ILQ, a solution provider for corporate and institutional trading firms in the currency markets, announced that it is to acquire Velocity Futures, LLC (Velocity) a leading Futures Commission Merchant (FCM) regulated with the National Futures Association (NFA) in the United States. The announcement was made in an email notification to clients of Velocity, informing them that their current accounts at Velocity Futures will be transferred to ILQ in October.
ILQ’s acquisition couldn’t have been better timed, as a further four major aquisitions in the derivatives market took place this week. ILQ’s acquisition of Velocity Futures is an interesting purchase by the firm. ILQ currently focuses on institutional level clients, however, with Velocity’s business, the firm signals a move into the active/ professional trader segment.
ILQ, a Michigan-based firm reported to the regulators that it held $13.4 million in retail client assets in July, positioning the firm in eighth place out of 11 reporting brokers (August figures will show ten brokers after the departure of Alpari US).
Velocity Futures, an established broker since 2002, specializing in low cost trading for active traders has been under the regulatory radar in August 2013. The firm was fined $300,000 by the US financial watchdog after it found the firm guilty of breaching rulings in relation to capital adequacy. Details in the order state, “Velocity failed to meet its minimum adjusted net capital requirement, because it failed to properly account for certain events relating to two arbitration awards issued by the National Futures Association (NFA) on June 16, 2011, against Velocity and its Chief Executive Officer (CEO), and Velocity’s subsequent settlement of those awards for $2 million.”
Velocity Futures was ranked in 49th place in the top 50 futures brokers for 2012 by Futures Mag, the industry publication. The firm held $85 million in client assets in 2012.
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The transfer of clients is expected to take place next month. The email notification to Velocity’s clients states, “Transfer of your Customer Agreement will occur on October 11, 2013, whereupon any funds or open positions in your account will be transferred to ILQ, and your Velocity account will be closed. All platforms, passwords and access codes for your accounts will be transferred to provide you with the least interruption in your trading. After the transfer, Velocity’s portals will remain operational for you to access any past account information.”
Velocity’s clients who do not wish to carry on business with the firm’s purchaser can do so by liquidating their positions, as stated by Velocity in the email.
The US futures market is believed to have suffered at the hands of the rising OTC spot FX market from the mid-2000’s onwards. In addition, the futures market has had to deal with major confidence breakers after the collapse of Refco, MF Global and PFG Best. In a bid to save the futures market, the NFA retaliated with certain measures that will reduce the attractivenesses of spot FX, including the reduction in leverage and restrictions on order types, however, the damage to the futures market at large seems to be deepening, reinforced by the latest M&A activity.
On the other hand, ETFs have been expanding their presence over the last decade, as retail investors have been diversifying their portfolios to include the listed product, and in a recent survey carried out by the Investment Company Institute in May 2013, there were $1.48 trillion assets invested in ETFs.
Velocity Futures will continue operating in the market as an Introducing Broker of ILQ.