BY TOM POLANSEK
CHICAGO – High-speed trader Infinium Capital Management, which has struggled financially, has stopped trading and is working to wind down the company, President Mark Palchak told Reuters on Thursday.
The closure of Chicago-based Infinium reflects pressures on high-speed trading firms stemming from increased competition and regulatory oversight, low interest rates that have hurt volume and volatility, and the uncertain global economic recovery.
Currency broker FXCM Inc and a subsidiary have acquired five trading desks, physical assets and 48 employees from Infinium to start a new joint venture, V3 Markets, Palchak and FXCM said.
Palchak, who is chief executive of the new company, said the employees represented a majority of Infinium’s traders.
The total price for Infinium’s assets was not disclosed. It included approximately $11.9 million owed by Infinium to FXCM, according to the brokerage.
V3 Markets will operate with a “streamlined cost structure” compared to Infinium, FXCM’s chief executive, Drew Niv, said on a conference call after the company reported quarterly earnings.
The acquisition allows the company to expand into commodities and other markets and to diversify its exposure to volatility in uncorrelated asset classes.
“We are in the early stages of clearly rebuilding a business that is in need of a greater degree of risk supervision than it had in its prior life as Infinium,” Niv said.
Infinium had been among the higher-profile electronic trading groups and was a household name among Chicago traders. The firm traded in commodities, energy and other markets.
A favored tool of hedge funds and other institutional traders, high-speed traders uses algorithmic software programs to post orders in the blink of an eye.
Such firms thrived between 2009 and 2011, when market volatility was higher, there was less competition, and new regulations were just beginning to be understood, said Larry Tabb, founder and chief executive officer of the Tabb Group, a financial markets research firm.
Since then, costs and competition have grown and profitability has dried up, said James Angel, an associate professor at Georgetown University who specializes in financial markets.
“Its not surprising that we see various firms saying, ‘We’re out of here folks,'” he said.
Financial problems at Infinium date back years, according to a lawsuit filed against the firm in January in U.S. District Court in Chicago. The firm lost $6.6 million in 2012 and $6.1 million from January 1 to July 31, 2013, court documents say.
In the lawsuit, 31 former employees claimed Infinium leaders duped them into investing millions of dollars into the firm while hiding financial troubles. The lawsuit will continue after Infinium shuts down, and some settlement talks have begun, said Dan Voelker, an attorney representing former employees.
“We anticipated they would go out of business because they were losing money horrifically,” he said of Infinium.
Infinium last year shed a number of employees, including its chief operating officer.
Employees who have transferred to V3 Markets were still trading at the Infinium offices in Chicago, a spokeswoman for FXCM said. They will eventually move to a smaller space, she said.
Infinium’s website was down on Thursday, and three calls to its main phone number went into a general voicemail box. The company was founded in 2003, according to its LinkedIn page.
Exchange-operator CME Group Inc in 2011 fined Infinium a total of $850,000 for three separate computer malfunctions that rattled futures markets in 2009 and 2010. The enforcement action “was probably another thing that made it harder for them to stay in business, with this regulatory cloud over their head,” Angel said.
Rivals also have been under pressure. Trading companies Getco Holding Co and Knight Capital Group, which merged last summer to create KCG Holdings Inc, reported a quarterly loss in January due to merger costs.
In April 2013, Getco revealed that its profits plunged 90 percent in 2012 on the lower volume and volatility. In 2012, high-speed trading firm Eladian Partners went out of business.