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Government-owned Korea Development Bank, with KRW79.8 trillion (USD66.7 billion) in assets, was in the final stages of converting a five-year JPY65 billion (USD551.9 million) bond as DW went to press. "We're now just deciding on a counterparty," said S.W. Kim, head of swap trading in Seoul.

JPMorgan is calling for its derivatives counterparties to be more transparent about ring fencing of international branches. The move comes hot on the heels of the firm resolving a disagreement with a European trading partner over a derivatives trade it executed with the European firm's Argentinian branch. The disagreement arose in spite of the trade being covered by an International Swaps and Derivatives Association Master Agreement with the European firm's head office, illustrating that in spite of documentation designed to close such loopholes, there is significant room for interpretation on the ring fencing issue, said Christina Leijonhufvud, head of country risk management in New York, declining to reveal specifics of the contract. It is important that any ring fencing of subsidiaries be made clear at the beginning of an agreement in order to allow firms to correctly price the risk of a trade, she argued.

JPMorgan has won its court case against a U.S. hedge fund and therefore does not have to pay out on a credit-default swap contract referenced to Argentina. Eternity Global Master Fund was claiming JPMorgan had committed fraud, negligent misrepresentation and breach of contract, according to court papers obtained by DW. The ruling means JPMorgan does not have to pay out on a USD3 million (notional) default swap which matured on Dec. 17, 2001, before the generally recognized credit event at the end of December. In addition, JPMorgan was facing fraud charges on two other default swaps, which matured after that date.

San Francisco-based Raven Investment Group will adopt predominately convertible arbitrage strategies in its debut Raven Investment Fund, which will both buy and sell over-the-counter derivatives. Ed Yao, partner, said the fund will be multi-strategy, however, more than 85% will be traded in convertible arbitrage. Yao worked as an equity derivatives trader at Morgan Stanley in Hong Kong before leaving the firm in 2001 (DW, 5/13/01).

Royal Bank of Scotland plans to structure public synthetic collateralized debt obligations referenced to asset-backed securities for the first time later this year. The firm has already structured private deals, but in order to increase its distribution it is looking to the public arena, according to David Littlewood, global head of structured credit products in London.

The nascent onshore credit derivatives market is gaining momentum with Standard Chartered Bank and HSBC recently stepping into the ring, alongside local institutions. The domestic market kicked off at the start of the year with Deutsche Bank, BNP Paribas and Credit Lyonnais obtaining licenses for credit derivatives (DW, 1/26). JPMorgan is in the application process and Citigroup completed its first transaction in Taiwan in recent months (DW, 5/25).

Santander Central Hispano has hired Rodrigo Espirito-Santo, former senior salesman for marketing equity derivatives to hedge funds at Commerzbank Securities in New York, as a salesman in its emerging markets team, which includes derivatives.

On May 3, the U.S. Tax Court issued its decision in Bank One Corp. v. Commissioner, the first case to address the question of how an over-the-counter derivatives dealer must value open positions at year-end under the U.S. mark-to-market tax regime, which became mandatory in 1993. As discussed below, the decision is likely to create more issues for both taxpayers and the Internal Revenue Service than it resolves. The much-awaited decision was issued against a backdrop of considerable controversy--including over such basic issues as the appropriateness of an adjusted mid-market method in valuing derivatives, and the degree of deference, if any, properly afforded to an OTC derivative dealer's specific valuation model or financial accounting methodologies. The disagreements appear to have been exacerbated over the years by a considerable gap between the OTC derivatives dealers, on the one hand, which have spent substantial resources developing their valuation models and consider those models to be proprietary technology, and the IRS, on the other hand, which is imperfectly positioned to second-guess the various technical and theoretical underpinnings of a valuation model, but nonetheless has an interest in ensuring that dealer models do not systematically undervalue positions and, consequently, taxable income. One of the more striking examples of the IRS's attempts to address this gap occurred in 1995, when the IRS commissioned the Los Alamos National Laboratory to develop software for the valuation of derivatives with the intention that the software would then be used in tax audits. The project survived long enough for the Los Alamos scientists to produce a software prototype in 1997 that was unveiled to a select group of industry participants for comments, but the project was abandoned later that year, after an intense round of industry criticism, and IRS management concerns over the project's costs.

David Norris, credit derivatives trader at UBS in Stamford, Conn., has left the firm. Norris, who could not be reached, is not thought to have joined a competitor as yet. Sal Naro, managing director and co-head of global credit derivatives in Stamford, referred calls to Kris Kagel, spokesman in New York. Kagel declined comment.

Pricing in the loan market is tightening and risk levels are getting stretched as the new issue market plods along and investors scurry to put their money to work. The bond market has been siphoning off bank money for the past few months, but market players say the problem is exacerbated by a steady flow of buyside money coming into the market and looking for a home. Broad demand from large funds such as the $2.02 billion Eaton Vance Limited Duration Income Fund and smaller funds is also crowding the market.

This chart, provided by Citibank/Salomon Smith Barney Inc., tracks bid-ask prices for par credit facilities that trade in the secondary market. It also tracks facility amounts, ratings, pricing and maturities.

Now that's relationship lending ..., Mayor Bloomberg's 2002 financial disclosure report reveals that 10 people and institutions owed him money last year with some debts in the neighborhood of $500,000 or more, according to The Daily News.