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JPMorgan has hired Adrian Averre, derivatives trader in the options and structured products group at BNP Paribas in Tokyo, for a new role in Japan as head of interest rate options trading. "With more volatility in the interest rate and exotic markets, business is getting hotter," said Hideharu Taira, head of rates trading in Tokyo, explaining the firm's intention to increase its focus on the interest rate options market by appointing a head for the desk. "There's still room to increase," added Taira. Next year the firm will likely hire additional bond, swap and exotic traders. Averre could not be reached.

The International Swaps and Derivatives Association is putting together a coterie to open up the Middle Eastern derivatives markets. The group will include experts in Islamic law, market practitioners and lawyers specializing in ISDA documentation, according to Peter Werner, policy liason to the Central and Eastern European committee at ISDA in London. The committee will focus on Saudi Arabia, Qatar, Kuwait, Bahrain and the United Arab Emirates. The move represents a growing interest in the Middle East and Shariah compliant investment products.

Fran Reed, previously a structured credit salesman at Commerzbank Capital Markets, joined Lehman Brothers last week as agency product head. Reed, who prior to working in structured credit sales, spent 11 years on the agency side of the business including five years as head of the agency desk at Barclays Capital, said the aim of this new role is to connect the dots between Lehman's agency traders, salesmen, issuers and investors. "I'm going to work with the trading desk, talk to the issuer side and work with the sales force to distribute product," he explained.

Australia's Macquarie Bank is planning to sell a multi-billion dollar collateralized debt obligation to retail invetors in New Zealand. The CDO will be the bank's second, having launched the first such deal, dubbed Generator 1, earlier this year. Craig Swanger, head of the financial services group in Auckland, said he expects the deal to be launched in the first quarter, but is waiting for global credit spreads to widen.

This article looks at correlation, default rates and recovery assumptions in structured finance CDOs. Last week's examined the basic features and why they are attractive to investors. The analysis of default correlation for structured products suffers from a lack of historical data. Structured finance securities are backed by diversified asset pools, which by definition are less exposed to idiosyncratic events. The lower the idiosyncratic events in the portfolio, the higher the correlation of these asset classes. For this reason, correlation between ABS usually is considered higher compared to corporate credits.

UBS has ditched plans to issue a collateralized debt obligation of CDOs through its principal finance unit and has liquidated the portfolio of true sale CDOs it had accumulated to underlie the deal. UBS had initially been planning to bring to market the approximately USD1 billion CDO of senior CDOs, dubbed Cherry Valley, as a cash deal with a credit-default swap referencing the portfolio, said one official. Tightening spreads, however, reduced the arbitrage opportunities of the structure and with a profit already having been accrued on the underlying, the firm decided to liquidate the portfolio of CDOs and realize its gains, officials added. John Niblo, director at UBS in Stamford, Conn. declined comment.

U.S. electricity distributor Progress Energy has purchased interest rate derivatives to hedge its interest rate swap portfolio against rising rates. Tom Sullivan, treasurer in Raleigh, N.C., said that as interest rates look set to rise, the corporate has sought to cap its exposure to a rate hike in its portfolio of synthetic floating rate liabilities. Progress regularly enters fixed-to-floating rate swaps as a means of managing its interest rate portfolio, he noted. At the end of September Progress had a total of USD850 million in fixed rate debt that it had converted into synthetic floating debt, according to the firm's 10-Q filing.

Rival traders have once again started to shout about JPMorgan having an unfair advantage in the TRAC-X credit derivative index products. This time rivals are claiming it was able to quote prices for the updated high-yield credit derivatives index before other firms because of its status as co-founder of the index. Tom Benison, head of credit derivatives marketing for North America at JPMorgan in New York, denied the firm quoted prices ahead of the official start of trading on the index.

Major U.S. derivatives players, including JPMorgan, Goldman Sachs and Merrill Lynch, fear they may be rushed into picking an unsuitable regulator as they scramble to meet an imminent deadline for selecting which regulator will oversee their securities businesses in Europe. Under a European directive--expected to be published this Friday--non-E.U. issuers are required to select one regulator to oversee retail securities issued in any of the member states. Failure to select a regulator on the day the directive is published will result in the E.U. making the selection. The Prospectus Directive will come into force in 2005 and will cover securities such as equity-linked notes.

"If we get it wrong, we are in big trouble."--Tim Hailes, v.p. and assistant general counsel at JPMorgan in London, commenting on the firm choosing its European regulator. For complete story, click here.

BondWeek is the leading news publication for fixed-income professionals, covering new deals, structures, asset-backed securities, industry and market activity.

BondWeek is the leading news publication for fixed-income professionals, covering new deals, structures, asset-backed securities, industry and market activity.