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KBC Financial Products started lobbying the Stock Exchange of Hong Kong last week about listing capital guaranteed notes--structured with over-the-counter derivatives--on the exchange, according to Sajeev Sirpal, managing director and head of Asia in Hong Kong. A typical capital guaranteed note will consist of a combination of a zero-coupon bond and a structured over-the-counter call funded by the interest on the note.

Market makers bought approximately one yard of USD0.8650 one-week euro puts/dollar calls Jan. 25 and Jan. 28, which sent implied volatility rocketing to 11% from 9.5%. Spot was trading around USD0.8630 when the options went through, according to traders.

Merrill Lynch plans to structure a managed synthetic collateralized debt obligation by the end of the first quarter. The deal is likely to be referenced to a EUR750 million (USD643 million) pool of investment-grade credits, according to Hermann Watzinger, managing director and head of securitization and portfolio credit derivatives in London. He added that the reference pool will be split into 80% European names and 20% U.S. names because investors have more appetite for European corporates.

Estée Lauder is considering pulling the trigger on an interest-rate swap to convert its debut bond issue into a synthetic floating-rate liability. Earlier this month, the manufacturer and marketer of makeup, fragrance and skin care products, sold USD250 million in 10-year senior notes. Chris Brugo, director of capital markets in New York, said Estée Lauder is contemplating a swap in which it would receive the 6% coupon on the notes and pay a LIBOR-based rate. The company opted not to engage in the swap as part of an all-in-one offering because it wants to monitor interest rates, but he declined to elaborate.

Close-Out Netting

Credit-default protection on Tyco International widened 150 basis points Wednesday as skepticism continued to mount over the company's accounting practices and plans to split the company into four parts. Credit spreads on Tyco widened to about 450bps Wednesday from 275bps a week earlier as a host of market players, from hedge funds to high-net-worth individuals, scrambled to buy protection. "Tyco is a very widely owned name. So many people got burned on Enron that they're starting to panic over Tyco... There is not a huge threshold for pain since Enron," said one credit-default swap trader in New York. He added that there is a strong correlation between the owners of Tyco and the owners of Enron. "If you run the numbers, you'll find that everyone who owns Tyco owned Enron," another trader said.

UBS Warburg plans to start structuring synthetic collateralized debt obligations in Asia. It has hired Robin Willis, managing director of structured products at Bear Stearns, as head of principal finance in Hong Kong, to lead the effort, according to Joonkee Hong, managing director and Asian head of debt capital markets in Hong Kong.

The U.K.'sExport Credits Guarantee Department, a government agency responsible for facilitating and insuring British export companies, is planning to make its first investment in structured credit products to hedge credit risk on its GBP20 billion (USD28.5 billion) contingent liability portfolio. The initiative follows a routine internal risk audit from more than a year ago, which led to the creation of an active portfolio management team charged with mitigating credit risk in the government-backed entity's portfolio, according to said Peter Rossington, senior manager for active portfolio management in London

UBS Warburg is in the process of setting up an emerging markets group to cover fixed-income derivatives for Latin America and Eastern Europe. Coverage will include local currency products, such as interest-rate swaps and structured products, according to an official at the firm. The official continued that while the bank has targeted the markets out of the U.S. and London it does not have a dedicated emerging markets group for derivatives products. It currently has a team of 10 debt capital markets professionals, which covers Latin America, primarily focusing on debt origination but also distribute fixed-income derivatives products and a team of four who cover Eastern Europe.

ABN AMRO is beefing up its global credit derivatives team in New York as part of an intensified effort to increase its presence in fixed income credit products, according to Pat Fay, head of North American fixed income in New York. "We've been adding to the staff pretty aggressively over the last three months," Fay said.

Bank of China International, the investment banking arm of mainland banking giant Bank of China, is setting up an equity derivatives group in Hong Kong and expects to start trading over-the-counter and listed derivatives in two months. "This is part of an initiative to become a full-service investment bank," said Warren Kwan, head of equity derivatives in Hong Kong. Kwan joined last month from Deutsche Bank, where he was a senior equity derivatives trader in Hong Kong. The bank will hire seven traders and marketers to add to its five member derivatives team, which started in the last couple of weeks to establish the group. At the moment Bank of China offers interest-rate and foreign exchange derivatives.

United Utilities Electricity, an electricity company in Northwest England, has entered an interest-rate swap on the back of a GBP100 million (USD142 million) bond it reopened late last month, to convert a fixed-rate sterling liability into a synthetic floater. Tom Fallon, treasurer in Warrington, U.K., said the utility entered the swap with Royal Bank of Scotland Financial Markets, which also underwrote the bond. An RBS official did not return calls.