Merchants Plus

Proprietary & Confidential Product Risk Disclosure

TABLE OF CONTENTS

Important Information about this Product

This Product Risk Disclosure (“PRD”) supplements the various disclosures that FCStone Merchant Services, LLC (“FMS”) has provided to you, in connection with your request to participate in the Merchants Plus Program (“MPP”).

This PRD is provided to you for informational purposes only, to describe the operations and risks associated with the MPP This is not an offer to sell or a solicitation of an offer to buy the MPP or any derivative or commodity. The information in this PRD, along with the additional disclosures provided to you, are intended to aid you in consultation with your tax, legal and other advisers in your decision of whether the MPP will meet your specific needs.

This MPP involves over-the-counter swaps, and therefore is intended only for knowledgeable and sophisticated persons who meet the regulatory criteria of an Eligible Contract Participant (“ECP”) as defined under Commodity Futures Trading Commission (“CFTC”) rules.

The MPP is available to such ECPs who wish to have FMS assist them in developing strategies to manage their crop price risk. Before participating in the MPP and trading swaps, you should take steps to fully understand the MPP and the way swaps work, generally, the characteristics and risks of swaps and specifically, how swaps will work in the MPP.

FMS and the INTL FCStone Inc. group of companies do not act in the capacity of your fiduciary. Certain information herein is derived from third party sources, which we have not independently verified. Prior to transacting swaps and participating in the MPP you are advised to undertake an independent review of the MPP and seek professional advice regarding the potential legal, tax, financial and accounting implications of swaps and the MPP to determine whether the MPP is suitable for you. Derivatives generally give rise to substantial risk and are not suitable for everyone. You may suffer large losses depending upon the nature, frequency and timing of changes in the levels of the referenced commodity, swaps and the MPP.

This information does not create a binding obligation on FMS or its affiliates to enter into any transaction with you. Nor does this information constitute investment research or a personal recommendation, or take into account your particular investment objectives or financial situation. The information in this PRD, including any opinions or illustrations expressed herein, is subject to change without notice. Material updates to the structure of this Product will be provided to you in a supplementary PRD.

Please refer to the Disclaimer below for additional details. If you have any questions about this Product, please contact your FMS account representative.


Product Description

Grain pricing pools are common market programs that allow grain and other soft commodity producers to transfer a portion of their crop pricing analytics to market professionals who possess trading and pricing expertise. The producers agree to accept the final futures price achieved in the program for the volumes of commodities that they have committed.

The MPP is a pricing program that allows elevators, merchants, and other entities that deal with producers but do not offer their own pool pricing program to offer similar economic benefits to their customers. For example, a hypothetical producer growing corn can commit to deliver their production to an elevator according to a price achieved through the MPP program. An FMS customer who is an elevator can enter into an MPP swap with FMS to receive or pay the appropriate amount to allow them to price their corn purchases from the farmer, accordingly.

To obtain the best possible price for its customers, FMS utilizes its pricing strategy committee to analyze the underlying commodity market and choose a range of strategies. Strategies utilize a mix of products and execution capabilities which may include but are not limited to over-the-counter options, commodity swaps, structured products that utilize derivatives and trading algorithms.

As part of the MPP pricing program, the customer agrees to receive (or pay) the outperformance (or underperformance) of FMS trading strategies compared to the price of a specified reference futures contract. The swap component of the MPP is structured as a “Floating-for-Floating” swap in which the customer (“receiver”) receives from FMS the value of the reference price per unit multiplied by the unit volume of the swap contract plus the “Customer Share” of any profits or losses realized by the trading strategy. The “Customer Share” is defined as the unit volume of the swap contract divided by the total unit volume committed to the strategy. The customer (“receiver”) pays to FMS the value of the reference future price per unit multiplied by the unit volume of the swap contract. The net payment received or paid by the customer will therefore equal only the “Customer Share” of the gains or losses. Calculation of the “Customer Share” and total committed volumes by strategy will be at the sole discretion of FMS. FMS reserves the right to change its calculation methodology from time to time.


Illustration under Hypothetical Market Scenario

By way of illustration, assume you are an elevator and your producers contract with you to participate in a single MPP strategy and delivery month with a committed volume of 200,000 bushels of corn. You and FMS agree to enter into a derivative contract with a 180-day term. FMS receives a total program strategy commitment of 2,000,000 bushels. Your “Customer Share” will be 10% of the gains or losses. If, on the last day of the term, the strategy accounts have lost $200,000 due to market fluctuations and the settlement price of the referenced corn futures contract is $3.80/bushel, you will owe FMS $0.10/bushel on the swap volume of 200,000 bushels or $20,000 plus any associated program fees. If, on the other hand, FMS receives a total program strategy commitment of 2,000,000 bushels, your “Customer Share” is 10% of the gains or losses and on the last day of the term, the accounts gained $200,000 due to market fluctuations and the settlement price of the referenced corn futures contract is $3.80/bushel, FMS will owe you $0.10/bushel on the swap volume of 200,000 bushels or $20,000 less any associated program fees.

The previous example is hypothetical only, and use prices and quantities to illustrate how the MPP may work under certain market conditions. To assess the merits of this MPP or any structure, you must use actual prices and quantities that are applicable to your situation. Past performance is not a guide to future performance, future returns are not guaranteed. The MPP contains leverage, which poses the risk of significant loss. You should take this into consideration, in addition to the hypothetical results illustrated herein.


Suitability

Certain risk and reward characteristics inherent in this MPP may affect its utility to you as a risk management tool. The MPP is designed for elevators or similar businesses which are exposed to a long position, directly or via their customers, in physical commodities which they wish to hedge. This MPP may not be suitable as your exclusive risk management tool. Swaps and structured products are not suitable for all investors. Participants may have an unlimited loss.

You are advised to undertake an independent review of the potential legal, tax, regulatory and accounting implications of the MPP and any underlying instruments or derivative transactions to determine whether the MPP, derivatives trading in general, or any particular structure would be suitable for you.

FMS is acting in its capacity as a transaction counterparty and is not undertaking to assess the suitability of this MPP or any OTC derivative or swap as defined under CFTC rules or instrument or trading strategy involving a swap for you. Please refer to the relevant trade documentation, which will incorporate Schedule 3 of the ISDA August 2012 Dodd Frank Supplement, for further details.


General Risks

You should refrain from entering into this MPP or any derivative transactions unless you fully understand the associated credit risk, market risk, liquidity risk, funding risk, operational risk, legal and documentation risk, regulatory risk and tax risk. You should also fully understand the extent of your potential loss. In evaluating risk, you should consider that an OTC derivative transaction may only be modified or terminated subject to mutual agreement, which may prevent you from modifying, terminating or offsetting your obligations or limiting your exposure to risk prior to scheduled termination of the transaction. FMS reserves the right to consent to any modification or termination. FMS’s ability to fulfil its obligations to you is dependent upon FMS’s credit standing, the effectiveness of FMS’s internal systems, processes and procedures, which may pose operational risk. As with any contractual agreement between two parties, if FMS were to default on its obligations to you for any reason, you may be unable to recover unpaid amounts due to you. Leverage may create exposure to substantial gains or losses in response to relatively small market fluctuations.

FMS directs you to the additional risk disclosures outlined in the (i) ISDA Disclosure Annex for Commodity Transactions; (ii) ISDA General Disclosure Statement; and (iii) ISDA August 2012 Dodd Frank Supplement, provided to you in advance of transacting the MPP with FMS.


Fees and Charges

There are no up-front costs to trade the MPP. FMS's fee for structuring the MPP is included in the total cost. Fees and charges are based on agreed upon price levels, the size and term of the MPP and market.


Maturity

Depending on the terms of the MPP, at maturity, you will receive the net value of the underlying swap legs, which may be a loss, which would be owed to FMS. Alternative settlement arrangements such as EFR can be made if agreed prior to the settlement date.


Termination before Maturity; Impact on Valuation

This MPP may be modified or terminated at FMS’s sole discretion. If you request to modify or terminate the MPP prior to maturity, FMS will provide you a quote adjusted to reflect prevailing market rates over the remaining investment term of the MPP, that you will be required to pay.


Required Documentation

Prior to transacting the MPP, you will be required to complete FMS’s account opening documents, provide supporting documentation, and execute an International Swaps and Derivatives Association (“ISDA”) Master Agreement, or equivalent documentation such as FMS’s International Terms of Business and related risk disclosures, annexes, statements and schedules, which set out the terms and conditions that will apply to all transactions between you and FMS, including transactions in the MPP. When reviewing the documentation, and prior to execution, please consult your independent tax, legal and regulatory advisers.


Trade Confirmations

FMS will issue a MPP transaction confirmation outlining the commercial terms of each transaction that occurs during the term of the ISDA Master Agreement or International Terms of Business. It is important that you immediately review the terms of each transaction confirmation to determine if it accurately reflects your understanding of the terms of the transaction. If you believe there is any discrepancy between your understanding of the transaction and the terms reflected in the confirmation, you must contact FMS within 24-hours of receiving the confirmation, or you are deemed to consent and agree to the terms reflected in the transaction confirmation.


Tax Implications

The tax laws are complex and the regulatory impact of the tax laws will depend upon your particular financial and tax circumstances. When determining the tax aspects impacting whether this MPP is suitable for you, please consult your independent tax adviser.


Proprietary & Confidential Information

This PRD and its contents are the proprietary, exclusive, valuable and confidential trade secret of FMS. You have received this PRD on condition that you shall not copy, update, transfer, sell, reproduce, republish, broadcast, distribute or create derivative works based on or otherwise modify, in any manner, all or any part of this PRD. In the event of any misuse of this PRD or its contents, money damages would not be a sufficient remedy and FMS shall be entitled to equitable remedies in addition to all other remedies available at law or in equity.


Disclaimer

About FCStone Merchants Services, LLC

FCStone Merchants Services, LLC (FMS), a subsidiary of INTL FCStone Inc. The INTL FCStone Inc. group of companies conducts a global full-service, integrated commodity, futures, derivatives trading and risk-management business.

Conflicts of Interest Policies

INTL FCStone Inc. has adopted policies designed to preserve the independence of our research analysts. These policies prohibit non-research personnel from influencing research personnel to issue favorable research or offer to change a research rating or price target as consideration for an inducement to obtain business or other compensation. Our research department may provide research, market commentary and general or specific analyses as may be requested from time to time by our clients, which may reflect opinions that are contrary to the illustrations in this PRD. The INTL FCStone proprietary trading desks and investing businesses may make investment decisions that are inconsistent with the materials in this PRD. INTL FCStone Inc. and its affiliates, officers, directors, and employees, will from time to time have long or short positions in, act as principal in, and buy or sell instruments the derivatives that are identical or economically related to the derivatives referred to in this document. INTL FCStone Inc. and its affiliates may from time to time take proprietary positions and make a market in instruments identical or economically related to derivative transactions entered into with you, or may have an investment banking or other commercial relationship with and access to information from the issuer(s) of securities, financial instruments or other interests underlying derivative transactions entered into with you. INTL FCStone Inc. and its affiliates may choose to hedge their obligations by trading in derivatives. The costs associated with hedging activity could affect the market value of, or the price at which we would be willing to enter into a transaction. Further, we may internalize and match order flow or route it externally for execution. If we choose to match orders internally, our compensation is greater than if we execute the order externally. INTL FCStone Inc. and its affiliates make no representation, warranty or guarantee as to, and shall not be responsible for, the accuracy or completeness of the information contained in this presentation and have no obligation to update the information.

General Informational Material

This document is not an offer to sell or a solicitation of an offer to buy any derivative, including the MPP. This document does not constitute a commitment to enter into any derivative or trade the MPP, and does not create a binding obligation on FMS or any of its affiliates. This document does not constitute investment research or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of any individual or recipients of this PRD. You are directed to seek professional and tax advice prior to entering into any derivatives transaction.

Risks

Risks presented by commodities, futures (and options thereon), swaps and other OTC derivatives depend upon the terms of the transaction and your circumstances. structured MPPs are not suitable for all investors. Derivatives generally involve credit risk, market risk, liquidity risk, funding risk, operational risk, legal and documentation risk, regulatory risk and tax risk. You should refrain from entering into a derivatives transaction unless you fully understand the risks, including the extent of your potential loss. In evaluating risk, you should consider that an OTC derivative transaction may be modified or terminated only by mutual consent of the original parties and subject to agreement on individually negotiated terms. Accordingly, it may not be possible for you to modify, terminate or offset your obligations or your exposure to the risk associated with a transaction prior to its scheduled termination date.

Leveraged transactions may create exposure to substantial gains or losses in response to relatively small market fluctuations.

Any illustrations provided are strictly hypothetical and no representation is being made that any person will, or is likely to achieve profits or losses similar to those examples.

You are advised to undertake an independent review of the potential legal, tax, regulatory and accounting implications of the MPP and any derivatives transaction to determine whether derivatives or the MPP or any particular structure would be suitable for you, and if necessary seek professional advice. FMS acts solely in the capacity of an arm’s length counterparty and not in the capacity of your financial adviser or fiduciary.

This document has been prepared solely for private informational purposes for the pre-qualified eligible contract participants to whom it was distributed. Prior to undertaking any transaction, you should discuss with your legal, tax or other adviser how a particular transaction may affect you.

Any opinions expressed herein are subject to change without notice and certain information is based upon information from third party sources which we have not independently verified.

No part of this document may be (i) copied, photocopied or duplicated in any form by any means or (ii) redistributed without the prior written consent of INTL FCStone Inc.

© 2016 INTL FCStone Inc. All Rights Reserved.