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BondWeek is the leading news publication for fixed-income professionals, covering new deals, structures, asset-backed securities, industry and market activity.

BondWeek is the leading news publication for fixed-income professionals, covering new deals, structures, asset-backed securities, industry and market activity.

BondWeek is the leading news publication for fixed-income professionals, covering new deals, structures, asset-backed securities, industry and market activity.

BondWeek is the leading news publication for fixed-income professionals, covering new deals, structures, asset-backed securities, industry and market activity.

AXA Life Insurance (Japan), which has over JPY382 trillion (USD3.26 billion) in assets, is considering snapping up more synthetic collateralized debt obligations next year. The present investment strategy ends in June and because of the tightness of Japanese credit spreads it will likely allocate more capital to CDOs and fund of funds, said Toshiyuki Murakami, manager in the structured asset investment department in Tokyo.

Collateralized debt obligation houses, including JPMorgan, Deutsche Bank and BNP Paribas, are planning to securitize equity risk by referencing a CDO structure to a basket of equity options. Ratings for an equity version of a CDO will help investors to compare these two asset classes, said Martin Bertsch, head of the financial engineering group at JPMorgan in London.

Commonwealth Bank of Australia is planning to expand its Sydney-based equity derivatives business with additional hires in the coming few months. "We're gaining traction," said Stephen Richards, head of equity trading and risk at CBA.

FAS 133 has generated substantial confusion and expense, especially for end-users acquiring derivatives as hedges. This article will give a general overview, whilst next week's will focus on hedge accounting. FAS 133, or Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, as it is more formally known, was issued by the Financial Accounting Standards Board (FASB) in June 1998, but the board delayed its effective date to mid 2000 and twice made substantive amendments. Because of its complexity, FASB established the Derivatives Implementation Group (DIG) to address issues about its implementation and interpretation. To date, DIG has issued guidance on over 175 distinct topics with respect to FAS 133.

Collateralized debt obligation professionals are requesting Standard & Poor's rate structures that give them more discretion to trade long/short strategies. Nik Khakee, director in New York, explained that while many structures already allow managers to take short positions, these are typically restricted to buckets of 5%-10% of the deal. Managers are increasingly seeking to break out of these restrictions, which is encouraging more discussions on how this may be achieved in rated deals, he said.

Patricia Donoghue, project manager at the Financial Accounting Standards Board, admitted that its rules regarding consolidating special-purpose entities may work as a catch-all and that some CDOs do not need to be consolidated. The statements came as FASB officials participating in a panel came under fire from CDO professionals angry at the accounting rule. The so-called FIN (Financial Interpretation Number) 46 requires VIEs, which may include CDOs, be consolidated onto the balance sheet of the primary beneficiary. In the case of CDOs this would likely be the asset manager.

As investors turn their attention to rising interest rates, Deutsche Bank and BNP Paribas have separately come up with a novel way to punt on rates rising more slowly than the forward market is predicting. The notes are structured as a standard leveraged inverse-floating rate note, but the derivatives houses have added a call which means the issuer can buy back the note. The investor is compensated for the call via a higher yield, said Patrik Sandin, head of interest rate structuring at BNP Paribas in London

Dresdner Kleinwort Wasserstein has integrated its portfolio trading group into its U.S. equity operation and formed a committee comprising four U.S. equity heads briefed with formulating a strategy to develop and grow the firm's U.S. equity franchise. Meanwhile Tim Clorite, global head of portfolio trading and head of U.S. equities in New York, has exited the firm, said Karen Laureano-Rikardsen, spokeswoman in New York. Tom Jardine, head of U.S. distribution of derivative products and programs, is taking over Clorite's portfolio trading responsibilities as global coordinator for portfolio products, in addition to being a member of the committee.