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Equity derivatives players in Hong Kong are up in arms about upcoming financial regulatory changes because they could hinder liquidity in the over-the-counter market and be expensive to implement. "[The Securities and Futures Commission is] really trying to clamp down on market manipulation, but this could drive away liquidity," said Ali Ahmed, head of equity derivatives trading at ABN AMRO in Hong Kong.

The International Swaps and Derivatives Association has released its fifth and final draft of the 2002 master agreement and is asking its members for comments by Nov. 11. Kimberly Summe, general counsel at ISDA in New York, said in an e-mail to ISDA members that the group would circulate a pre-publication draft at the end of November and publish the new agreement by year end.

The International Swaps and Derivatives Association is planning to unveil the final draft of the 2002 equity derivatives definitions within the next week, with the intention to seek comments by Nov. 15 and publish the final document before year-end.

The Toa Reinsurance Co., one of Japan's largest reinsurers with over JPY455.2 billion (USD3.64 billion) in assets, has stepped up its examination of the synthetic collateralized debt obligation arena with an eye to investing in a deal next year. Ohura Kazuhido, manager in the investment department in Tokyo, said the department is currently planning next year's investment strategy for its USD700 million portfolio and is considering synthetic CDOs to enhance yield. "It's possible we'll invest within six months," he added. The department, which invests in a wide array of products from Japanese government bonds to weather derivatives, has looked at CDOs before, (DW, 12/8) but is patiently studying the product rather than making a plunge, said Kazuhido. "We're conservative."

Kookmin Credit Card Co., one of Korea's largest card issuers with over USD10.4 billion in assets, is finalizing the details for a cross-currency interest rate swap on the back of a USD500 million credit card securitization. James Lee, an associate in the treasury department at Kookmin in Seoul, said the entire issuance, made up of five-year floating rate dollar-denominated notes, will be converted into fixed won within two weeks. "We're still in the middle of negotiating the [International Swaps and Derivatives Association Master Agreement]," he added. ING Bank, the structurer for the ABS deal, will be the counterparty for the swap. He declined to comment on target rates.

The London branch of the Korea Development Bank plans to hire a treasurer, who will explore using credit derivatives to buy protection and take exposure. David Afcroft, head of securities trading in London, said part of the new treasurer's responsibility will be to examine credit derivatives. "A new treasurer, with experience, would presumably look to take on exposure as he sees fit, not necessarily massive exposure, but [it] would increase our opportunities." The firm does not plan to make markets in credit derivatives from its London office. The firm's Seoul headquarters already uses credit derivatives.

Nomura Advisory Services Malaysia is considering structuring the first ringgit-denominated synthetic collateralized debt obligations in Malaysia, the first of which could hit the market next year. "This is something that we'd definitely like to develop," said Steve Clayton, managing director and head of debt capital markets and investment banking in Kuala Lumpur. The move follows the beginnings of a cash CDO market earlier this year.

Nordic Investment Bank, a multilateral financial lending institution, has entered a cross-currency interest rate swap to convert a NOK400 million (USD53.28 million) bond into a synthetic floating-rate obligation. Samu Slotte, senior funding officer in Helsinki, said the agency may enter similar swaps this calendar year since it has EUR1 billion in funding needs and may tap the capital markets. Slotte, however, said it has not yet been determined how much would be raised from the capital markets and how much would come from its cash reserves, which total EUR2.3 billion.

Credit-default swaps spreads on Saint-Gobain blew out last week as the company confirmed it is exposed to 5,000 asbestos claims per month, and in a reaction to the news, protection on building material companies Lafarge and Hanson also jumped. Traders said the spillover effect may be the tip of the iceberg as the market is nervous about exposure to asbestos law suits, particularly after ABB's recent announcement that it could face bankruptcy based on losses from asbestos claims in the U.S. "It is a big unknown and the market is questioning how [asbestos exposure] will affect companies in Europe," said one trader.

Standard & Poor's is reviewing its rating methodology for first-to-default baskets and may adopt a new system more in line with the other agencies. S&P currently uses a weakest-link approach to rating baskets and is examining changing this to reflect the diversity of portfolios, according to Nik Khakee, director in the structured finance group in New York. Within three weeks it will likely be decided whether, and how, to change its rating, he added.

The International Swaps and Derivatives Association has issued the minutes to Oct. 15's meeting, when the U.S. credit professionals rejected the European modified modified restructuring proposals.

"For AAA notes Moody's is the harshest, but for mezzanine classes S&P tends to be the harshest."--Yukio Egawa, director in the global securitization research group at Deutsche Securities in Tokyo, commenting on the rating agencies' different methodologies for rating CDO tranches. For complete story click here.