Capstone Snaps Up Distressed Derivatives Portfolio

Oct 31 2007 | 9:21am ET

N.Y-based asset management and proprietary trading volatility arbitrage specialist Capstone Holdings Group has acquired part of the distressed derivatives portfolio formerly held by RV Capital.

"This has been a difficult and challenging situation for RV Capital. However, we are pleased to be able to acquire these assets and provide liquidity for a distressed portfolio," Paul Britton, CEO of Capstone, said in a statement.

RV Capital, the London-based derivatives market maker, was founded by Jerome Roussel and Duncan Valentine in January 2006 to provide liquidity in derivative products to banks and brokers, according to its Web site. The self described "number one market maker on fixed income options on Eurex and on Liffe" ran into financial difficulties after the credit crisis in August 2007.

The problems at RV reportedly stemmed from bets made mainly in sterling interest rate futures and options, according to Nick Wood, the firm’s court-appointed administrator and partner at Grant Thornton. In an interview, Wood said the firm “had been trying to recover their long positions from their short-term trades which were profitable. But their long-term positions got pummelled and their margin calls were increasing and they didn’t have the liquidity to meet them.”

The firm is facing a loss of €15 million to €20 million (US$21 million to $28 million).

RV Capital’s financial woes have prompted the London International Financial Futures and Options Exchange to declare the firm to be “a defaulter” – which is the first time the exchange has taken such action since 1998.

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