infinium-capitals-oil-trading-glitch.jpgHigh Frequency Trading firms are usually shy about their business, except when filing for an IPO or even better when forced to appear in court. Not everyone in the industry will be familiar with Infinium Capital, but the diversified HFT firm is a Chicago household name.  According to Larry Tabb the firm ranked in the top 25 HFT traders.

Sued by 31 former employees

Infinium is sued by 31 former employees, who claim they have been tricked into investing in the company while the the management knew about financial stress and were selling their equity themselves. The group of former employees swapped loans into equity for a total sum of USD 4 million. Ten months later everything was gone, especially after senior class of equity was introduced without their knowledge. People lost as little as 5k to as much as 600k.

  • For full details read the 30 page plaintiff, it’s a good read (and a searchable pdf).

Anyway, after reading the plaintiff Infinium looks like a horrible employer. One could say Infinium makes even IMC Chicago look like a great place to work. Nevertheless, not to smart to put all your eggs in one basket, investing heavily in your employer isn’t exactly a hedged bet. I assume more people are hurt in this Employee Capital Pool program, but stay out of the lawsuit as they remain employed with the firm.

Way before the troubles started, Infinium ranked fourth in the Best place to Work in the local website in 2009. In 2010 the firm had a software glitch with a brand new algo, creating a spike in oil futures – losing USD 1 million in a few seconds. Not the most expensive glitch, but hard to understand why such a new algo messing up like this (more details: BusinessInsider)

Back to the plaintiff. More nice inside information on HFT. Fast fiber lines, microwave communications, 10 millisecond latency, co-located server racks, double power back up systems : expensive. The firm has more or less fixed monthly costs of USD seven million (page 21). That hurts when revenues drop.

Red flags

The are a number of red flags for trading firms. The most important one is building new state of the art dealingrooms with expensive design. However, organizing these kind of silly flash mobs is an excellent warning sign too. Management getting too comfortable about the business.