FXCM Completes Transaction Surrounding HFT Firm Infinium Capital Ahead Of Note Maturity

FXCM concludes transaction relating to ailing HFT firm Infinium Capital five months after acquiring $12 million note from investors, and launches joint venture firm V3 Markets

FXCM has announced the completion of its purchase of selected assets of Chicago-based high-frequency trading company Infinium Capital

Back in October 2013, LeapRate reported that investors in Infinium Capital had sold a $12 million note to FXCM with a maturity date having been set in March 2015. At that particular time, FXCM did not proffer any specific detail in relation to the note, including whether it had any claim to the recovery of its outlay at maturity.

During last week, information relating to the deal was made public as a result of FXCM’s results for the final quarter of 2013, that the company, along with one of its subsidiaries, had purchased five trading desks, whereas the remainder of Infinium Capital’s operations will be wound down.

V3 Markets is  the name which has been given to the new joint venture between FXCM and principals of Lucid Markets, with V3 Markets having hired a number of former employees of Infinium Capital.

The acquisition, according to FXCM, is intended to broaden FXCM’s subsidiary Lucid Markets Trading Limited  into a broader array of financial instruments and provide more robust connectivity to various financial exchanges. FXCM shall hold a 50.1% interest and the principals of Lucid will hold a 49.9% interest in the new venture. This new operation will combine the algorithmic strategies of Lucid to a broader array of instruments and should benefit from having a high speed network.

During the earnings call on March 6, FXCM CEO Drew Niv stated publicly that “We are covering another exciting opportunity for us in 2014 as we expand the Lucid platform that we acquired in 2012. One of the drivers of our original venture with Lucid was to seek out opportunities to expand our successful algorithmic trading into other markets, in particular futures markets, German bunds and U.S. Treasuries.”

“We recently completed the purchase of selected assets of Infinium Capital Markets, a high frequency market maker for options and commodities in FX based in Chicago. The assets were acquired by a new joint venture called V3 Markets we created with our Lucid partners. Lucid principals will have a 49.9% stake in V3 with obviously FXCM 50.1%, which is the same percentages as Lucid today.”

“V3 Markets provides FXCM and Lucid with an opportunity to expand into an additional array of instruments while leveraging high speed infrastructure with connections to a large and broad variety of trading platforms. V3 will operate a subset of the trading desks – of the legacy Infinium trading desks through its streamlined cost structure. We expect to be cash flow positive with a modest contribution in the first half of 2014 and more meaningful contributions in the second half of this year and beyond.”

“Two very important notes I would like to make about this business. The first is that this will diversify our exposure to volatility across many uncorrelated asset classes. As an example, with the crazy weather we’re having and Russian tanks roiling agriculture and energy markets, sparking massive volatility in those products, financial instruments like G10 currencies are completely unmoved and remain near record low volatility.”

“As 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, we have stayed in ultra conservative mode, but as Lucid implements its risk controls and other trading smarts into the V3 infrastructure, we will dialing up trading to take advantage of these uncorrelated volatilities.”

“Also as a result of the changes brought about in the U.S. and abroad by Dodd-Frank and Basel III, many OTC derivatives in FX, like options, NDFs and forwards, are migrating to exchanges. This trend has only just begun but is due to accelerate as these laws finally come to be implemented.”

“Both U.S. exchanges as well as ones in Dubai, Moscow, Singapore and others have seen massive growth in these complexes and the best is yet to come. This creates an opportunity for a leading non-bank market maker such as Lucid to break into areas that have been controlled exclusively by banks.”

“While we will not be giving specific guidance today, we hope to give you greater clarity on a cost run rate and revenue contribution on our next quarterly conference call, which is when you will first see the initial contribution from the V3 business as part of the Lucid line item” concluded Mr. Niv.

For more on the global Forex industry see the LeapRate-Dow Jones Forex Industry Report.

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