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Seoul-based Korea First Bank, with KRW37.1 trillion (USD31.6 billion) in assets, is planning to invest in synthetic collateralized debt obligations for the first time. Y.H. Shin, assistant manager in the treasury department, said the firm has gathered information about the instruments and may invest next year.

New World Development Company, one of Hong Kong's largest conglomerates with over HKD130 billion (USD970 billion) in assets, is considering entering interest rate swaps next year to diversify its debt book. "We have too much in HIBOR, we should diversify our risk," said Alfred Lo, assistant treasurer.

The International Swaps and Derivatives Association is planning to write the first standard documents for inflation derivatives, according to Bob Pickel, ceo of ISDA in New York. The instruments have been on the association's radar screen since the 2002 annual general meeting. At that meeting Frederic Janbon, ISDA board member, said this was one of the hottest markets. That prediction has proved true, with outstanding inflation-linked debt standing at around USD70 billion.

"To me, 90% of the work of UCITS III is useless without a tax addendum."--Benedict Peeters, director in the global equity products group at Deutsche Bank in London, commenting on the European Union rule change that was first considered to be a boon for the fund derivatives market, for complete story, click here.

Korea and Taiwan were the hottest markets in Asia this year. "The main driver was market liberalization," said Chi-won Yoon, managing director in equity risk management at UBS in Hong Kong. "For instance, in Korea dealers issued onshore equity-linked deposits while in Taiwan insurance companies, which hold substantial assets, can now buy a much bigger chunk of foreign currency-denominated structured products," he explained.

U.S. derivatives professionals are concerned the National Association of Insurance Commissioners' recent ruling that weather derivatives should be classified and regulated as insurance, rather than a capital markets product, could shut broker/dealers out of the market. If the conclusion is accepted by U.S. state regulators, as NAIC rulings typically are, weather derivatives could become the exclusive preserve of insurers, according to lawyers. Roger Hoadley, spokesman at the NAIC in Kansas City, Mo., did not return calls.

The International Swaps and Derivatives Association's 2003 credit derivatives definitions went live in June, but within hours the market was already talking about supplements and amendments.

The revelation that distressed Italian dairy producer Parmalat Finanziaria had purchased self-referenced credit-default swaps has provoked debate on the ethics behind corporates selling protection on their own name. By purchasing self-referenced default swaps corporates dive into a sticky ethical and legal situation, said derivatives pros. Parmalat, which has come under the microscope for having purchased self-referenced default swaps in 1999, became distressed after it failed to pay back principal on a bond and had its rating slashed to CC.

"Most people here, accountants, lawyers and bankers, are trying to work out how they can make money out of the problem rather than what the solutions is."--Jonathon Laredo, founder of Solent Capital Management and former head of structured finance for Europe and Asia at JPMorgan, commenting on derivative professionals' reaction to the introduction of International Accounting Standards at the European Derivatives Accounting Summit (DW, 12/1).

State Street Global Advisors, Australia, part of the world's largest institutional asset management house, is considering trading credit derivatives for its domestic portfolios, which total some AUD40 billion (USD29.6 billion). "We're studying quant-style concepts and trading strategies," said Lawrence Dryden, head of asset allocation and currencies in Sydney. It is likely that the asset manager will incorporate credit derivatives as an additional investment tool next year, but has to do more research before making the decision. SSgA is in the early stages and is planning to gather more research from investment banks before deciding whether the instruments will gel with the remainder of its portfolio, according to Dryden.

A large slice of the synthetic collateralized debt obligation market migrated to the single-tranche arena this year as a result of innovations in CDO structuring and spread tightening. In single-tranche offerings, CDO houses issue just one slice of a deal, typically a piece rated around the single A level, and then delta hedge the remainder of the portfolio, according to Robert Reoch, founder of Reoch Consulting.