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The Asian structured foreign exchange derivatives market has picked up steam in recent weeks due to the greenback's fall against other major world currencies. "Given the recent dramatic movement in the fx market, we're seeing a lot of inquiries," said Samir Atassi, director in the strategic solutions group at Merrill Lynch in Hong Kong. For instance, Atassi noted that several companies are now looking at hedging their yen exposure as they tend to have revenues in dollars. Much of the outstanding yen liabilities are a result from bilateral loans from Japanese export agencies in markets such as China and South East Asia. "A lot of corporates weren't expecting such a rapid fall," he added.

Implied volatility for euro/dollar options rose sharply last Tuesday after a yard of three-month risk reversals and around USD600 of euro calls went through the market. One-month implied vol rose to 11.65% Tuesday from 10.9% the previous Friday. Traders said the euro calls/dollar puts had strikes of USD1.2250, when spot was trading at USD1.19. The three-month risk reversal trades pushed the risk reversal to 1.05 vol in favor of euro calls. By Wednesday, however, traders said that most of the speculation had been done and by Thursday the risk reversal was trading at 0.85 vol and one-month implied vol had fallen to 10.65%.

Derivatives houses in Hong Kong including HSBC, JPMorgan andStandard Chartered Bank, are reintegrating their trading operations after the recent lifting of a travel ban by the World Health Organization. At the height of the SARS virus outbreak last month, several firms introduced drastic measures, such as setting up separate desks and shipping staff overseas (DW, 4/13). "There's still some travel restrictions, for instance Taiwan, but everyone's back in the main dealing room," said Pierre Goad, spokesman at HSBC in Hong Kong. The fifty-plus treasury and capital markets staff that relocated to makeshift desks during the crisis (DW, 4/20) moved back in stages last week, Goad continued.

Major credit derivatives houses in Japan, including JPMorgan, Merrill Lynch and Société Générale, are racing to complete the first synthetic collateralized debt obligations referenced solely to Japanese asset-backed securities. "We've been seeing a few ideas," said Yusuke Seki, v.p. in the structured finance group at Moody's Investors Service in Tokyo. Seki expects the first deals to hit the market within six months. Market officials estimated that the CDOs would be over USD500 million.

John Hancock Financial Services is planning to make its debut as a manager of synthetic collateralized debt obligations. The asset manager is waiting for market conditions to improve and accounting rules to be clarified before launching the product. Mark Goldman, senior actuarial associate in Boston, Mass., said the firm has already made headway on what will be its first deal, likely in the USD1 billion (notional) range and which will reference a pool of investment grade credits. The firm wants to see improved arbitrage opportunities before bringing the deal to market.

Hamon Investment Group, with over USD282 million under management, is looking at increasing its exposure to Indian stocks via equity swaps in the coming months. Vincent Cheng, cio in Hong Kong, said the asset manager recently started using over-the-counter equity options and equity swaps to gain access to the growing domestic stock market in India. OTC products referenced to Indian underlyings account for less than 5% of the portfolio, but Cheng said the firm is considering upping its exposure, given that it foresees continued growth in the market. Cheng declined further comment.

JPMorgan has started marketing equity-default swaps, which work in the same way as a credit-default swap but use an equity trigger. The are, however, two major differences. First, protection can be triggered by the stock hitting a floor level. Second, there is a fixed recovery rate, according to JPMorgan marketing material obtained by DW.

Lehman Brothers has hired Rachid Bouzouba, official in equity derivatives trading at Credit Lyonnais Securities in London, in a new role as head of exotic, index and prop trading within its equity derivatives group. Bouzouba, who has not yet started at Lehman, reportedly will work for Siggi Thorkelsson, head of equity derivatives trading in London. Thorkelsson could not be reached. Bouzouba declined comment.

Prominent players in Korea's interest rate swap market including Citibank and JPMorgan have cut their prop trading books due to liquidity plummeting in recent months. Market officials attributed the move to mark-to-market losses caused by the widening of cross-currency swap spreads in March (DW, 3/16) as well as tough domestic economic conditions which have forced banks to reduce their exposure to Korea. Daily interest rate swap volumes have fallen by 50% from a high of USD350 million a day six months ago, according to one head of derivatives in the region.

Merrill Lynch has recently issued its first inflation-protected equity-linked note and plans to issue similar notes on a regular basis. Joachim Willnow, head of the structured solutions group for Europe, Middle East and Africa in London, explained that the firm decided to structure this type of product because it sees significant demand from investors for instruments that protect them from any factor that will erode the value of their holdings.

"If it is just papering over the crack--a regulator could dispute it."--Patrick Clancy, counsel at Shearman & Sterling in London, commenting on the importance of making sure a credit derivative is not deemed an insurance contract. For complete story, click here.

UBS Warburg has nabbed Peter Tchir, head of structured credit at WestLB in New York, to work in its structured credit operation. The hire is part of the Swiss giant's effort to beef up its credit derivatives and structured credit presence, according to officials.