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Australia's Macquarie Funds Management, with nearly AUD30 billion (USD17.6 billion) under management, is looking to launch two domestic equity funds in the coming months that will employ over-the-counter options. "These will have a mix of qualitative, quantitative and trading strategies," said Phil Dolan, head of investment research in Sydney.

Hedge fund giant Soros Fund Management is on the prowl for credit derivatives traders for its flagship Quantum Endowment Fund in New York. The hedge fund, which is the sixth-largest fund in the world with USD7 billion under management according to Institutional Investor, is hiring to replace six convertible bond specialists, including credit derivatives staffers, who quit last summer to join rival hedge fund manager Duquesne Capital Management, according to officials familiar with the fund's plans. But it could not be determined whether the new hires are being sought only to replace the departures, or to also beef up the firm's credit derivatives trading presence. Michael Vachon, spokesman in New York, declined comment.

This article describes some of the most important steps before, during and after entering into derivatives transactions. It may help build long-term relationships and help you avoid some of the difficult problems that have beset derivatives marketers and traders. However, this is just a guide. It highlights issues rather than answers them.

Five-year credit protection on Sprint Corp. dramatically widened last week, blowing out to 530 basis points Wednesday compared with 350bps the previous week. Much of the widening was related to newspaper articles predicting iPCS Inc, an affiliate of Sprint, is close to filing for bankruptcy, according to a trader in New York. General widening of credit spreads in the telecom sector also affected protection on the name, with Sprint being one of the weakest credits in the industry alongside AT&T Wireless. The January effect, which traditionally sees the buying back of names that had been offloaded at year-end, is beginning to dissipate and buyers for the Sprint credit are not as deep as had previously been thought, he added.

Prudential Securities is structuring its first over-the-counter commodities trade as the firm plans to kick-start an OTC trading operation in softs, energy, such as oil and gas, and grains. In particular, the firm plans to shop commodities swaps and forward contracts to Latin American and Asia-based firms, where Prudential already has a strong client network, said Deborah Bonfield, first v.p. in futures marketing in New York. Offshore and U.S.-based funds investing in these regions will also be targeted to use the products for speculative purposes, she added.

"There will be a bigger and broader market."--David Lai, research team head at Yuanta Core Pacific Securities in Taipei, commenting on the development of a local currency credit derivatives market in Taiwan. For complete story, click here.

UBS Warburg has merged its plain-vanilla and structured credit derivatives business and is thought to be creating one distribution group for all fixed income and credit products, said officials familiar with the plans. Sal Naro, global head of plain vanilla credit derivatives trading, and Mike Connor, global head of structured credit derivatives, will become co-heads of the combined entity. Former UBS staffers and headhunters said co-heads tend to have a short life expectancy in the Hobbesian environment of investment banking and predict that Naro will emerge as sole head of the group. Connor declined comment and Naro was travelling and could not be reached. Spokespersons at the firm did not return calls.

UBS Warburg has hired Ashish Ponda, credit derivatives structurer at Zurich Capital Markets in Singapore, in a similar role for its nascent credit desk in the Lion City. Prior to his stint at Zurich, Ponda headed up the credit derivatives desk for ABN AMRO in Singapore (DW, 6/7). At ABN, he worked alongside Anders Haagen, credit derivatives trader at UBS, who joined last year from ABN to establish its credit derivatives trading operation in Singapore (DW 9/29). "It's like FriendsReunited," said a market official, referring to the popular U.K. Web site which reunites school friends.

The price of one-month euro/dollar options drifted down to 9.4% last Wednesday having traded at 9.6% the previous week while the greenback weakened to USD1.07 in the spot market, from USD1.05. The decline in vol counters traditional market movements, which see vols spike as the euro appreciates, noted a New York-based trader. One reason for the recent fall in vol lies in the slow pace of movements in the spot market. The presence of several large exotic options, which hold big stop losses at levels such as USD1.07 and USD1.08, has also served to stem any volatility increase, he added.

Britannia Building Society has entered a foreign exchange swap to convert a portion of a recent EUR250 million (USD266.375 million) floating-rate offering into a sterling-denominated liability. Jeremy Helme, capital markets manager at Britannia in Leek, U.K., would not reveal the notional size of the swap. He said the purpose of the swap was to achieve a better funding rate. He would not disclose the exchange rate on the transaction.

Bill Armstrong, portfolio manager at Principal Global Investors in Des Moines, Iowa, will swap $504 million, or 7% of the firm's portfolio, from Treasuries and agencies into corporates. He will reduce exposure to Treasuries and agencies by 4% and 3%, respectively. The move will be triggered by a military showdown with Iraq, he says, as the initial reaction to this geopolitical event will be a flight to quality, causing both Treasury and agency bond prices to rally and leading the 10-year Treasury yield to drop to 3.75%. Last Monday, the 10-year Treasury yielded 4%.