Good day, ladies and gentlemen and welcome to the INTL FCStone Q2 FY 2017 Earnings Conference Call. At this time, all participants are in a listen only mode. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. It's now my pleasure to hand the conference over to Mr. Bill Dunaway, Chief Financial Officer. Sir, you may begin.

Good morning. My name is Bill Dunaway, CFO of INTL FCStone. Welcome to our earnings conference call for our fiscal second quarter ended March 31, 2017. After the market closed yesterday, we issued a press release reporting our results for the fiscal second quarter. This release is available on our Web site at www.intlfcstone.com, as well as a slide presentation, which we will refer to on this call in our discussions of the quarterly and year-to-date results. You will need to sign on to the live webcast in order to view the presentation. Both the presentation and an archive of the webcast will also be available on our Web site after the call's conclusion. Before getting underway, we are required to advise you and all participants should note that the following discussion should be taken in conjunction with the most recent financial statements and notes thereto, as well as the Form 10-Q filed with the SEC. This discussion may contain 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, which are detailed on our filings with the SEC. Although the Company believes that its forward-looking statements are based upon reasonable assumptions regarding its business and future market conditions, there can be no assurances that the Company's actual results will not differ materially from any results expressed or implied by the Company's forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Readers are cautioned that any forward-looking statements are not guarantees of future performance. With that, I will now turn the call over to Sean O'Connor, the Company's CEO.

Thanks, Bill. Good morning, everyone and welcome to our fiscal 2017 second quarter earnings call. On our first quarter earnings call which was three months ago right after the election, I indicated that the surprise Trump result would generally be positive for our business with more volatility in the financial markets. I certainly couldn’t have been more wrong about volatility and while the equity markets hit new highs and political uncertainty and perhaps even turmoil seems to exist here and abroad, the volatility index dropped to multiyear and perhaps even decade year lows in some markets. Volatility is one of the major drivers for our customer activity and thus our revenues. From this perspective, this was a very difficult quarter for us on a macro basis. Given the tough macro environment, we managed to achieve an acceptable result with a net earnings of $11 million or $0.58 per share. This was well below our medium-term expectations, however better than both the prior year and the immediately prior quarter, if we exclude the mark to market impact of our interest-rate program. Some highlights for the quarter. Bill will provide more details later. Overall our segment income was up 15% with all segments showing better than 25% quarter on quarter growth, except for securities which was down 36%. Securities was down due to a strong comparative quarter which included record results for our equity market making business as well as exceptional gains made in Argentina due to abnormal market conditions there. Commodity hedging, our largest segment, recorded segment income up 36% driven by increased OTC revenues which is a reversal of recent trends there. Global payments continued its strong growth with a 52% increase in transactions while revenue capture per trade dropped 19% as we continue to see a greater number of…

Thank you, Sean. I will be referring to slides in the information we have made available as part of the webcast. Specifically starting with Slide number 3, which represents a bridge between operating revenues for the second quarter of last year, the current year of fiscal second quarter. As noted on the slide, second quarter operating revenues were $195.8 million, which is a $29.7 million increase over the prior year. Looking at the performance in our operating segments, the most notable change was a $30.9 million or 93% increase in our clearing and execution services segment. This was primarily related to the acquisition of the Sterne Agee Correspondent Securities Clearing and Independent Wealth Management businesses as well as the ICAP voice brokerage business. Which collectively added incremental operating revenues of $31.9 million in the current quarter. The second largest increase in operating revenues was in our commercial hedging segment, which added $8 million in operating revenues as exchange traded and OTC revenues grew 7% and 24% respectively, while interest income increased 62% to $3.4 million. The exchange traded revenue grew as a result of increases in customer volumes and the agricultural food service markets, while OTC growth was driven by higher domestic and South American grain volumes. In addition, global payments operating revenues increased $4.1 million or 24% off the back of a 52% increase in the number of payments made, albeit somewhat offset by a 19% decline in the average revenue per payment. Physical commodities operating revenues added $3.3 million over the prior year as the physical Ag and energy business added $2.5 million and the precious metals business increased $800,000 over the prior year. These gains were offset by a $7.7 million decline in our securities segment, roughly half of this decline was in equity market making which…

Thanks, Bill. While we are disappointed with our Q2 and year-to-date results, we believe that these are acceptable given the very low volatility environment we have experienced. This is a testament to our diverse and growing client base and a focus on keeping costs variable. We believe that it is unlikely that volatility will remain at current levels for an extended period and the continued withdrawal of the fed and other central banks from the market should encourage increased volatility levels. The increase of interest rates and the prospects of more hikes are big positives for us. We continue to see consolidation in our part of the market which is generally positive and allowing us to expand our customer footprint. We stand poised to become a best in class franchise offering our global customers high quality execution, both in the high touch and electronic arenas, insightful market intelligence and post-trade clearing services in almost all markets and asset classes. This is a comprehensive array of products and services, which should allow us to take advantage of the large and noticeable, and as yet unfilled void in the market created by the demise of certain larger financial franchises during the financial crisis. So with that, I would like to turn back to the operator to open the Q&A session. Operator?

[Operator Instructions] Our question will come from the line of Greg Eisen with Singular Research. Please proceed.

Regarding the prospect of future interest rate hikes, do you still forecast the same relative effect on your return on equity? I guess all else equal, from those interest rate hikes, if we get, say, four hikes this year including the one we just had.

Well, I don’t think we want to be in the business of predicting how many interest rate increases we get. But the math remains the same. If the delta on the interest rates increases by that amount, we should see that amount of earnings accrued to us incrementally. So the math is exactly the same. You just got to look at the delta and assume how much further we are going to go up from here and you can do the math on what we think that means for us in terms of earnings.

Okay. I understand that. And your decision to end your interest rate program with the treasuries and this actually led your float, your cash float with the interest rates -- short term rates as they move. Is that a main driver of these expectations?

Now, I am not sure I exactly follow the question. Again, what we were really trying to do is increase and enhance our earnings from that float three years ago, when in some quarters we were earning three basis points on short-term T bills and money market funds, right. So we decided to ladder out our program. I forget, we had started exactly, we probably went from -- for that portion, we went from three basis points to kind of 30 basis points. And then as the program matured and we rolled the ladder over, we eventually and steadily increased the point to where last quarter it was earnings us 108 basis points. The problem is, the short-term curve or the short-term end of the curve has gone from three basis points to, in some instances, we are earning 90 basis points. So the enhancement we were receiving from our interest rate program had eroded to the point where we couldn’t justify the allocation of capital to that program, because taking on those treasury positions required us to put more capital into our business for regulatory haircut. So at that point it was just a capital allocation decision. We weren't making the right return, fortunately. We could exit that program without crystallizing any material losses or gains either way and we probably now, for a short period of time, we are going to earn slightly less than we were earning. But if we get one interest rate increase, we will be in a better position than we would have been. And from there on, we are just going to be incrementally better in terms of interest rate increased. So that was really our logic. It doesn’t mean we don’t think that program worked. We think the program worked fantastically well for us. We recorded pretax earnings of $15 million over a three year period which we would not have seen and if the yield curve steepens again, then it will be appropriate for us to look to allocate capital once again to enhance the earnings from that float. So this is just our attempt to continuously try and manage and maximize the earning we get from the endowment we get from our customer, which is the customer float. So I guess that’s how we thought about it.

Got it. Totally unrelated question. Looking at compensation and benefits, the rise this quarter versus last year and I guess versus my expectations. Is that rise strictly a matter of variable compensation or is that something that is you should consider, again a fixed increase.

Well, I will let Bill give you the details, but a large portion of that came from the addition of Sterne Agee and ICAP. And remember in the ICAP financial reporting, we have about $900,000 a quarter which was really part of the purchase price. It was -- we agreed with the vendor or the seller of that business that we would pay an amount upfront and over a period of time to secure the team to move over to us with some sign on bonuses. A onetime thing. That’s about $900,000. So that is sort of a somewhat temporary item. But I believe the rest of it is all related to our acquisition. So, Bill, do you have any more color on that? I don’t have the numbers in front of me.

Yes. It was about 17% versus last year and 7% of that was variable. And that is coming from higher net operating revenues in the business. But the fixed portion of it was up $8.8 million and of that $8.8 million, $3.6 million of it came from Sterne Agee business acquisition, another $1.4 million came from the ICAP voice brokerage business we acquired. And then the other remainder is $1.9 million came from the expansion of our IT. We spoke for a couple of quarters here now about, we have been expanding our IT operations to just get smarter and better in that area. And this has led to increase in headcount, so that was up about 1.9 versus in the same period last year.

Our next question will come from Russell Mollen with Nine Ten Capital. Please proceed.

Do you have any unique insight on what could be driving, or some of the factors driving such low volatility, or record low volatility these days or any sort of anecdotal things you have seen in your business that sort of has surprised you in regard to that low volatility?

Well. I think you have to ask smarter guys then us. I mean you just need to turn on [indiscernible] and everyone is talking about the extraordinary low volatility. And obviously it's sort of confounding at some levels. So I don’t have any good insight other than I am sort of totally, kind of puzzled by it all. You do see I think a pretty volatile environment around this, both domestically and externally from sort of a political point of view. You also see that the fed is starting to withdraw and I am a firm believer that the fed and the central banks during the financial crisis, there intervention in the market, I think by design dampened volatility. So if you look at volatility throughout the financial crisis, it's definitely in a much lower level than it was prior. So they are starting to exit. So as I said in the prior quarter, I was sort of hoping for increased volatility because all of the things that I think drive volatility was sort of in place. A little bit of uncertainty, sort of a new administration in place, fed withdrawing from the markets. A little bit of concern over Brexit and French elections. I mean sort of like teed up perfectly for more volatility but couldn’t have been more wrong. So I am really not sure, Russell, it's vexing. But at the end of the day we control the things we can control and that is to keep growing our customer base to get the biggest share of wallet we can to serve our customers. Take advantage of opportunities to expand into new areas and at the end of the day when the volatility comes back, and it will, if we have done all those things, we will see a greater revenue stream as a result. So all we can do is manage what we can manage, I guess. But if you have any good ideas, let me know. [indiscernible] can be smart on that one.

Thank you. Our next question will come from the line of Will Settle with Woodmont. Please proceed.

You had, with the volatility comments and obviously the previous questioner, kind of tend to be scratching his head a little bit too. But what strikes me is in the quarter, given this environment, still to the 9.8 ROE, so I guess my question is, has your business model evolved such that you are a little less dependent on that volatility and thus how do you think about the 15% kind of target and what maybe the upside is with the environment where you do see volatility.

So it's an interesting comment. I am actually down here in Birmingham. We just finished our board meetings this weekend. We were talking about it and I think our general view was, if we had had this level of volatility may be three years ago, we would have had a much worse quarter for sure. So I do think our business has scaled up a little bit, which helps. I think our business is more diversified than it has been previously. We have made some good acquisitions in businesses that I think are less co-related to what we already do. So I think all of those things support what you said and nice of you to say that we appreciate it. I do think this was a good result given the macro environment. You know it doesn’t make it any easier for us as management to accept or like that but I do think it was a good result given the macro environment. And I do think we have seen quarters over the last year or two where we have come closer, so we exceeded our 15% ROE. And I think in a more normal environment, we would be there this quarter, if we had some volatility. And then of course you have got interest rates starting to kick in for us. So I think generally we remain positive. We think our business is very well placed and we can manage what we can manage and control what we can control. And the rest of it we just have to assume that in the long-term, conditions are setting up for a better environment for us generally. But that may not hold quarter-to-quarter or every quarter.

Thank you. And I am showing no further questions at this time. So now it is my pleasure to hand the conference back over to Mr. Sean O’Connor, Chief Executive Officer, for closing comments and remarks. Sir?

Okay. Well, thanks very much everyone. I appreciate your time and interest and we will be speaking to you in three months time. Thank you.

Ladies and gentlemen, thank you for your participation on today's conference. This does conclude the program and you may all disconnect. Everybody have a wonderful day.