RV Capital, a London proprietary trading firm, has filed for administration after losing almost 20m ($28 million). Euronext Liffe also served a default notice on the company which was a market maker on Liffes Euribor future and short sterling contract.
The proprietary trading firm was launched in 2006 and lost money in August when global credit markets fell.
RV Capital has ceased trading with losses nearing 20m, said Nick Wood, a partner at financial advisors Grant Thornton, and the administrator for RV Capital. They were trying to recover their positions but their liquidity became too much. Margins in its long-term positions were worsening and in the end it decided it couldnt continue.
RV Capital was placed into administration on 24 October at 10.11 am in the High Court of Justice, Chancery Division, Companies Court.
There are little assets to the companys name a trading room, some traders and a platform, but we have had a few interested parties, said Wood.
RV Capital was one of 22 market makers on Liffes Euribor contract and 19 market makers in the exchanges short sterling product. The default on Liffe, which traders say was against a large number of Euribor contracts, is being managed by Fimat, its designated clearing member.
Fimat has taken on RV Capitals liability and is looking to close positions where possible.
LCH Clearnet, the clearer for Liffe, is not affected by RV Capitals closure. RV Capital is a non-clearing member, clearing all trades through a highly capitalised member firm, said a spokesman. LCH Clearnet has no direct liabilities as a result of RV Capital default. We are, however, monitoring the situation closely and will provide support to the member firm as necessary.
RV Capital was also a non-clearing member of Eurex and CME Group. A Eurex spokesman said other members could be sure that normal trading would proceed. A CME Group spokeswoman confirmed it was no longer trading on the US exchange.
Other proprietary traders have questioned how RV Capital managed to lose so much money.
With Euribor being such a liquid market, and with RVC being a market maker, its difficult to see how they got into such a position. With such liquidity, you would expect that they could get out of their positions, unless they were very stray trades, said one director at a rival firm.
Traders believe that clearing firms may re-examine their risk policies towards other proprietary firms. It is not good for the market, especially the smaller members of the industry and the prop segment, said one former trader.
Liffe said that this is the first time that it is has issued a default notice in nine years. Its the first time I can remember a market maker going down this way and it once again brings into question mass automation.
It is not good for the market, especially the smaller members of the industry and the prop segment
One trader said RV Capitals loss demonstrates how market making is becoming less-profitable. He added: There is no margin in market making any longer. Designated market markers are having to take riskier trading positions to make money.
RVC Capital and Fimat were not available for comment.
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