On September 10, StoneX Group (NASDAQ:SNEX) and DeltaTerra Investments rolled out a synthetic credit structure built around Agency mortgage bonds issued through Fannie Mae’s Connecticut Avenue Securities program and Freddie Mac’s Structured Agency Credit Risk program. The deal lets institutional investors get exposure to that credit risk through a credit default swap instead of buying the underlying bonds outright. It lands just weeks after StoneX posted a blowout quarter, with net operating revenue up sharply and net income more than doubling. The two stories, a new product launch and a strong earnings print, are more connected than they first appear.
A Business Firing On Every Cylinder
StoneX’s fiscal third quarter showed growth almost everywhere. Net operating revenues climbed 47% year over year to $719.7 million, and net income more than doubled to $127.9 million, pushing diluted earnings per share to $1.00. Return on equity rose to 18.4% from 13.1% a year earlier, a sign the extra capital StoneX has been putting to work is generating better returns rather than just padding the balance sheet.
The Commercial and Institutional segments did the heavy lifting. Commercial segment income jumped 119% to $181.4 million, while Institutional income rose 49% to $129.9 million, helped by a 73% jump in listed derivatives contract volumes company-wide. CEO Philip Smith pointed to the integration of the R.J. O’Brien acquisition as a driver of that strength, and the numbers back him up: StoneX now describes itself as the largest non-bank futures commission merchant around. Net asset value per share climbed to $23.70 from $20.25 over nine months, so the balance sheet is compounding alongside the income statement.
The DeltaTerra transaction fits the same growth story. Rather than just brokering trades, StoneX designed a structure for transferring Agency credit risk and positioned itself as the advisor behind a new corner of the mortgage market. With roughly $19 billion of CRT bonds becoming callable by the end of the third quarter of 2027, StoneX has built a product aimed at a market event that is already on the calendar.
Where The Growth Gets Expensive
Not every part of the business is expanding. The Self-Directed/Retail segment went the other direction, with operating revenue falling 13% to $96.3 million and segment income dropping 36% to $24.9 million, as principal gains and consulting fees both declined. That is a reminder that StoneX’s growth is concentrated in its institutional and commercial trading businesses rather than spread evenly across the company.
Growth is also getting more expensive to fund. Total interest expense rose 31% to $510.9 million for the quarter, driven by a bigger securities repo and lending book plus higher client balances inherited from R.J. O’Brien. Variable expenses, including compensation and clearing costs, climbed to 60% of total non-interest expenses from 53% a year earlier. Corporate funding costs rose too, after StoneX issued $625 million of notes due 2032, adding a fixed cost that sits on the books regardless of how trading volumes swing.
The DeltaTerra structure carries its own uncertainty. It is StoneX’s transaction of this kind with this particular partner, and the companies describe it as built for repeatability rather than as an already-scaled business line. Whether it becomes a recurring revenue source or a one-off deal tied to one counterparty’s view on mortgage credit is not something the numbers can answer yet.
What The Positioning Says
Hedge funds have been adding to StoneX, with the number of funds holding a stake rising from 32 to 36 in the most recent quarter, a shift toward more institutional conviction. Short interest sits at 4.74% of the float, which is on the low side and suggests little organized skepticism toward the stock. That combination, more funds buying in against light bearish positioning, points to a market that is largely comfortable with the growth StoneX has been posting rather than bracing for a reversal.
The Setup From Here
StoneX has spent the past year proving it can grow revenue, income, and book value at once, while also building new structured products around a mortgage market about to see a wave of bonds come up for call. For the bulls, the R.J. O’Brien integration and the DeltaTerra structure both look like evidence that management can turn scale into new revenue lines instead of just bigger versions of the old ones. For the bears, a shrinking retail segment and climbing interest and compensation costs show that this growth is not free, and much of it still depends on trading and financing markets staying favorable.
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