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The cost of one-month U.S. dollar/euro options rose last week as the dollar sank to USD0.945 Wednesday, its lowest level against the common currency in 17 months. Implied volatility rose to 9.9% late Wednesday from 9.5% at the start of the week, according to options traders in New York. A weaker dollar tends to lead to higher volatility. They said continued declines in the U.S. equity markets are causing weakness in the dollar. "There's a lack of capital inflow as a result and given the fact that the dollar is a deficit currency, you need money coming in for the dollar's value to remain high," noted one trader. He and others reported strong buying interest in one- and three-month euro calls/dollar puts with strikes ranging from USD0.95 to parity. The euro's run pushed 25-delta risk reversals further in favor of euro calls at 0.9 vol, up from 0.8 vol at the beginning of the week.

Recent months have heralded change on many fronts for the derivatives industry in Germany. New legislation and supervisory regulations and directives together with recent judicial decisions and developments in the fields of tax and accounting spell a time of opportunity and new challenges for market participants.

"This is a pretty big restructuring."--Nick Riley, head of credit derivatives trading for Europe, Middle East and Africa at Morgan Stanley in London, talking about a reorganization of the firm's credit derivatives department. For complete story, click here.

WestLB is reorganizing the structure of its global asset securitization, principal finance and credit derivatives group, and John Paul Garber, managing director and head of the group, is leaving the firm. Garber has been with the firm for 11 years, four of which were spent in London and the remainder in New York, according to an individual familiar with the situation. Garber does not have concrete plans for what he will do next. Garber and John Godfrey, spokesman for WestLB, declined comment.

ABN AMRO's equity derivatives department has started pitching trades to corporates allowing them to synthetically unwind corporate cross-share holdings in Japan and plans to close its first trade in the coming weeks, according to Daisuke Kikuchi, head of corporate marketing in Tokyo. "This will allow clients to dispose of their holdings," he added. Kikuchi, who joined two months ago from Westdeutsche Landesbank, where he was head of marketing in Tokyo, said he is looking to finalize the transaction with a domestic corporate. The bank is structuring the product now because it has just received internal approval.

Asbury Automotive Group, the fifth-largest auto retailer in the U.S., has unwound three swaps with Goldman Sachs as part of its new interest-rate risk management program, said Jeffrey Hilsgen, treasurer at Asbury in Stamford, Conn. Eric Jordan, the company's banker at Goldman Sachs in New York, declined comment.

Bank of Montreal has hired Emma Vassallo and Lucile de Carbonnières, v.p. and director in credit product sales at TD Securities, as managing directors in the global financial product division. Rod Jones, executive managing director and head of international capital markets in London, said the hires are part of the firm's plans to grow its credit derivatives group. "Credit derivatives will become the biggest derivatives market in the next five to 10 years," said Jones, adding, "This is the basis of banking."

European and U.S. credit derivatives documentation is converging--but the restructuring credit event remains the key unresolved issue, according to Chris Francis, managing director and head of international credit research at Merrill Lynch in London.

The cost of five-year credit protection on Michigan utility CMS Energy doubled last week as the company's USD450 million bank facility was set to expire. Five-year protection blew out to 1,100-1,350 basis points Wednesday, from 550-650bps earlier in the week, with demand for protection coming from the hedge fund community. The default-swap curve also inverted, with mid-market one and a half-year protection at 1,300bps, indicating short-term concern for the company. It is in the process of restating earnings from 2000 and 2001 to eliminate revenue generated from so-called round-trip trades, which occur when a company buys and sells electricity at the same price to artificially inflate trading volumes. "That's inflated their revenues by something like USD4 billion. It's an investor confidence issue," said one trader. But he added that among utilities, CMS does not rely on trading revenues as much as other names such as Dynegy.

Deutsche Bank has hired Munir Dauhajre, managing director and head of liquidity sales at Merrill Lynch in New York, as a managing director in charge of cross-rates fixed-income sales in New York, filling a role that has been vacant since the departure of Mal Brooks earlier this year, according to an official at Deutsche Bank. Dauhajre, who started at Deutsche Bank earlier this month, is now head of interest-rate derivatives, government and agency debt sales to other banks, hedge funds and insurance companies. He reports to Brian Reid, national fixed-income sales manager in New York. Dauhajre, who held a similar role at Merrill, referred queries to Reid, who did not return calls.

European investment houses, such as UBS Warburg and Dresdner Kleinwort Wasserstein, are reportedly looking at structuring the first collateralized debt obligation referenced to portfolios of debentures, according to officials familiar with the transactions. Debentures are the U.K.'s precursor to asset-backed securities, with the major difference being the assets remain on the balance sheet of the issuer giving the investor a senior claim in the case of bankruptcy. These deals are expected to be around GBP1 billion (USD1.47 billion). One official said the deals are being prompted by client demand to remove these assets from their balance sheets. Officials at UBS declined comment.

ICAP is in the process of launching a foreign exchange forward electronic brokering platform internally and may roll it out as a view-only platform via the Internet. Donald McLumpha, director, London/Europe of the electronic broking division, said ICAP is in the process of testing the platform and expects to start using it in about three months.