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Banks, trading companies, leasing companies, and multinational corporations have currency convertibility risk even if they don't attempt to quantify the risk on their balance sheets. Buyers and sellers of currency convertibility protection must not only have a feel for pricing credit derivatives, they must be economists with a penchant for econometrics. These are negotiated transactions. Price, terms, conditions and size are all negotiated directly between counterparties. As there are so few counterparties for this type of protection, the broker market is usually ineffective. It is much more effective to contact well-known counterparties in the credit derivatives market and negotiate the transactions and market levels directly. This is a supply and demand driven market and prices vary from counterparty to counterparty.

Nine-month 25-delta risk reversals spiked to 3.2-3.3% in favor of yen calls/dollar puts over yen puts/dollar calls from 2.8% the week before. Although the dollar has depreciated to JPY108.80 on Thursday from JPY111.20 the previous week, one-month volatility remained almost unchanged at 12.1% last week.

Goldman Sachs is setting up a proprietary trading operation that will take positions in structured products including collateralized debt obligations and has tapped Greg Mount, global head of CDOs in New York, to head the desk. Bruce Corwin, spokesman in New York, said Goldman does not comment on proprietary operations. Mount did not return calls.

Mark Sanborn, former managing director in equities at Lehman Brothers in New York, has resurfaced at hedge fund giant Highbridge Capital Management, which manages over USD4.5 billion in assets. Sanborn, reached at the firm, said that he was working in "connection" with the fund manager, but denied having "joined" Highbridge. Sanborn is also listed with the firm on Bloomberg. He declined to elaborate. Glenn Dubin, co-founder at Highbridge in New York, did not return calls.

Five-year credit protection on Eastman Kodak moved in last week following the firm's issuance of USD1 billion in convertible notes and 10-year bonds. Credit protection on the corporate tightened to 210 basis points last Wednesday from 210bps seven days previously, said a New York-based trader. Much of the bond issue was bought by credit derivatives traders because the bonds were trading cheap relative to default swaps, he noted.

"If the information is price sensitive and its about an E.U. listed security then you cannot trade on it."-- Simon Firth, partner at Linklaters in London, commenting on whether CDO trustee reports could be classified as insider information. For complete story, click here.

Tim Fallowfield, director in foreign exchange, money markets and derivatives trading in Singapore, has quit ING Financial Markets. He had been at the firm for over five years and rivals said he was a respected market veteran. Fallowfield could not be reached.

Lawyers are calling for a change in tax law in order to make a success of the U.K. regulator's proposed opening up of hedge funds to high-net-worth individuals. Moving hedge funds onshore should increase the number of funds and subsequently provide a boost to the over-the-counter derivatives markets, noted Matthew Judd, partner at Clifford Chance in London.

Merrill Lynch has lost Matt Robinson and Ramsey Jallad, marketers in its equity derivatives structured solutions group. The latest departures means seven staffers--out of a 40-strong team--have left since April, according toJoachim Willnow, head of the structured solutions group in London. He added, that Merrill has replaced six of these. Robinson is joining Morgan Stanley in a similar role and Jallad is rumored to be moving to Citigroup Private Bank.

JPMorgan and Morgan Stanley are launching an index of the 25 most liquid credit-default swaps in Asia. The firms launched a similar index in Australia last week and have been rolling out other regional so-called TRAC-X indices since April. "This will allow end-users and the dealer community to easily trade and hedge Asia as a macro-sector," said Robert Breden, executive director and Japan and non-Japan Asia head of investment grade trading and structuring at Morgan Stanley in Tokyo.

Over the last few years, credit-default swaps have helped transform credit investment from a long-only game to a global market in which wholesale credit risk can be transferred, managed and assumed pro-actively. For all its merits, the default swap is not hugely adaptable for tailoring returns around specific views or return requirements.