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Derivatives linked to both Chinese A shares and index-related structures have started to grab investors' attention as more entities market a wider range of instruments. "The China story is still hot," said Nicole Yuen, head of China equities at UBS in Hong Kong. Clients have been building up positions in selected stocks via market access derivatives because they are becoming familiar with the documentation and outlook for the newly accessible A share market, Yuen added.

Barclays Capital has priced a giant private synthetic collateralized debt obligation, which in combination with a flurry of other deals hitting the market has driven tight credit spreads even tighter. Several credit pros pointed to the size of Barclays' seven-year deal, which references a several billion dollar portfolio of U.S. and European investment grade credit-default swaps, as being a major factor driving spread tightening. Andrew Whittle, European head of credit derivatives at Barclays Capital in London, said the firm does not comment on private transactions.

BNP Paribas has hired Nat Richer, a crude oil derivatives trader at Banc of America Securities in New York, as a director in a similar position. Jean-Marc Bonnefous, head of commodity derivatives in New York, to whom Richer reports, said the firm is growing its oil derivatives presence in order to meet growing client interest in the products caused by factors such as an increase in the trading of fuel being shipped from Western countries to Asia.

Euro/dollar spot has been hitting record highs over the last week, yet implied volatility keeps falling. Implied volatility has fallen to 10.3% from 11% last week while the euro has jumped to USD1.22 from USD1.20. Traders expect to see it fall to 10% within a month.

Australia has seen an unprecedented surge in over-the-counter credit and equity derivatives volumes over the last financial year, according to a study to be published by the Australian Financial Markets Association. "We've seen unbelievable growth in derivatives," said Ken Farrow, chief executive in Sydney.

Credit protection on Takefuji Corp., one of Japan's largest consumer finance companies with assets totaling over JPY1.9 trillion (USD15.8 billion), started to move in early last week after its chairman resigned on the back of a scandal. Yasuo Takei, founder and chairman in Tokyo, stepped down following his arrest in regards to wiretapping the telephone of a freelance journalist investigating the company. Three weeks back, the announcement of his arrest caused spreads on the corporate to blow out.

Italian banks are looking at ways of structuring a covered bond without a change in the regulatory framework. Banks, including Monte Paschi Dei Siena, are studying ways of issuing covered bonds in the absence of a specific law because the cost-savings versus residential mortgage-backed securitizations is so significant, explained Anna di Paolo, head of structuring at MPS Finance, Monte Paschi Dei Siena's investment banking unit.

The Depository Trust & Clearing Corp. is pilot-testing a system that performs cash flow matching for credit derivatives. The DTCC is offering a central point to which a firm can send cash flows to be run through an automated reconciliation process and returned to the firms. "Using the system, we are matching pretty well with our counterparties, which has been a big issue at the moment because of the compound growth of volumes," saidStefano Toffolo, European co-chair of the operations committee at the International Swaps and Derivatives Association and global head of over-the-counter derivatives operations atCredit Suisse First Boston. ISDA released a strategy paper for automating derivatives settlements last week.

GFI, a cash and derivatives brokerage house, has hired two teams to consolidate its move into the second generation of credit-default swaps. The first team will be dedicated to correlation and the second to options. Both teams start in January.

Asian securities house KGI Securities has started trading equity derivatives in Hong Kong, according to Jerry Wu, regional head of equity derivatives trading in Hong Kong. Wu recently joined from Morgan Stanley and works alongside Howard Tong, head of equity derivatives marketing, and previously a director in global equity markets at Merrill Lynch (DW, 10/12).

Merrill Lynch is gearing up to offer what is thought to be Asia's first warrants with embedded over-the-counter call options linked to the volatility of the Standard & Poor's 500. "It's a nice non-correlated bet," said John Robson, managing director and head of structured products in the global equity markets group in Hong Kong. He said Merrill is looking to close its first deal before year end and is considering introducing the product next year in Europe and the U.S.