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Kommunalbanken, a Norwegian local government funding agency, has entered an interest rate swap on a recent NOK400 million (USD55.35 million) bond offering to convert it into a floating-rate liability. Thomas Moller, finance director in Oslo, said the agency converts all of its fixed-rate issuance into floating-rate and then enters additional swaps to convert it back into fixed if its liability portfolio contains fixed rate loans. Kommunalbanken plans to raise an additional USD2.5 billion in the bond market this year.

Many derivatives contracts, including the 1992 and 2002 International Swaps and Derivatives Association Master Agreement, do not include a severability clause, which addresses the enforceability of a contract, even though these clauses are usually in commercial contracts. The questions relating to severability are complex, and require careful analysis in the context of any particular derivatives transaction. This article looks at some of the situations, under both English and New York law, in which it may be advisable to consider including a severability clause. ISDA & The Single Agreement Concept

UBS Warburg is pushing money managers, particularly insurance companies and pension funds, to "think outside of the asset class" when looking at equity derivatives strategies. James Kelly, managing director in risk management products in London, said if one sector, for example equities, falls, this often leads to a move in funds to other areas, in this case bonds. This asset allocation tactic should be transferred to the derivatives arena, according to Kelly.

State Street, with USD763 billion in assets under management, is readying a global foreign exchange options trading operation that will reportedly see the firm taking risk for the first time. State Street has hired Hank Lynch, a senior foreign exchange trader at FleetBoston Financial in Boston, as the point man for the operation. Lynch could not be reached. Calls to Mark Snyder, global head of foreign exchange and money markets, to whom Lynch will report, were referred to Carolyn Cichon, spokeswoman in Boston, who did not return calls.

Taipei-based Bank SinoPac, with over TWD313 billion (USD9 billion) in assets, is gearing up to establish an interest-rate options book by the second quarter. "While interest rates are low, demand from corporates will come up any moment there is potential for upside risk," said Henry Chang, head of fixed income and derivatives. He explained that with a possible improvement in the U.S. economy next year, it now makes sense to ready the product in case of any rates rises. SinoPac will look to offer Taiwan-dollar denominated instruments, including caps and floors.

Revised European regulation for fund managers will give greater flexibility for structured product dealers to use derivatives and help to expand the structured products market in Europe, according to Piers Lowson, director at Barrie & Hibbert, a risk management consultant in Edinburgh. The regulation update, know as UCITS III--Undertaking for Collective Investment In Transferable Securities III--has been effective for around a year, but was only implemented in the U.K. in November and in Luxembourg in January. By February it will be implemented across the whole of the E.U.

Wachovia Securities has appointed Lawrence Gibbs, an equity derivatives trader at BNP Paribas, to its newly forged listed options/exchange traded fund business. Todd Steinberg, managing director and head of equity linked products in New York, said the hire completes the firm's equity trading hires in the short term. Wachovia has been building a listed options/ETF team in order to offer a broader range of services to institutional clients (DW, 2/23). Gibbs, who could not be reached, will report to Josh Penner, head of the listed options/ETF division.

The U.S.-led strike on Iraq bucked world equity markets last week with equity derivatives players, including hedge funds and prop traders, benefiting from war positions that have been held for several weeks. Everyone has been expecting a big war rally and from a pure directional point of view traders have been playing the upside, buying calls and selling puts, noted one trader at a New York-based dealer. Equity option volatility declined in conjunction with the equity market rise. The Chicago Board Options Exchange's volatility index (VIX), which measures the implied volatility of 30-day index options, fell to 34.46%, last Thursday, having traded at 37.32% the Monday before the attack, and as high as 40% in January, in anticipation of war. Equity option volatility typically travels in an inverse direction to equity performance, he noted.

"We are still in the preliminary stages."--Thiebaut Julin, division manager of capital markets in Paris, commenting on the African Development Bank's plan's to start using credit derivatives for the first time. For complete story, click here.

The U.S. and European credit derivatives market may start allowing different obligations to be delivered in the event of default, a move which could deter new entrants. Lawyers estimated there is a 50/50 chance of the markets going different ways on this issue. Blythe Masters, North American chair of the International Swaps and Derivatives Association's credit derivatives market practice committee and credit official at JPMorgan in New York, concluded an ISDA dealer meeting on Thursday by saying the market would adopt language preventing the deliverable obligations having guarantees from a junior subsidiary to a parent company, according to several attendees. European-based dealers, however, may petition ISDA to allow all guarantees to be delivered. Officials at ISDA declined comment and Masters did not return calls.

London-based Gartmore Investment Management is preparing two fixed-income hedge funds and has hired three senior bond professionals to run them, says Roger Bartley, global cio, fixed income. The first fund, which is slated to debut at the end of the second quarter, will be a global credit hedge fund run by Varkki Chacko and Mark Wauton.

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