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One-month 25-delta risk-reversals have moved from 0.25% in favor of euro calls to 0.3% in favor of euro puts since the start of the month. Mark Stafford, foreign exchange options trader at Deutsche Bank in London, said, "The market is worried about the euro depreciating against the dollar. This has been driven by recent U.S. economic data exceeding expectations."

The International Accounting Standards Board made several concessions at its Board meetings in late July and continues to listen to intellectual and practical arguments on IAS 39 from the European banks. This article is the first half of a summary of the July update published by the IASB. It remains the IASB's intention to issue a final standard by the end of the first quarter. A further exposure draft on macro hedging was issued last week.

European interest rate implied volatility has recently hit highs last seen in January 2000. Rocketing volatility in the U.S. is driving the move, according to Meyrick Chapman, fixed income derivatives strategist at UBS in London. Earlier this month implied volatility for a three-month option to enter a 10-year swap reached 0.912. Since then it has come off to 0.85.

The amount of risk being shifted via the collateralized debt obligation market has halved this quarter, but the number of deals has rocketed, according to Moody's Investors Service. Moody's rated 154 CDOs in Europe during the first half of the year compared with 83 in the same period last year. In contrast, the size of the rated tranches fell to EUR18 billion (USD19.7 billion) from EUR43 billion, according to Ebo Coleman, senior credit officer in London.

Henderson Global Investors is looking to expand its structured products business into the high-net-worth private client arena. Mike Chadney, head of structured products and derivatives in London, said, "Many high-net-worth individuals are becoming more sophisticated and interested in capital guaranteed structures."

Export credit agencies in the Netherlands, U.K. and Denmark are studying trading carbon dioxide emission credits as another source of income on projects they finance. Lars Kolte, managing director at Danish export credit agency Eksport Kredit Fonden in Copenhagen, said it is financing construction of three major wind farms with total capacity of 180 MW and wants to use carbon dioxide credits that these parks will likely be awarded to part finance loans. "We think that we can create financial flows from trading these emissions credits by using alternative energy sources," explained Kolte.

Jefferies & Co. is gearing up to launch an electronic trading platform to trade equity futures and options within the next six weeks. The platform, called DerivativesDirect, will operate as an introducing broker. "We really feel now's the right time to strike," said Mike Alex, co-head of DerivativesDirect. "The overall trend in the business is moving from floor executed trading to electronic trading."

Lehman Brothers has hired Takahiro Yamanashi, equity derivatives marketer at Shinko Securities Co. in Tokyo, to bulk up its effort. "We've had an increased workload," said Jeremy Kloiser-Jones, head of structured equity derivatives sales in Tokyo, explaining that activity has picked up in line with the underlying equity markets. Yamanashi reports to Kloiser-Jones.

Mezzacappa Management has registered its first multi-strategy fund of funds with the Securities and Exchange Commission. The Mezzacappa Multistrategy Fund started with approximately USD50 million of initial capital from the firm, a market participant said. The fund is expected to take in external capital starting in the fourth quarter. It is designed for the institutional market with a USD1 million minimum investment, low volatility and a widely diversified pool of more than 30 underlying hedge funds, applicable for portable alpha strategies.

The CJ 50, an index of 50 Japanese credit-default swaps, has mushroomed to account for around 20% of credit trading volumes just weeks after its launch in the interbank market. BNP Paribas, Bank of Tokyo-Mitsubishi and Goldman Sachs set up the index, but five more firms including Bear Stearns and UBS now make markets in the instrument. Stephane Delacote, head of credit trading at BNP in Tokyo, expects 10 firms to be trading the index by year end. This will boost volumes to around 25% of the market, added Delacote.

"Back in early 2001 protection was less than 10 basis points. Now there are few trades but you would be lucky to get it done for less than 20bps."--Ebo Coleman, senior credit officer at Moody's Investors Service in London, explaining why the amount of risk transferred in the collateralized debt obligation market has fallen. For complete story, click here.