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BMO Nesbitt Burns is planning to become a credit-derivatives market maker for clients. Credit spreads have been widening in the cash markets, spurring more interest from clients in credit derivatives as a means of gaining synthetic exposure and a means to hedge credit exposure, said David Hyma, executive managing director and head of capital markets in Toronto. Clients interested in the product include internal BMO clients, such as loan portfolio managers, asset swap portfolio managers, and collateralized debt obligation stucturers, and external clients, including corporates, financial institutions, and regional commercial banks.

Credit default swap spreads widened last week on several technology companies, some of which, including Solectron and Corning, had outstanding convertible bonds. As share prices have fallen for these companies, convertibles have become cheaper, said Tanya Ferencko, principal, credit derivatives trading at Morgan Stanley in New York. If a bond is trading at a wider spread, that implies that the default swap spread should be wider as well.

Andrew Kellner, head of interest-rate derivatives at Dresdner Kleinwort Wasserstein in Tokyo, has recently left the firm. Yukiko Omura, managing director and head of global debt-Japan, said Kellner left the firm for personal reasons and is now in Europe. She added that he might return to the industry in the future, possibly at the end of the summer. "We'd be glad to hire him back if an appropriate position is available," Omura added. A trader from Dresdner's Frankfurt office will be filling Kellner's shoes, she continued, declining to name the individual. Kellner could not be reached.

Uncertainty continues over derivatives transactions with counterparties in the People's Republic of China following rejection of swap claims in October 1999 by the liquidation committee of Guangdong International Trust & Investment Corp., despite recent clarification by the State Administration of Foreign Exchange.

Tim Collins, managing director, marketing equity derivatives to hedge funds at Bear Stearns, has taken the new position of director, equity derivatives marketing, focusing on tax and risk arb products for hedge funds at Merrill Lynch in New York. At Merrill, he reports to Brian Abdoo, managing director and head of over-the-counter equity derivatives marketing in New York. Abdoo referred calls to a spokeswoman, who declined comment. Collins also declined comment.

Trading firms active on major options exchanges are beginning to merge. According to DW sister publication Wall Street Letter, many New York Stock Exchange specialist firms, which also have operations on the four major options exchanges, have been looking to get bigger. Susquehanna Investment Group was rumored last week to be in talks to acquire Beartooth Capital, a designated primary market maker (DPM) on the floor of the Chicago Board Options Exchange. Acquiring Beartooth would give Susquehanna control of options on Yahoo! Inc., Hewlett-Packard Co., and The Home Depot, Inc.

Fuji Investment Management Co. is contemplating making its first systematic use of interest-rate swaps to enhance yield on its JPY1 trillion (USD8.1 billion) fixed-rate bond portfolio in the event of a rise in interest rates. Akira Takei, fund manager and senior v.p., said a tax cut in the U.S. is inevitable. This will lead to a pick up in growth and make an interest-rate hike inevitable later this year. Fuji is interested in receiving floating in a swap to enhance yield on its fixed-rate bond portfolio, he explained.

Ted Tsao, director, equity derivatives marketing at Merrill Lynch in New York, has joined Salomon Smith Barney in the new position of director, head of U.S. non-dollar denominated equity derivatives sales. He reports to Charlie Miles, managing director, U.S. derivatives sales in New York. Tsao is responsible for marketing non-dollar denominated equity derivatives from around the globe to clients in the U.S., said Miles.

Branch Banking & Trust is about to enter into a USD20 million (notional), 10-year callable interest-rate swap with a corporate client. Rich Miller, v.p., risk management in Winston-Salem, N.C., said the bank reserves the right to call after seven years. He declined to name the client, except to say that it is a corporate that has issued a bond. The rates have not been determined, but Miller estimated that the client will pay a fixed rate of around 5.45% and will receive a U.S. dollar LIBOR-based rate. The client is looking to fix its liability when interest rates are low and their long-term future direction is uncertain, he added.

Investors bought somewhere on the order of a yard in short-dated U.S. dollar calls against the yen last week, struck around JPY124 and JPY125, anticipating dollar strength as Japanese corporates reinvest money they had repatriated. Japanese corporations last week repatriated funds ahead of fiscal year end in order to book profits, said traders in New York. With the new fiscal year, they are expected to send those funds back overseas. Spot was around JPY123.5 when the trades were put on mid last week. Last Thursday, implied vol for a one-week position with a strike of about JPY124 would have been roughly 15.5%, said Craig Puffenberger, managing director and global head of foreign exchange trading at Credit Suisse First Boston in New York.