FCStone brokerage boss quits amid stress from regulations -CEO

CHICAGO Thu Feb 6, 2014 4:54pm EST

CHICAGO Feb 6 (Reuters) - The head of INTL FCStone Inc's futures brokerage has resigned because the stress from new regulations and difficult market conditions became too intense, the chief executive of the broker's parent company said on Thursday.

Peter Nessler Jr. quit as president and chief executive officer of FCStone LLC, the company's futures commission merchant (FCM) subsidiary, according to a regulatory filing. Nessler, who joined the company in 1982, also left his job as executive vice president of commodities for New-York based INTL FCStone effective Feb. 1.

"Pete did a fantastic job, but I think he found it incredibly stressful," INTL FCStone Chief Executive Sean O'Connor told Reuters.

"I think he basically came to the conclusion that he had done what was asked of him, and it was time for him to do something else. He just said it's a lot of stress; it's a lot of work."

Nessler could not be reached for comment.

Small and mid-size FCMs and their executives have been under pressure for years from dwindling profits as electronic trading, the rise of the hedge fund and rapid-fire algorithmic trader, and the slump in interest rates have upended their century-old business model.

New regulations imposed as part of the Dodd-Frank financial overhaul have made it even more expensive and complicated to run FCMs, which execute orders to buy or sell commodities contracts on behalf of clients and can extend credit to customers entering into the positions.

Nessler became president of FCStone LLC in 2010, following a merger the previous year between International Assets Holding Corporation and FCStone Group that created INTL FCStone. He added the title of CEO of FCStone LLC in 2012.

"Pete took over at a tough time," O'Connor said. "He came to me and he said, 'This is tough.' And I said, 'Maybe this is the time to put the next step in place.'"

Xuong Nguyen, INTL FCStone's global head of operations, replaced Nessler as head of the FCM subsidiary. Nguyen came to the company in 2009 from MF Global, a rival FCM that collapsed in 2011 after allegedly looting customer money to try to stay afloat.

The rise of screen-based trading has hurt FCMs by cutting down on the need for floor brokers, and the advent of high-frequency traders and big hedge funds drove more business toward big banks equipped to handle the flow. In recent years, the extension of near-zero interest rates eradicated hope of a rebound in a key source of income: interest on customers' margin.

New reforms pushing the vast over-the-counter derivatives market onto exchanges offer new trading opportunities, but also introduce complex and costly new regulations.

"A lot of the rules that have come about have added significant costs to the FCM community and trying to make that back has become a real struggle," said Matt Simon, senior analyst for Tabb Group, a financial market research and advisory firm.

FCStone, which has many farmers for clients, faced additional financial pressure from a historic U.S. drought in 2012 that reduced the amount of grain available for hedging last year. Massive harvests in 2013 have replenished supplies.

Another hit came in May 2013 when the U.S. Commodity Futures Trading Commission (CFTC) fined FCStone LLC $1.5 million for failing to properly supervise employees in 2008 and 2009. The FCM was forced to take over an account that a customer could not afford to maintain, and ultimately lost about $127 million, the agency said.

As of Nov. 30, the FCM had $1.6 billion in required customer segregated assets, according to CFTC data.

In December, a different subsidiary of the company said it had overstated trading revenues for three years due to an accounting error.

INTL FCStone is set to report financial results for the first quarter of fiscal year 2014 on Monday. In the fourth quarter of fiscal year 2013, net operating revenues were $70.2 million, down 11 percent from the same quarter a year earlier.

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