Velox Eyes ETF Trading Tech Space

London-based Velox is positioning itself to contribute to the next generation of technologies and solutions that will service the exchange-traded fund (ETF) and index spaces. This move follows a $2.5 million round of funding from London-based ETFS Capital, a private equity firm focusing on investments in ETF solution providers.

Velox’s aim is to stitch together different trading systems by piggybacking off of the desktop app interoperability movement. Velox CEO Jon Butler, who served as a managing director at Goldman Sachs until 2016, says that when it comes to the ETF market, traders have to bounce around between different trading systems.

“Actually trading an ETF, and hedging an ETF, and making money out of the ETF business—of which there is a lot to be made—is just more complex from a processing perspective,” Butler says. “The way the third-party vendor market works is that it’s kind of stuck [in] 20 years ago. So you can go and buy cash equity trading systems. You can go buy futures trading systems. You can go buy options trading systems. But you can’t buy an ETF trading system, which needs a bit of everything.”

If a trading firm’s client wants to buy an ETF, the firm needs access to the stock market to buy the underlying securities. It must also have the skills and resources to trade internationally and convert currencies. At the same time, the necessary market infrastructure is still playing catch-up. And the process of creating and redeeming workflows is different for each ETF issuer, while still being highly manual in all its forms—another challenge Velox and others are striving to solve.

To help address this need to stitch together disparate systems, Velox will soon announce a partnership with desktop interoperability vendor Glue42, and plans to announce a number of new key partnerships over the next few weeks.

Long-term, Velox’s ambition is to offer an out-of-the-box ETF workflow solution that runs the whole gamut of the ETF ecosystem, from data and analytics, to risk functions, to hedging, to accounting. In the short term, the vendor will focus on building a new, integrated layer of technology that can unite brokers’ and traders’ existing systems that will be more digestible for clients, who already have to wear several hats at their firms.

“If you go sit with an ETF trader today, you can always have a laugh with them because, eventually, if there is a system in a bank that trades something, the ETF trader will have access to it,” says the executive. “And they have all these systems everywhere because they need [different things] depending on what the ETF is—they’re trying to do different things across all these different systems.”

Velox is the latest company to join a handful of vendors within the ETFS Capital portfolio seeking to disrupt the ETF space. Other companies in the portfolio include Ultumus—which partnered with Velox to develop its data offering in May 2019—as well as ETF Securities Australia, ETF Stream, ETF Logic, TreasurySpring, Moorgate Benchmarks, Skylight IPV, WealthKernel, and AltFi.

Within this portfolio, the various companies are working together to make inroads in the ETF world. They have discussed potentially merging some of the companies within the portfolio, Butler says, though nothing has been finalized.