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Salomon Smith Barney has reorganized its equity derivatives sales team after two heads left the bank. Ken Farrar, global head of equity derivatives sales to institutional clients in New York, and a second banker who headed U.S. institutional equity sales, left the firm Sept. 6. Joe Elmlinger, global head of structured equity products in New York, has taken the expanded role of global head of derivatives marketing. He will report to Andy Constan, global head of equity derivatives in New York.

Société Générale plans to set up a synthetic collateralized debt obligation program with reinsurance companies and asset managers. The firm is looking for one or two asset managers and reinsurance companies and expects to structure three or four managed synthetic CDOs a year, according to Wissem Bourbia, head of CDOs in Paris. He added that to his knowledge the French bank is among the first to set up such a scheme. Each deal would be a minimum of EUR500 million (USD464 million).

Société Générale plans to start trading interest-rate derivatives in Korea next month. J.Y. Jung, treasurer in Seoul, said the firm will look to become a major player in the domestic swap market. He added that it will commence trading once it has completed installing systems. Last month SG hired J.H. Cho, head of trading at Samsung Life, as its chief dealer of fixed income products.

One-month euro/U.S. dollar implied volatility rose to 14% Wednesday from 11.5% the day before the attack on the World Trade Center in New York. Demand for euro calls/dollar puts and uncertainty drove the jump in volatility over how a U.S. retaliation to the terrorist attacks would impact an already weakening dollar. Investment banks were the most active, buying one-week euro calls/dollar puts last week as the one-month risk reversal moved further in favor of euro calls. The options typically had strikes around USD0.95, when spot was trading at around USD0.93. Traders say they were buying euro calls and selling dollar puts for protection rather than taking profits. "Many are staying out because of the tragic events. Nobody really has a handle on where the dollar is going to go. A lot will depend on the U.S. equity markets and interest rates," one trader commented.

Though the last junk issue was on Sept. 6, several capital markets officials and investors believe junk issuance could start up again this week. The only deal that may actually be on the road is a $275 million deal from Sweetheart Cup Inc., according to a senior capital markets official. This deal is led by Jefferies & Co., but Jefferies executives could not be reached at press time. Jim Potesky, industrials and food analyst in the leveraged finance division of Credit Suisse Asset Management, says the deal has appeal because Sweetheart makes products that will still be attractive in the continuing downturn.

Last week's plummeting Nasdaq sparked debate over whether the bank debt market will spiral downward as well. One bank dealer said the market will be more resilient, using the analogy of a mortgage to prove his point. He compared a company to a house and bank debt to a mortgage. "If the market value of a house falls below 20%, the mortgage will recover full value, but the equity gets wiped out. The same is true for a company," he noted. Another dealer put it this way: "They don't call it senior secured for nothing."

In the week following the attack on the World Trade Center and the Pentagon, the SEC relaxed rules allowing companies to buy back their equity. As a result, most of the capital markets activity has been short-dated debt by higher-rated entities looking to take advantage of the massive steepening of the yield curve to fund stock buybacks. First out of the shoots was a two-tranche bought deal from A2/A Disney. The 2-year and 3-year offerings (each $500 million) priced with eye-catching coupons of 3.9% and 4.5%, respectively. GE Capital also came to market with a $2 billion 1-year floater. We expect to see this trend continue near-term. Overall, the average weighted maturity of debt issued was under 5 years for the first time this year and weighted average credit quality remained at AA/AA-.

Gopal Varadhan, managing director of the interest-rate derivatives group in New York, was still unaccounted for Thursday, according to company officials. Varadhan reported to Harry Fry, senior managing director in New York. Fry is reportedly safe and accounted for, according to the official. Fry and Varadhan worked on the 105th floor of the North Tower of the World Trade Center. Varadhan, previously president of an Internet company, joined the broker in early August to build Cantor's interest-rate derivatives team in expectation of the swaps curve replacing the Treasury yield curve as the fixed income market's benchmark (DW, 8/13).

The majority of trades going through the quiet market last week originated from customers and banks maintaining their books. "The market is flow driven right now and there won't be much opportunity to take speculative risk for several weeks," said Ronald Leven, currency strategist at Lehman Brothers in Tokyo. He added that corporates with receivables and payables were in the market buying puts or calls on the yen depending upon their underlying position and banks were active in foreign exchange options in the short end, primarily to square positions.

China's B share markets have been the best performing market indices in the world so far this year with the Shanghai and Shenzhen indices having gained more than 80% and 100% respectively. This effect was primarily a result of structural changes in the market.

Reforms to China's foreign exchange system have been delayed until at least the second half of next year. Chinese officials are said to have delayed changes until the country's interest rate market becomes more flexible, according to analysts in Hong Kong. China is seeking to widen its currency band to control appreciation, because it wants its exports to remain competitively priced in the medium term.