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Melbourne-based National Australia Bank, one of Australia's largest banks, is looking to issue two or three synthetic collateralized debt obligations in Australia this year as well as structure a wider array of credit products on the back of growing client interest. "We think there's growing demand for a full range of tranches," said one official.

Citigroup bought USD500 million to USD1 billion (notional) in one-year dollar calls/yen puts struck at JPY135 at the beginning of last week. One-year volatility only jumped to 10.5% from 10.4% as the trades went through first in Asia and then Europe. The Street is bearish on the dollar, so there was a ready supply of options sellers, traders said. Spot was trading at JPY120.43 Tuesday. Steven Reiter, head of fx options at Citigroup in London, did not return calls.

BNP Paribas is bringing aboard Dong Lee, a marketer at LG Securities America in New York, as an equity derivatives marketer in Hong Kong. Laurent De Meyere, Asian head of equity derivatives in Hong Kong, said Lee will cover the Korean market and has been hired to build up the business. Lee is a replacement for Hong Shik Kim, who joined Good Morning Shinhan Securities in Seoul as managing director and head of fixed income and proprietary trading (DW, 7/28). Lee will report to De Meyere and starts in the coming weeks.

European synthetic collateralized debt obligation volumes rocketed last year, while the number of cash flow deals remained, at best, flat. "What I thought might take five or six years happened in two years. The speed surprised me," exclaimed Ebo Coleman, v.p. and senior credit officer at Moody's Investors Service in London. End-of-year figures obtained by DW, due to be published by the rating agencies in the coming weeks, show the number of synthetic CDOs increasing up to three fold, whereas cash flow deals have either stagnated or fallen. Standard & Poor's rated 60 synthetic CDOs and 21 cash flow deals in 2002 versus 17 synthetic and 24 cash flow CDOs in 2001. Moody's Investors Service rated 158 synthetic deals in 2002 compared with 107 synthetic CDOs the previous year. It rated 26 cash CDOs in both years. Standard & Poor's figures only include public transactions, so the proportion of synthetic CDOs is likely to be even higher as more private deals are synthetic.

Deutsche Bank has introduced its first two equity-linked notes in the U.S. and is planning to launch a slew more, one every two weeks. Karen Fang, v.p. in the structured products, global equities division in New York, said the new issues extend the firm's global structured products reach to U.S. investors, with similar products being already available in Europe and Asia. While the first two notes give participation in the Standard & Poor's 500 index, other indices, including the NASDAQ-100 and Russell 2000 will also be used in future products, she added.

PaR Asset Management is setting up a non-trend rule based foreign exchange hedge fund. The asset manager is waiting for Financial Services Authority approval, but expects to receive its license and start trading in March for managed accounts and will launch a hedge fund within six months, according to Chris Attfield, senior investment officer in London. Attfield's co-founder is Mel Mayne, ceo. Mayne and Attfield met when Mayne was the head of the dealing room at First Chicago, now Bank One, where Attfield was a strategic analyst at the firm.

Implementation of the 2002 International Swaps and Derivatives Association equity derivatives definitions will expose derivative users to legal and basis risk and could result in temporary lapses in trading. The new definitions will likely benefit the market by increasing standardization, which then reduces legal basis risk, but in-house lawyers said they are bracing for a period of chaos while the definitions are implemented.

Merrill Lynch has slashed the number of traders on its equity derivatives proprietary trading desk to three people, from around 10, and has stopped statistical arbitrage prop trading. The firm is keeping a scaled down presence in volatility and convertible arbitrage. Officials familiar with the firm's activities said the cuts reflect a change in management philosophy following a recent reorganization that saw the desk come under the responsibilities of Barry Wittlin, co-head of the global rates group.

Salomon Smith Barney has established a global rates and currencies group, which combines several interest rate and foreign exchange groups. The new group sits within the firm's global fixed income division and the reorganization became effective Jan. 1., according to an internal memo sent by Tom Maheras, head of global fixed income, on Dec. 18.

Spintab, a Swedish mortgage bank, has entered a foreign exchange swap on the back of a floating-rate EUR750 million (USD782.96 million) bond to convert it into a synthetic Swedish krona-denominated bond. Martin Rydin, dealer in Stockholm, said the bank uses currency swaps on all of its non-Swedish krona offerings because it needs to fund its mortgage portfolio, which is denominated in that currency. Rydin would not disclose the exchange rate on the deal. CDC IXIS is the counterparty on the swap and was chosen because it has a AAA rating and provided good pricing, according to Rydin.

Cathay Life Insurance, Taiwan's largest insurer with over USD35.4 billion in assets, is considering trading credit derivatives for the first time for its over USD3 billion international fixed income portfolio. "We've been studying lots of articles and reading info from counterparties," said Alex Chang, fixed income analyst in the international investment department in Taipei.