Broker-Dealer IPO Time: Electronic Trading Firm Virtu Financial Tries Again

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BrokerDealer.com blog update profiles the second swing at the IPO bat by high-frequency-trading firm Virtu Financial Inc. The coverage is courtesy of TradersMag republishing of story from Bloomberg LP —

(Bloomberg) -Virtu Financial Inc., which delayed its initial public offering amid a furor over high-frequency traders, said it plans to raise as much as $314 million in a share sale.

The company will offer about 16.5 million shares at $17 to $19 apiece, according to a regulatory filing Monday. At the high end of the offering range, Virtu would be valued at about $2.6 billion, based on 136.5 million shares outstanding, the amount if all classes convert to Class A, the document shows. All of the shares are being sold by the company, rather that existing investors.

The filing precedes formal marketing of the deal, a process that was delayed after “Flash Boys,” the Michael Lewis book released in March 2014, alleged that high-speed traders, Wall Street brokerages and exchanges have rigged the $24 trillion U.S. stock market. Amid the heightened scrutiny caused by the book and various regulatory investigations, officials involved in the offering decided to shelve the deal.

Virtu’s revenue last year was $723 million according to the filing, an 8.8 percent increase from 2013. Net income rose to $190 million from $182 million the previous year. The 148- employee company, which uses computerized strategies to buy and sell everything from stocks to currencies, has had only one losing days in its six years of operation.

“Over a million times day, we’re not making money,” Chief Executive Officer Doug Cifu said at an industry conference last June. “But when you add up the volume of instruments that we trade, the tens of thousands of strategies that we trade in all the different marketplaces, it’s simply the law of large numbers, and, as a result, yes, we are profitable every day.”

Virtu has thrived as two decades of market reform and computer advances helped automated traders largely supplant humans on the floors of exchanges around the world. The company’s main business is market making, using software to provide standing offers to buy and sell stocks and other securities.

The past year has seen the departure of Virtu’s President, Chris Concannon. He left for Bats Global Markets Inc. in November and became CEO of the exchange operator on March 31.

Worldwide Expansion

Virtu started in 2008 by trading U.S. stocks and has since expanded worldwide and into assets including government bonds, currencies and futures. The firm makes markets in more than 11,000 securities and other financial products, trading on more than 225 exchanges in 34 countries, according to its filing.

Electronic market-making firms such as Virtu use automated systems to earn money off the prices that buyers are willing to pay and sellers are willing to offer. They depend on scale to make money given the compression between bids and offers during the past decade.

 

Indian Startups Gather Interest and Venture Funding From BrokerDealers Everywhere

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Brokerdealer.com blog update profiles  Indian start up companies collecting interest from brokerdealers around the world for comapny funding. This brokerdealer.com blog update is courtesy of Wall Street Journal’s article, “Venture Money Floods Into Indian Startups “.

Vikram Chopra spent the past three years building an online furniture-shopping site for Indian consumers that was funded mainly by annual capital injections from a German technology incubator.

But during the past few months, investor interest in the site, FabFurnish.com, has soared, said the 32-year-old entrepreneur, who is based in the New Delhi suburb of Gurgaon. Several global venture-capital firms and hedge funds have said they are interested in investing, and Mr. Chopra is now considering another round of funding that would exceed the $20 million raised so far—even though he doesn’t expect FabFurnish to be profitable for another two years and doesn’t yet need the cash.

“A few years ago, everybody wanted to see profitability upfront,” said Mr. Chopra. “Today, it is more like how much money you need to curb the competition [and] kill everyone else.”

Global money is flooding into Indian startups as investors search for a successor to Alibaba Group Holding Ltd., the Chinese e-commerce company that raised a record $25 billion in its initial public offering last year.

To read the entire article from the Wall Street Journal, click here.

Asia BrokerDealers Ramp Up For More ETFs

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Brokerdealer.com blog update profiles brokerdealers’ push for a more diversified market in Hong Kong. In an effort to listen to the brokerdealers and diversify the market, Hong Kong’s Securities & Futures Commission is looking into allowing more off shore ETFs. An extract from AsianInvestor article, “SFC mulls more foreign ETF listings in HK” tells us more.

Hong Kong’s Securities & Futures Commission (SFC) is considering allowing more offshore ETFs, including from the US to be cross-listed in Hong Kong.

The move comes amid calls by some industry players from Hong Kong to diversify its ETF business, because the product range at present is predominantly Greater-China focused.

A senior executive in the ETF business told AsisanInvestor that the SFC that set up a working group to look into expanding the scope of the ETF industry and further developing int. It reached out to individual fund managers towards the end of last year to solicit interest on cross-listing their offshore ETFs in Hong Kong.

The senior executive said their group was interested in listing its American ETF in Hong Kong, but the decision hinges on the SFC and will involve a change in regulatory policy.

To read the full article from AsianInvestor, click here.

Ex-NFL Player Forces Defunct Broker Dealer to Fumble But Can’t Recover

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Brokerdealer.com blog update courtesy of InvestmentNews’ Mason Braswell’s 16 March article, “Ex-NFL player left out in the cold after $2 million award”. Ex-NFL and former Green Bay Packer tackle, Bruce Wilkerson found himself in a ponzi scheme has won some money back from a defunct broker-dealer but won’t be able to recover it all. An excerpt from InvestmentNews is below.

Resource Horizons Group, a defunct broker-dealer that had racked up more than $4 million in unpaid damages from arbitration claims, can add another $2 million to that list.

Bruce Wilkerson, a former tackle who started for the Green Bay Packers in the 1996 Super Bowl, was awarded $2 million in damages last week after losing $650,000 in an alleged Ponzi scheme carried out by a rogue broker at the Marietta, Ga.-based firm.

Mr. Wilkerson, however, is not likely to ever recoup any of the money, which represented a substantial portion of his net worth, according to his attorney, Adam Gana.

“It’s outrageous,” said Mr. Gana of an eponymous firm. “There’s virtually no chance that [Mr.] Wilkerson is going to get paid.”

Resource Horizons Group, which had around 220 brokers, went out of business in November after accruing more than $4 million in judgments against it from two arbitration awards, which it could not afford.

“Funds for payment are not available, which is why the company is being forced to close,” the firm said on a filing in its BrokerCheck report. “The clients will have the same right as any other creditors of the company for the funds that are available.”

The Financial Industry Regulatory Authority Inc. officially suspended the firm in December for failing to comply with a $4 million award and then in January canceled Resource Horizons Group’s license, according to its public BrokerCheck record.

The firm, which had only around $500,000 in excess net capital on hand, has paid only a “very small percentage” of the $4 million award, according to the attorney in that case, John Chapman of an eponymous firm.

Mr. Chapman said Resource Horizons Group had applied for insurance coverage around the time the first complaint about the alleged Ponzi scheme cropped up, but was denied coverage because of the nature of the fraud.

“To me this underscores the question of why does Finra allow broker-dealers to operate with such incredibly thin resources?” Mr. Chapman said. “We’re sort of stuck.”

The arbitration awards are tied to an alleged rogue broker at the firm, Robert Gist. In 2013, Mr. Gist agreed to pay $5.4 million to settle charges from the SEC that he had conducted a Ponzi scheme and converted funds from at least 32 customers for personal use between 2003 and 2013. Mr. Gist could not be reached for comment.

He conducted the scheme and made false customer statements for clients through Gist, Kennedy & Associates Inc., an unregistered entity not affiliated with Resource Horizons, according to the SEC’s complaint.

Several clients, including Mr. Chapman’s, filed claims against the firm and its top two executives, David Miller and his wife, Kelly Miller, for negligence and failing to supervise Mr. Gist. They were held jointly liable along with the firm for the nearly $4 million in claims from Mr. Chapman’s case.

To read the entire article from InvestmentNews, click here.

Investors Gone Wild? Consumer Groups Think So

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Brokerdealer.com blog update courtesy of InvestmentNews’ Mark Schoeff Jr.’s 12 March article “Consumer groups accuse SEC of ignoring investors”. The SEC  holds primary responsibility for enforcing the federal securities laws, proposing securities rules, and regulating the securities industry, the nation’s stock and options exchanges, and other activities and organizations, including the electronic securities markets in the United States.

The Securities and Exchange Commission is not fulfilling its duty to protect retail investors, particularly in how it regulates financial advisers, a number of consumer groups asserted in a letter to the agency.

The eight-page letter dated March 10 outlines several areas that the groups say the SEC “can no longer afford to relegate … to a back burner.”

Most of the letter concentrates on ways the groups want the agency to improve regulation of financial advisers and urged the SEC to take “concrete steps” to raise investment-advice standards for brokers.

The Dodd-Frank law gave the SEC the authority to promulgate a uniform fiduciary standard for retail investment advice that would require all advisers to act in the best interests of their clients. The SEC has not acted. Meanwhile, the Department of Labor is poised to re-propose its own fiduciary-duty rule for advice to retirement accounts.

The topic has split the five-member commission. Chairwoman Mary Jo White has promised since November to make her position on fiduciary duty known in the “short term.”

Duane Thompson, senior policy adviser for Fi360, a fiduciary-duty training firm, agreed with the consumer groups that fiduciary duty has languished.

“The SEC seems to have looked more at capital-formation issues,” Mr. Thompson said. “The elephant in the living room is the uniform fiduciary standard. While Mary Jo White has repeatedly said it’s a priority, I’ve never seen it show up on the SEC’s regulatory agenda.”

Other topics the letter highlights include strengthening financial adviser disclosure about conflicts and compensation, reforming revenue-sharing, limiting mandatory arbitration for investor disputes, and beefing up regulation of risky financial products, including some kinds of exchange-traded funds.

“We are concerned that the Securities and Exchange Commission — which has always prided itself on serving as ‘the investors’ advocate’ — appears in recent years to have strayed from its primary focus on its investor protection mission,” the letter stated. “Given the vital role that average investors play in our markets and the overall economy, and the serious shortcomings that exist in the regulatory protections they receive, it is time in our view for these issues to be prioritized.”

Click here to read the entire article from InvestmentNews.