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John Hancock Financial Services is planning to make its debut as a manager of synthetic collateralized debt obligations. The asset manager is waiting for market conditions to improve and accounting rules to be clarified before launching the product. Mark Goldman, senior actuarial associate in Boston, Mass., said the firm has already made headway on what will be its first deal, likely in the USD1 billion (notional) range and which will reference a pool of investment grade credits. The firm wants to see improved arbitrage opportunities before bringing the deal to market.

Hamon Investment Group, with over USD282 million under management, is looking at increasing its exposure to Indian stocks via equity swaps in the coming months. Vincent Cheng, cio in Hong Kong, said the asset manager recently started using over-the-counter equity options and equity swaps to gain access to the growing domestic stock market in India. OTC products referenced to Indian underlyings account for less than 5% of the portfolio, but Cheng said the firm is considering upping its exposure, given that it foresees continued growth in the market. Cheng declined further comment.

JPMorgan has started marketing equity-default swaps, which work in the same way as a credit-default swap but use an equity trigger. The are, however, two major differences. First, protection can be triggered by the stock hitting a floor level. Second, there is a fixed recovery rate, according to JPMorgan marketing material obtained by DW.

Lehman Brothers has hired Rachid Bouzouba, official in equity derivatives trading at Credit Lyonnais Securities in London, in a new role as head of exotic, index and prop trading within its equity derivatives group. Bouzouba, who has not yet started at Lehman, reportedly will work for Siggi Thorkelsson, head of equity derivatives trading in London. Thorkelsson could not be reached. Bouzouba declined comment.

Prominent players in Korea's interest rate swap market including Citibank and JPMorgan have cut their prop trading books due to liquidity plummeting in recent months. Market officials attributed the move to mark-to-market losses caused by the widening of cross-currency swap spreads in March (DW, 3/16) as well as tough domestic economic conditions which have forced banks to reduce their exposure to Korea. Daily interest rate swap volumes have fallen by 50% from a high of USD350 million a day six months ago, according to one head of derivatives in the region.

Merrill Lynch has recently issued its first inflation-protected equity-linked note and plans to issue similar notes on a regular basis. Joachim Willnow, head of the structured solutions group for Europe, Middle East and Africa in London, explained that the firm decided to structure this type of product because it sees significant demand from investors for instruments that protect them from any factor that will erode the value of their holdings.

"If it is just papering over the crack--a regulator could dispute it."--Patrick Clancy, counsel at Shearman & Sterling in London, commenting on the importance of making sure a credit derivative is not deemed an insurance contract. For complete story, click here.

UBS Warburg has nabbed Peter Tchir, head of structured credit at WestLB in New York, to work in its structured credit operation. The hire is part of the Swiss giant's effort to beef up its credit derivatives and structured credit presence, according to officials.

Principal-protected securities can be attractive investments in the current market environment where investors are concerned about the loss of principal in higher-yielding investments, yet frustrated at the low returns Treasuries or other high-quality instruments offer. Protected securities assure the return of principal at maturity without limiting the upside potential of the investment. As a result, they allow investors to participate in the expected yield of hedge funds with minimal risk of losing principal.

American International Group is merging AIG Financial Products and AIG Trading, two overlapping businesses that have often been in direct competition. It could not be determined by press time who will head up the merged entity. Calls to AIG were referred to Andy Kaplan, general counsel, who did not return calls.

Oesterreichische Kontrollbank, the Austrian export credit agency, has entered an interest rate swap on a USD1 billion bond offering to convert it into a floating-rate liability. Ebner Anton, deputy head of treasury at the agency in Strauchgasse, said its policy is to convert fixed-rate debt into floating-rate. The firm chose to keep the proceeds of the offering in U.S. dollars, however, because it has dollar assets, Anton added. He noted that it is typical for the export agency to issue bonds in greenbacks a few times per year. The tenure of the swap matches the five-year maturity of the bond.

Five-year credit protection on Altria Group, which owns Philip Morris USA, tightened to 210 basis points last Wednesday, having traded wider than 300bps the week before, after a Florida appeals court revoked a USD145 billion verdict against tobacco companies, which includes Altria. Default swaps on the name widened by 15bps last Wednesday, standing at 225bps, as a result of technical factors, said a New York-based trader. No single strategy dominated, but the name is widely held by hedge funds, insurers and banks, said the trader.