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A December regulation change was the last in a series under which French managers have been given an increasing capacity to trade over-the-counter derivatives, well in advance of the implementation of the "UCITS III" directive, which is due to be implemented by member states within a year.

The cost of one-month dollar/yen options fluctuated last week before settling at 9.8% Wednesday, the same price as the previous week. Implied volatility had jumped to 10.2% Tuesday on the back of movements in the spot market, which saw the yen strengthen to JPY118.6 Wednesday, from JPY120.5 two days earlier, explained one New York-based foreign exchange options trader.

Volumes for credit protection referenced to Deutsche Telekom jumped 10 times last week after the German telecom issued a EUR2.3 billion (USD2.47 billion) mandatory convertible bond. Deutsche Telekom's credit-default swap spreads came in 15 basis points to 190bps on Wednesday when the convertible priced. One trader said volumes jumped to around USD300 million, versus about USD30 million trading on a typical day. Hedge funds were the major buyers of protection.

Morgan Stanley reportedly purchased USD150Ð250 million (notional) of one-month dollar puts/Mexican peso calls between Feb. 10-15. The options are struck at MXN10.60-10.70. Trading volumes on the currency pair more than doubling over the previous few weeks, said New York-based foreign exchange options traders. Spot was trading at MXN10.9 on Friday. Melissa Stonberg, spokeswoman at Morgan Stanley in New York, did not return repeated calls.

Merrill Lynch, Deutsche Bank and Lehman Brothers are structuring credit derivatives linked to European rates of inflation and predict this could become a major market this year. "Inflation is one of the key benchmarks for funds and insurance companies...The market is limitless," said Tony Main, v.p. in the global credit derivatives group at Merrill Lynch in London. Mike Tims, chief executive of medium-term note data provider mtn-i.com in London, said the increase in inflation products could be explained by inflation fears on the back of anticipated oil price spikes, coupled with bond investors looking for

Credit derivatives professionals have started to question whether credit-default swap (CDS) trading desks can remain profitable if the downturn in synthetic CDO issuance continues. A JPMorgan research report, published last week, says only two collateralized debt obligations have been issued so far this month and returns on CDOs have fallen to 20-25% from 30-40% at the end of last year. This, combined with fears about Iraq and credit quality uncertainty, has halved default swap trading volumes over the last weeks, according to traders. The current issuance of CDOs stands at about half of normal levels, according to researchers.

The International Swaps and Derivatives Association plans to draft user guides for the master agreement and the credit and equity derivatives definitions. Kimberly Summe, general counsel in New York, expects to have a first draft of the master agreement guide late next month, with the draft equity and credit guides coming out in April. These will then go through the various committees and should be finished in around nine months.

Japanese insurers are pushing dealers to drop the restructuring clause in credit derivative contracts on domestic names and have recently sent a position paper to the International Swaps and Derivatives Association. Tokio Marine & Fire Insurance, Mitsui Sumitomo Insurance, Shinsei Bank and Sompo Japan Financial Guarantee Insurance all signed the paper, which is available on DW's Web site (www.derivativesweek.com). Tomoko Morita, assistant director of policy at ISDA in Tokyo, said it is just a question of timing as to when the Japanese credit derivatives market drops the restructuring clause for credit-default swaps.

LG Card, one of Korea's largest credit card companies in terms of assets with over KRW33.7 trillion (USD27.9 billion) in assets, is preparing to complete a USD300 million cross-currency interest rate swap on the back of a recent asset-backed security transaction. "We're just waiting for approval," said Kim Jae Hyun, head of finance for debt related transactions in Seoul, noting that the insurer has applied to the Financial Supervisory Service to okay the swap. Kim said that he expects it to be signed-off in the coming days and should be able to enter the transaction by the end of the month. LG will convert the entire issue.

"Inflation is one of the key benchmarks for funds and insurance companies...The market is limitless."--Tony Main, v.p. in the global credit derivatives group at Merrill Lynch in London, predicting the market for structured credit products linked to inflation could be huge. For complete story, click here.

A U.K. law firm has drafted a standard document for credit portfolio swaps in a move that could revolutionize the synthetic structured credit products market. A standard document could reduce drafting risk, save money on legal fees and speed up the time it takes to draft and rate the transactions, according to Chris Georgiou, partner at Ashurst Morris Crisp, the law firm that drafted the document, in London. Officials at CDO giants Morgan Stanley and JPMorgan said they would welcome a template that standardized the basic elements, such as the cash settlement procedure, of structured products.

TD Securities has hired Andrea Fabbri, director and deputy head of credit derivatives at IntesaBci in Milan, and Bob Champney, director in specialist derivatives sales and trading at Merrill Lynch in London, for its derivatives sales group. Fabbri joins with responsibility for marketing structured credit products, including cash and synthetic CDOs, to Southern Europe, while Champney joins the structured equity group with a particular focus on marketing products to U.K. fund managers.