Cygnifi files for Chapter 11

JP Morgan spin-off Cygnifi, the New York-based online derivatives service provider, has filed for voluntary Chapter 11 bankruptcy. During its Chapter 11 process, which is expected to take at least 90 days, Cygnifi said it will seek buyers for its assets. These include source codes, intellectual property rights and advanced derivatives analytics libraries. Cygnifi will also consider partners for a merger or acquisition of the company.

Cygnifi claimed that it “has had considerable success developing a suite of advanced technology products to support derivatives trading and credit risk management", but the firm always planned to raise additional capital to propel the business through to sustained profitability. "After the severe downturn in the capital markets of the past 12 months, Cygnifi has been unable to raise that additional capital from strategic investors or venture capital firms,” the company said in a statement.

But news of Cygnifi’s bankruptcy does not come as a complete surprise. As RiskNews reported in July, the company had ended its ambitious plans to become a leading third-party provider of collateral and counterparty credit risk management advice. Cygnifi’s retreat from the collateral management business resulted in the redundancies of at least 25 staff of its 110-strong workforce, but Cygnifi refused to comment on this matter or other financial difficulties faced by the firm at that time.

The Chapter 11 filing represents a far cry from last year’s headline deals. Cygnifi partnered with Andersen Consulting (now Accenture) to enhance the integration of its risk management tools, which included derivatives pricing technology. And in another key partnership Cygnifi developed a tool called Trinity, with international law firm Allen & Overy, which outlined the legal risks of collateralized credit risk.

Spun-off from JP Morgan in 1999 Cygnifi raised $23.3 million in financing from Lab Morgan, California-based internet specialist investors Sybase, New York-based analytics firm Numerix and the support of now defunct Bridge Information Systems. It was, however, unable to secure a planned second round of financing and faced strong competition from Sentry, the collateral management division of Toronto-based systems vendor Algorithmics.

Cygnifi was also selected to help advance the work of FpML.org, the industry consortium developing the Financial products Markup Language (FpML) as a potential standard for electronic trading of over-the-counter (OTC) derivatives products. Cygnifi’s solutions group - comprising about 40 staff – was chosen to help further the specification of the FpML Version 2.0 working draft release, as part of the interest rate derivatives products working group.

It is unclear whether this work will be completed or not. An FpML spokeperson told RiskNews that he was unaware that Cygnifi was filing for Chapter 11.