark our positions held with each counterparty to market on a daily basis.

We enter into securities purchased under agreements to resell, securities sold under agreements to repurchase, securities borrowed and securities loaned transactions to, among other things, finance financial instruments, acquire securities to cover short positions, acquire securities for settlement, and to accommodate counterparties’ needs. In connection with these agreements and transactions, it is our policy to receive or pledge cash or securities to adequately collateralize such agreements and transactions in accordance with general industry guidelines and practices. The collateral is valued daily and we may require counterparties to deposit additional collateral or return collateral pledged, when appropriate.

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Commodities Inventory

In the ordinary course of business, we hold commodities inventory in third-party licensed grain facilities. As of September 30, 2021, we held title in the form of warehouse receipts to approximately 2.6 million bushels of soybeans, valued at $31.2 million, in multiple facilities owned by one third-party operator. The amount of soybeans held at these third-party grain facilities increased to 2.8 million bushels on October 6, 2021 pursuant to the satisfaction of a $2.5 million repurchase commitment. Our ownership interest in the soybeans held at these third-party grain facilities is represented by warehouse receipts issued by these facilities under the U.S. Warehouse Act, which is a program administered by the U.S. Department of Agriculture. On September 29, 2021, the above-mentioned third-party operator filed a petition for Chapter 11 bankruptcy, and a Chief Restructuring Officer was assigned by the court to assist in administering the allocation of the grain on hand and proceeds from the sale of processed soybean products. As a result of these bankruptcy proceedings, in the event we do not receive soybeans or proceeds from soybeans commensurate with the 2.8 million bushels of soybean inventory held at October 6, 2021, we believe that it is probable that we have adequate insurance coverage to cover potential shortfalls. Therefore, we have not recognized any estimated losses associated with this matter in our September 30, 2021 consolidated financial statements.

OptionSellers

In November 2018, balances in approximately 300 accounts of the FCM division of our wholly owned subsidiary, StoneX Financial Inc., declined below required maintenance margin levels, primarily as a result of significant and unexpected price fluctuations in the natural gas markets. All positions in these accounts, which were managed by OptionSellers.com Inc. (“OptionSellers”), an independent Commodity Trading Advisor (“CTA”), were liquidated in accordance with the StoneX Financial Inc.’s client agreements and obligations under market regulation standards. OptionSellers, in its role as a CTA, had been granted by each of its clients full discretionary authority to manage the trading in the client accounts, while StoneX Financial Inc. acted solely as the clearing firm in its role as the FCM.

StoneX Financial Inc.’s client agreements hold account holders liable for all losses in their accounts and obligate the account holders to reimburse StoneX Financial Inc. for any deficits in their accounts. As of September 30, 2021, the aggregate receivable from these client accounts, net of collections and other allowable deductions, was $28.9 million, with no individual account receivable exceeding $1.4 million. StoneX Financial Inc. continues to pursue collection of these receivables and intends both to enforce and to defend its rights aggressively, and to claim interest and costs of collection where applicable.

During our October 1, 2020 implementation of CECL, the new credit reserving model which is based on expected losses over the life of an asset and which applies to client deficits, we completed an assessment of the collectability of these accounts in light of this new guidance. As a result of the implementation, we recognized a cumulative-effect adjustment to record an allowance against these uncollected balances of $8.2 million. We continue to assess collectability of these accounts quarterly, including the consideration of numerous arbitration proceedings we have initiated against these clients to recover deficit balances in their accounts. As we move through the collection and arbitration processes and additional information becomes available, we will continue to consider that information in our determination of any changes in the allowance against the carrying value of these uncollected balances. Depending on future collections and arbitration proceedings, any provisions for bad debts and actual losses ultimately may or may not be material to our financial results. Currently, we do not believe that any potential losses related to this matter would impact our ability to comply with our ongoing liquidity, capital, and regulatory requirements.

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

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

Primary Sources and Uses of Cash

Our cash and cash equivalents and customer cash and securities held for customers are held at banks, deposits at liquidity providers, investments in money market funds that invest in highly liquid investment grade securities including U.S. treasury bills, as well as investments in U.S treasury bills. In general, we believe all of our investments and deposits are of high credit quality and we have more than adequate liquidity to conduct our businesses.

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Our assets and liabilities may vary significantly from period to period due to changing client requirements, economic and market conditions and our growth. Our total assets as of September 30, 2021 and 2020, were $18.8 billion and $13.5 billion, respectively. Our operating activities generate or utilize cash as a result of net income or loss earned or incurred during each period and fluctuations in our assets and liabilities. The most significant fluctuations arise from changes in the level of client activity, commodities prices and changes in the balances of financial instruments and commodities inventory. StoneX Financial Inc. and StoneX Financial Ltd occasionally utilize their margin line credit facilities, on a short-term basis, to meet intraday settlements with the commodity exchanges prior to collecting margin funds from their clients.

The majority of the assets of StoneX Financial Inc., StoneX Financial Ltd, StoneX Markets LLC, and Gain Capital Group, LLC are restricted from being transferred to its parent or other affiliates due to specific regulatory requirements. This restriction has no impact on our ability to meet our cash obligations, and no impact is expected in the future.

We have liquidity and funding policies and processes in place that are intended to maintain significant flexibility to address both company-specific and industry liquidity needs. The majority of our excess funds are held with high-quality institutions, under highly liquid reverse repurchase agreements, U.S. government obligations, interest earning cash deposits and AA-rated money market investments.

We do not intend to distribute earnings of our foreign subsidiaries in a taxable manner, and therefore intend to limit distributions to earnings previously taxed in the U.S., or earnings that would qualify for the 100 percent dividends received deduction, and earnings that would not result in any significant foreign taxes. We repatriated $300.6 million and $30.0 million for the years ended September 30, 2021 and 2020, respectively, of earnings previously taxed in the U.S. resulting in no significant incremental taxes. Therefore, the Company has not recognized a deferred tax liability on its investment in foreign subsidiaries.

Senior Secured Notes

In June 2020, we issued $350.0 million in aggregate principal amount of our 8.625% Senior Secured Notes due 2025 (the “Notes”) at the offering price of 98.5% of the aggregate principal amount. We used the net proceeds from the sale of the Notes to fund the preliminary cash consideration for the acquisition of Gain on the closing date, to pay certain related transactions fees and expenses, and to fund the repayment of Gain’s 5.00% Convertible Senior Notes due 2022, with the exception of $0.5 million which remains outstanding, as certain holders of the Gain Notes neither exercised such holder's fundamental change repurchase right or make-whole fundamental change conversion right.

The Notes will mature on June 15, 2025. Interest on the Notes accrues at a rate of 8.625% per annum and is payable semiannually in arrears on June 15 and December 15 of each year, commencing on December 15, 2020. We incurred debt issuance costs of $9.5 million in connection with the issuance of the Notes, which are being amortized over the term of the Notes under the effective interest method.

Pursuant to the terms of the Notes indenture, during the year ended September 30, 2021, we had the option to redeem up to $100.0 million in aggregate principal amount of the Notes at a redemption price equal to 103% of the principal amount of the Notes redeemed, plus accrued and unpaid interest, if any, to the date of redemption. In June 2021, we elected not to redeem the Notes.

The Note holders had the right to require us to repurchase up to $100.0 million in aggregate principal amount of the Notes (or a lesser amount equal to the difference between $100.0 million and the amounts previously redeemed by us) at a purchase price equal to 103% of the principal amount of the Notes repurchased, plus accrued and unpaid interest, if any, to the date of repurchase. During the year ended September 30, 2021, we repurchased $1.6 million of the principal amount of the Notes, for 103% of the principal amount, plus accrued and unpaid interest.

We have the option to redeem all or a portion of the Notes at any time prior to June 15, 2022 at a price equal to 100% of the principal amount of the Notes redeemed plus accrued and unpaid interest to the redemption date plus a “make-whole” premium. At any time on or after June 15, 2022, we may redeem the Notes, in whole or in part, at the redemption prices set forth in the indenture. At any time before June 15, 2022, we may also redeem up to 40% of the aggregate principal amount of the Notes at a redemption price of 108.625% of the principal amount, plus accrued and unpaid interest, if any, to the date of redemption, with the proceeds of certain equity offerings.

Committed Credit Facilities

As of September 30, 2021, we had four committed bank credit facilities, totaling $806.4 million, of which $385.1 million was outstanding. Additional information regarding our bank credit facilities can be found in Note 11 of the Consolidated Financial Statements. The credit facilities include:

•A three-year first-lien senior secured syndicated loan facility under which $406.4 million is available to us for general working capital requirements and capital expenditures. During the year ended September 30, 2021, the facility was

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amended to increase the revolving credit facility from $196.5 million to $236.1 million and to extend the maturity date to August 22, 2022. The facility also includes a Term Loan component with an original value of $196.5 million.

We are required to make quarterly principal payments against the Term Loan equal to 1.25% of the original balance with the remaining balance due on the maturity date. During the year ended September 30, 2021, we made scheduled quarterly principal payments against the Term Loan equal to $9.8 million. Amounts repaid on the Term Loan may not be reborrowed.

•An unsecured committed line of credit until April 1, 2022, under which $75.0 million is available to our wholly owned subsidiary, StoneX Financial Inc. to provide short term funding of margin to commodity exchanges as necessary.

•A syndicated committed borrowing facility until January 29, 2022, under which $300.0 million is available to our wholly owned subsidiary, StoneX Commodity Solutions LLC (“StoneX Commodity Solutions”) to finance commodity financing arrangements and commodity repurchase agreements.

•An unsecured syndicated loan facility committed until October 14, 2022, under which our subsidiary, StoneX Financial Ltd is entitled to borrow up to $25.0 million, subject to certain terms and conditions of the credit agreement. This facility is intended to provide short-term funding of margin to commodity exchanges as necessary. The facility in place at September 30, 2020 matured on October 14, 2020 and was replaced by an unsecured syndicated committed borrowing facility with substantially similar terms. During October 2021 the new facility was renewed to extend the maturity date to October 14, 2022. On November 18, 2021, the facility was amended to increase the committed borrowing amount available to $50.0 million.

Additional information regarding the committed bank credit facilities can be found in Note 11 of the Consolidated Financial Statements. As reflected above, three of our committed credit facilities are scheduled to expire during the year ended September 30, 2022. We intend to renew or replace these facilities as they expire, and based on our liquidity position and capital structure, we believe we will be able to do so.

As of September 30, 2021, we had four uncommitted bank credit facilities with an outstanding balance of $25.0 million. The credit facilities include:

•A secured uncommitted loan facility under which StoneX Financial Inc. may borrow up to $75.0 million, collateralized by commodity warehouse receipts, to facilitate U.S. commodity exchange deliveries of its clients, subject to certain terms and conditions of the credit agreement. There were no borrowings outstanding under this credit facility at September 30, 2021 and 2020.

•A secured uncommitted loan facility under which StoneX Financial Inc. may borrow up to $100.0 million for short term funding of firm and client margin requirements, subject to certain terms and conditions of the agreement. The borrowings are secured by first liens on firm owned marketable securities or client owned securities which have been pledged to us under a clearing arrangement. There were no borrowings outstanding under this credit facility at September 30, 2021 and 2020.

•A secured uncommitted loan facility under which StoneX Financial Inc. may borrow for short term funding of proprietary and client securities margin requirements, subject to certain terms and conditions of the agreement. The uncommitted amount available to be borrowed is not specified, and all requests for borrowing are subject to the sole discretion of the lender. The borrowings are secured by first liens on firm owned marketable securities or client owned securities which have been pledged to us. The amounts borrowed under the facilities are payable on demand. There were no borrowings outstanding under this credit facility as of September 30, 2021 and 2020.

•During the year ended September 30, 2021, we executed a secured, uncommitted loan facility, under which StoneX Financial Ltd may borrow up to $25.0 million, collateralized by commodities warehouse receipts, to facilitate the financing of inventory of commodities, subject to certain terms and conditions of the credit agreement. There were $25.0 million in borrowings outstanding under this credit facility as of September 30, 2021.

Our facility agreements contain certain financial covenants relating to financial measures on a consolidated basis, as well as on a stand-alone subsidiary basis, in certain cases, including minimum tangible net worth, minimum regulatory capital, minimum net unencumbered liquid assets, maximum net loss, minimum fixed charge coverage ratio and maximum funded debt to net worth ratio. Failure to comply with any such covenants could result in the debt becoming payable on demand. As of September 30, 2021, we and our subsidiaries are in compliance with all of our financial covenants under the outstanding facilities.

In accordance with required disclosure as part of our three-year syndicated revolving loan facility, during the trailing twelve months ended September 30, 2021, interest expense directly attributable to trading activities includes $9.6 million in connection with trading activities conducted as an institutional dealer in fixed income securities, and $17.6 million in connection with securities lending activities.

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Other Capital Considerations

Our activities are subject to various significant governmental regulations and capital adequacy requirements, both in the U.S. and in the international jurisdictions in which we operate. Our subsidiaries are in compliance with all of their capital regulatory requirements as of September 30, 2021. Additional information on our subsidiaries subject to significant net capital and minimum net capital requirements can be found in Note 22 of the Consolidated Financial Statements.

The Dodd-Frank Act created a comprehensive new regulatory regime governing the OTC swaps and imposed further regulations on listed derivatives. The Dodd-Frank Act also created a registration regime for new categories of market participants, such as “swap dealers”, among others.

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

Swap dealers are subject to a comprehensive regulatory regime with new obligations for the swaps activities for which they are registered, including adherence to risk management policies, supervisory procedures, trade record and real time reporting requirements, as well as rules for minimum capital requirements which became effective October 6, 2021.

Our subsidiary, StoneX Markets LLC, is a CFTC provisionally registered swap dealer, and under these capital rules is subject to a minimum regulatory capital requirement of $100 million. During 2016, CFTC 23.154, Calculation of Initial Margin rules came into effect, imposing new requirements on registered swap dealers and certain counterparties to exchange initial margin, with phased-in compliance dates, with StoneX Markets LLC falling in the final compliance date tier of September 2022.

Compliance with this or other swap-related regulatory capital requirements may require us to devote more capital to these businesses or otherwise restructure our operations, such as by combining these businesses with other regulated subsidiaries that must also satisfy regulatory capital requirements. StoneX Markets LLC has faced, and may continue to face, increased costs due to the registration and regulatory requirements listed above, as may any other of our subsidiaries that may be required to register, or may register voluntarily, as a swap dealer and/or swap execution facility.

Our subsidiary, GAIN GTX, LLC, a CFTC and NFA provisionally registered swap dealer, withdrew its license on October 5, 2021. This subsidiary’s withdrawal is not expected to have any material impact to our business.

Cash Flows

Following the adoption of Accounting Standards Update (“ASU”) 2016-18 on October 1, 2018, we now include client cash and securities that meet the short term requirement for cash classification to be segregated for regulatory purposes in our consolidated cash flow statements. We hold a significant amount of U.S. Treasury obligations which represent investment of client funds or client-owned investments pledged in lieu of cash margin. U.S. Treasury securities held with third-party banks or pledged with exchange-clearing organizations representing investments of client funds or which are held for particular clients in lieu of cash margin are included in the beginning and ending cash balances reconciled on our consolidated statements of cash flows to the extent that they have an original or acquired maturity of 90 days or less and, therefore, meet the definition of a segregated cash equivalent. Purchases and sales of U.S. Treasury securities representing investment of clients’ funds and U.S. Treasury securities pledged or redeemed by particular clients in lieu of cash margin are presented as operating uses and sources of cash, respectively, within the operating section of the consolidated statements of cash flows if they have an original or acquired maturity of greater than 90 days. Typically, there is an offsetting use or source of cash related to the change in the payables to clients. However, we will report a use of cash in periods where segregated U.S. Treasury securities that meet the aforementioned definition of a segregated cash equivalent mature and are replaced with U.S. Treasury securities that have original or acquired maturities that are greater than 90 days.

Our cash, segregated cash, cash equivalents, and segregated cash equivalents increased from $4,468.4 million as of September 30, 2020 to $6,509.5 million as of September 30, 2021, a net increase of $2,041.1 million. Net cash of $2,122.7 million was provided by operating activities, including movements typical of our operations, with large changes coming from Payables to clients and Financial instruments owned and sold.

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In the broker-dealer and related trading industries, companies report trading activities in the operating section of the statement of cash flows. Due to the daily price volatility in the commodities market, as well as changes in margin requirements, fluctuations in the balances of deposits held at various exchanges, marketable securities and client commodity accounts may occur from day-to-day. A use of cash, as calculated on the consolidated statement of cash flows, includes unrestricted cash transferred and pledged to the exchanges or guaranty funds. These funds are held in interest-bearing deposit accounts at the exchanges, and based on daily exchange requirements, may be withdrawn and returned to unrestricted cash. Additionally, within our unregulated OTC and foreign exchange operations, cash deposits received from clients are reflected as cash provided from operations. Subsequent transfer of these cash deposits to counterparties or exchanges to margin their open positions will be reflected as an operating use of cash to the extent the transfer occurs in a different period than the cash deposit was received.

Unrealized gains and losses on open positions revalued at prevailing foreign currency exchange rates are included in trading revenue but have no direct impact on cash flow from operations. Similarly, gains and losses become realized when client transactions are liquidated, though they do not affect cash flow. To some extent, the amount of net deposits made by our clients in any given period is influenced by the impact of gains and losses on our client balances, such that clients may be required to post additional funds to maintain open positions or may choose to withdraw excess funds on open positions.

We continuously evaluate opportunities to expand our business. Investing activities include $62.1 million in capital expenditures for property and equipment during the year ended September 30, 2021 compared to $16.6 million during the year ended September 30, 2020 and $11.9 million during the year ended September 30, 2019. Capital expenditures over the past three years have primarily included core information technology hardware acquisitions and leasehold improvements on office space. Following the acquisition of Gain we expect higher capital expenditures for future years primarily related to developing and creating additional features to various trading platforms.

In conjunction with the integration of Gain, we re-evaluated all trading systems utilized across the organization in order to identify duplicative systems. In connection with this process, we determined that certain legacy capitalized developed software costs within our OTC foreign exchange and precious metals businesses and would no longer be placed into service and utilized as expected prior to the merger with Gain. As a result, we recorded impairment charges of $5.7 million, which were reflected in Bad debts, net of recoveries and impairments on the Consolidated Income Statement for the year ended September 30, 2020.

Investing activities also include $2.4 million in cash payments for the acquisition of businesses during the year ended September 30, 2021 compared to $225.0 million during the year ended September 30, 2020. Further information about business acquisitions is contained in Note 21 to the Consolidated Financial Statements. These amounts were offset by smaller inflows related to sales of equipment and exchange membership stock of $3.1 million and $1.6 million, respectively.

During the years ended September 30, 2021, 2020 and 2019, we repurchased 185,366, 200,000 and 100,000 shares of our outstanding common stock in open market transactions, for an aggregate purchase price of $11.7 million, $7.5 million and $3.8 million, respectively.

On August 25, 2021, our Board of Directors authorized the repurchase of up to 1.0 million shares of our outstanding common stock from time to time in open market purchases and private transactions, commencing on October 1, 2021 and ending on September 30, 2022. The repurchases are subject to the discretion of the senior management team to implement our stock repurchase plan, and subject to market conditions and as permitted by securities laws and other legal, regulatory and contractual requirements and covenants.

Apart from what has been disclosed above, there are no known trends, events or uncertainties that have had or are likely to have a material impact on our liquidity, financial condition and capital resources.

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Contractual Obligations

The following table summarizes our cash payment obligations as of September 30, 2021:

[[GREPCENT_TABLE]]
[["","","","Payments Due by Period"],["(in millions)","Total","","Less than 1 year","","1 - 3 Years","","3 - 5 Years","","After 5 Years"],["Operating lease obligations","$","186.0","","","$","17.2","","","$","32.4","","","$","29.9","","","$","106.5"],["Purchase obligations(1)","5,123.0","","","5,123.0","","","\u2014","","","\u2014","","","\u2014"],["Payable to lenders under loans","248.6","","","240.5","","","1.1","","","7.0","","","\u2014"],["Senior secured borrowings","518.6","","","9.8","","","160.4","","","348.4","","","\u2014"],["Contingent acquisition consideration","3.9","","","3.9","","","\u2014","","","\u2014","","","\u2014"],["Other","78.7","","","15.2","","","29.8","","","20.8","","","12.9"],["","$","6,158.8","","","$","5,409.6","","","$","223.7","","","$","406.1","","","$","119.4"]]
[[/GREPCENT_TABLE]]

(1) Represents an estimate of contractual purchase commitments in the ordinary course of business primarily for the purchase of precious metals and agricultural and energy commodities. Unpriced contract commitments have been estimated using September 30, 2021 fair values. The purchase commitments for less than one year will be partially offset by corresponding sales commitments of $4,998.2 million.

Total contractual obligations exclude defined benefit pension obligations. We comply with the minimum funding requirements, and accordingly contributed $0.1 million to our defined benefit pension plans during the year ended September 30, 2021. During the year ending September 30, 2022, we anticipate making future benefit payments of $2.1 million related to the defined benefit plans. Additional information on the funded status of these plans can be found in Note 17 of the Consolidated Financial Statements.

Based upon our current operations, we believe that cash flow from operations, available cash and available borrowings under our credit facilities will be adequate to meet our future liquidity needs.

Off Balance Sheet Arrangements

We are party to certain financial instruments with off-balance sheet risk in the normal course of business as a registered securities broker-dealer, futures commission merchant, U.K. based financial services firm, provisionally registered swap dealer and from our market-making and proprietary trading in the foreign exchange and commodities and debt securities markets. These financial instruments include futures, forward and foreign exchange contracts, exchange-traded and OTC options, To Be Announced (“TBA”) securities and interest rate swaps. Derivative financial instruments involve varying degrees of off-balance sheet market risk whereby changes in the fair values of underlying financial instruments may result in changes in the fair value of the financial instruments in excess of the amounts reflected in the Consolidated Balance Sheets. Exposure to market risk is influenced by a number of factors, including the relationships between the financial instruments and our positions, as well as the volatility and liquidity in the markets in which the financial instruments are traded. The principal risk components of financial instruments include, among other things, interest rate volatility, the duration of the underlying instruments and changes in commodity pricing and foreign exchange rates. We attempt to manage our exposure to market risk through various techniques. Aggregate market limits have been established and market risk measures are routinely monitored against these limits. Derivative contracts are traded along with cash transactions because of the integrated nature of the markets for such products. We manage the risks associated with derivatives on an aggregate basis along with the risks associated with our proprietary trading and market-making activities in cash instruments as part of our firm-wide risk management policies.

A significant portion of these instruments are primarily the execution of orders for commodity futures and options on futures contracts on behalf of our clients, substantially all of which are transacted on a margin basis. Such transactions may expose us to significant credit risk in the event margin requirements are not sufficient to fully cover losses which clients may incur. We control the risks associated with these transactions by requiring clients to maintain margin deposits in compliance with both clearing organization requirements and internal guidelines. We monitor required margin levels daily and, therefore, may require clients to deposit additional collateral or reduce positions when necessary. We also establish contract limits for clients, which are monitored daily. We evaluate each client’s creditworthiness on a case-by-case basis. Clearing, financing, and settlement activities may require us to maintain funds with or pledge securities as collateral with other financial institutions. Generally, these exposures to exchanges are subject to netting of open positions and collateral, while exposures to clients are subject to netting, per the terms of the client agreements, which reduce the exposure to us by permitting receivables and payables with such clients to be offset in the event of a client default. Management believes that the margin deposits held as of September 30, 2019 are adequate to minimize the risk of material loss that could be created by positions held at that time. Additionally, we monitor collateral fair value on a daily basis and adjust collateral levels in the event of excess market exposure. Generally, these exposures to both counterparties and clients are subject to master netting agreements and the terms of the client agreements, which reduce our exposure.

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As a broker-dealer in U.S. Treasury obligations, U.S. government agency obligations, agency mortgage-backed obligations, and asset-backed obligations, we are engaged in various securities trading, borrowing and lending activities serving solely institutional counterparties. Our exposure to credit risk associated with the nonperformance of counterparties in fulfilling their contractual obligations pursuant to these securities transactions and market risk associated with the sale of securities not yet purchased can be directly impacted by volatile trading markets which may impair their ability to satisfy outstanding obligations to us. In the event of non-performance and unfavorable market price movements, we may be required to purchase or sell financial instruments, which may result in a loss to us.

We transact OTC and foreign exchange contracts with our clients, and our OTC and foreign exchange trade desks will generally offset the client’s transaction simultaneously with one of our trading counterparties or will offset that transaction with a similar, but not identical, position on the exchange. These unmatched transactions are intended to be short-term in nature and are conducted to facilitate the most effective transaction for our client.

Additionally, we hold options and futures on options contracts resulting from market-making and proprietary trading activities in these product lines. We assist clients in our commodities trading business to protect the value of their future production (precious or base metals) by selling them put options on an OTC basis. We also provide our physical commodities trading business clients with sophisticated option products, including combinations of buying and selling puts and calls. We mitigate our risk by effecting offsetting options with market counterparties or through the purchase or sale of exchange-traded commodities futures. The risk mitigation of offsetting options is not within the documented hedging designation requirements of the Derivatives and Hedging Topic of the ASC.

As part of the activities discussed above, we carry short positions. We sell financial instruments that we do not own, borrow the financial instruments to make good delivery, and therefore are obliged to purchase such financial instruments at a future date in order to return the borrowed financial instruments. We record these obligations in the consolidated financial statements as of September 30, 2021 and 2020, at fair value of the related financial instruments, totaling $1,771.2 million and $686.0 million, respectively. These positions are held to offset the risks related to financial assets owned, and reported in our Consolidated Balance Sheets in Financial instruments owned, at fair value, and Physical commodities inventory, net. We will incur losses if the fair value of the Financial instruments sold, not yet purchased, increases subsequent to September 30, 2021, which might be partially or wholly offset by gains in the value of assets held as of September 30, 2021. The totals of $1,771.2 million and $686.0 million include a net liability of $368.5 million and $176.8 million for derivatives, based on their fair value as of September 30, 2021 and 2020, respectively.

We do not anticipate non-performance by counterparties in the above situations. We have a policy of reviewing the credit standing of each counterparty with which we conduct business. We have credit guidelines that limit our current and potential credit exposure to any one counterparty. We administer limits, monitor credit exposure, and periodically review the financial soundness of counterparties. We manage the credit exposure relating to our trading activities in various ways, including entering into collateral arrangements and limiting the duration of exposure. Risk is mitigated in certain cases by closing out transactions and entering into risk reducing transactions.

We are a member of various exchanges that trade and clear futures and option contracts. We are also a member of and provide guarantys to securities clearinghouses and exchanges in connection with client trading activities. Associated with our memberships, we may be required to pay a proportionate share of the financial obligations of another member who may default on its obligations to the exchanges. While the rules governing different exchange memberships vary, in general our guaranty obligations would arise only if the exchange had previously exhausted its resources. In addition, any such guaranty obligation would be apportioned among the other non-defaulting members of the exchange. Our liability under these arrangements is not quantifiable and could exceed the cash and securities we have posted as collateral at the exchanges. However, management believes that the potential for us to be required to make payments under these arrangements is remote. Accordingly, no contingent liability for these arrangements has been recorded in the Consolidated Balance Sheets as of September 30, 2021 and 2020.

Effects of Inflation

Increases in our expenses, such as compensation and benefits, transaction-based clearing expenses, occupancy and equipment rental, may result from inflation, while we may not be readily recoverable from increasing the prices of our services. Rising interest rates are generally favorable for us, to the extent that inflation has other adverse effects on the financial markets and on the value of the financial instruments held in inventory, it may adversely affect our financial position and results of operations.

Critical Accounting Policies

Preparing consolidated financial statements in conformity with U.S. GAAP requires that management make estimates and assumptions affecting reported amounts of assets and liabilities, disclosure of contingent liabilities at the date of the financial statements, as well as the recorded amounts of revenue and expenses during the reported period. The accounting policies

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discussed in this section are those that we consider the most critical to the financial statements. Therefore, understanding these policies is important to understanding our reported and potential future results of operations and financial position.

Valuation of Financial Instruments and Foreign Currencies

Description

Substantially all financial instruments are reflected in the consolidated financial statements at fair value, or amounts that approximate fair value due to their short-term nature or level of collateralization. These financial instruments include: cash and cash equivalents; cash, securities and other assets segregated under federal and other regulations; securities purchased under agreements to resell; securities borrowed; deposits with and receivables from broker-dealers, clearing organizations, and counterparties; financial instruments owned; securities sold under agreements to repurchase; securities loaned; and financial instruments sold, but not yet purchased. Unrealized gains and losses related to these financial instruments, when we are principal to the transaction, are reflected in earnings.

Foreign currency translation is an estimate critical to consolidating in our reporting currency. The value of foreign currencies, including foreign currencies sold, not yet purchased, are converted into their U.S. dollar equivalents at the foreign exchange rates in effect at the close of business at the end of the accounting period. For foreign currency transactions completed during each reporting period, the foreign exchange rate in effect at the time of the transaction is used.

Judgment and Uncertainties

At each period end, we, using professional judgment and industry expertise, select fair values for financial instruments. Where available, we price from independent sources such as listed market prices, third-party pricing services, or broker or dealer price quotations. In limited cases, we use fair values derived from pricing models that consider current market and contractual prices for the underlying financial instruments or commodities, as well as time value and yield curve or volatility factors underlying the positions. In some cases, even though the value of a security is derived from an independent market price, or broker or dealer quote, certain assumptions may be required to determine the fair value.

Effect if Actual Results Differ From Assumptions

Our valuation assumptions may be incorrect, and the actual value realized upon closing any position could be different from estimated carrying value, because of changes in prices, assumptions, or the overall business environment. We do not believe that there is a reasonable likelihood that such a possibility will be significant. This view is supported by a few key factors:

•Valuations for substantially all of the financial instruments, most of which are in highly liquid markets, are available from independent, well-known publishers of market information.

•We have robust controls and procedures surrounding pricing and our various technologies involved in it.

•The relevant positions are generally short-term in nature.

•The Company holds positions in a wide range of products, such that an error in a limited number of prices is unlikely to cause a significant change to the overall result and pricing issues in a wide array of products is very unlikely.

Revenue Recognition

Description

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

A substantial amount of our revenues derive from Commission and clearing fees. These revenue types involve less complexity than Principal gains, net would, as, generally, we are an agent in the underlying transactions. We recognize revenues on a trade date basis for the transactions, as, typically, our obligation is met at that point and there are no future obligations to consider.

Revenue on commodities that are purchased for physical delivery to clients and that are not readily convertible into cash is recognized at the point in time when the commodity has been shipped, title and risk of loss has been transferred to the client, and the following conditions have been met: persuasive evidence of an arrangement exists, the price is fixed and determinable, and collectability of the resulting receivable is reasonably assured.

Judgment and Uncertainties

Judgments, outside of the valuation considerations previously discussed, relate to the timing and appropriateness of revenue recognition and whether we have fulfilled our performance obligations.

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Effect if Actual Results Differ From Assumptions

If we misapply the relevant guidance or incorrectly recognize revenue that we have not earned, earnings may be misstated. We do not believe that such a possibility is reasonably likely, because we have developed systems and controls for each of our businesses to capture all known transactions in the appropriate reporting period. In addition, the overwhelming majority of our revenue is recognized upon trade consummation, as our obligation is met, and we do not need to estimate when that may have occurred.

Income Taxes

Description

We are subject to income taxes in the U.S. and numerous foreign jurisdictions.

Judgement and Uncertainties

Judgment is required in determining the consolidated income taxes and in evaluating tax positions, including evaluating income tax uncertainties. As a result, the company recognizes tax liabilities based on estimates of whether additional taxes and interest will be due. These tax liabilities are recognized when, despite our belief that our tax return positions are supportable, we believe that certain positions may not be fully sustained upon review by the relevant tax authorities.

Income taxes are accounted for under the asset and liability method, recognizing the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled, with any change in tax rates recognized in income in the period that includes the enactment date. Management considers all relevant evidence for each jurisdiction to determine valuation allowances. If we change our determination as to the amount of deferred tax assets we expect to realize, we adjust our valuation allowance with a corresponding impact to income tax expense in the period in which such determination is made.

Effect if Actual Results Differ From Assumptions

We believe that our accruals for tax liabilities are adequate for all open audit years. This assessment relies on estimates and assumptions and may involve a series of judgments about future events. To the extent circumstances arise requiring us to change our judgment regarding the adequacy of existing tax accounts, we do not believe such a change is likely to be material to our financial statements. The tax accounts in total are relatively immaterial to the balance sheet, which, when combined with their likelihood of being misstated, particularly our valuation allowances given our positive earnings trend in recent years, results in a generally insignificant risk to us.

Accounting Standards Update

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)

2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU removes certain exceptions for

recognizing deferred taxes for investments, performing intra-period allocation and calculating income taxes in interim periods.

The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and

allocating taxes to members of a consolidated group. We intend to adopt this guidance during the three months ended December 31, 2021. We are currently evaluating the impact that this new guidance will have on our consolidated financial statements.