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Congress has eliminated several sections of a bill that could have dealt a mortal blow to the synthetic and cash securitization market, according to DW sister magazine Real Estate Finance & Investment. The clauses were part of the pending Employee Abuse Prevention Act of 2002 and would have allowed bankruptcy trustees to seek a more senior position than securitization investors in the event of a bankruptcy. This could have resulted in investors suffering delays in receiving recovery values or even losing their whole investment because the bankruptcy trustees could have had priority over the company's securitized assets, according to Lorraine McGowen, partner in the bankruptcy and debt restructuring group at Orrick, Herrington & Sutcliffe in New York. Steven Weise, attorney in the Los Angeles offices of Heller Ehrman White & McAuliffe, agreed, "Some of the provisions could have had a severe and dramatic effect on the structured finance markets."

Foreign derivatives houses, including Deutsche Bank, Salomon Smith Barney and Credit Lyonnais, are beefing up their Korean equity derivatives presence in anticipation that new rules allowing Korean end users access to the onshore market will result in business trickling through to the offshore mart. "We've been building up our exchange-trading presence in Korea," said Nick Fennell, head of equity derivatives at Deutsche Bank in Hong Kong. Harold Kim, managing director of Asia Pacific equity derivatives at Salomon Smith Barney in Hong Kong, also has high hopes for the onshore OTC mart resulting from clearer regulations and local houses entering the fray.

KBC Financial Products has been structuring products recently that offer investors a hybrid return from the equity, credit and hedge funds arena. Carlo Georg, managing director and head of trading in London, said investors have been steering away from single asset class products and in particular, the demand for equity products has plummeted roughly 50% over the past year because of investors' aversion to the equity markets.

The planned 2002 ISDA Master Agreement will include a new definition of the close out amount and will add a force majeure termination event. Richard Tredgett, partner at Allen & Overy in London, said the new definition of the close out amount is the most important change because the market quotation requirement is seen as too strict a procedure and in market turmoil it is difficult to obtain quotations. In the new close out definition, the overriding principle is good faith and commercial reasonableness, Tredgett explained, adding that it combines elements of both market quotation and loss, maximizes flexibility of the non-defaulting party and does not require strict procedures of market quotation.

Roland Burley, at Bankgesellschaft Berlin AG in London, thinks there is more than one way to view the Marconi situation and explains why.

The Royal Bank of Scotland Financial Markets will bring its first managed collateralized debt obligation to the market this quarter. The EUR1 billion (USD981.8 million) CDO will be managed by a large European fund manager, according to David Littlewood, global co-head of the structured credit products group in London. He declined to provide further details.

The price of placing super senior risk has shot up over the last month as insurers have reassessed restructuring risk after U.S. broker dealers designated Xerox' restructuring in late June as a credit event. In addition, Financial Security Assurance--one of the largest players--recently decided to temporarily pull out of the CDO market, according to Betsy Castenir, spokeswoman in New York.

A panel of credit derivatives bankers suggested that the debate over including restructuring as a credit event could result in a dually-priced credit-default swaps market in which investors pay more to include restructuring as a credit event (see the Learning Curve for more about the cost of restructuring).

Guy Hargreaves, director of global credit derivatives marketing at Deutsche Bank in Sydney, is leaving the firm at the end of the month, according to officials familiar with the situation. Market officials said Hargreaves, who has worked at the firm for over a decade, is taking time off from the industry. He declined all comment.

Seoul-based insurer Kyobo Life Insurance is considering increasing its investments in hybrid notes as a way to increase the yield on its USD1 billion domestic fixed-income portfolio. Kuk Junho, associate portfolio manager, said, "It's hard to find as good of a yield," explaining that as a hybrid note contains both credit and interest rate exposure it offers a higher yield than traditional credit-linked notes.

Credit-default protection on bulge bracket firm JPMorgan Chase widened as much as 20 basis points last week, after the second-largest U.S. bank warned that third-quarter earnings would lag second-quarter results because of weaker-than-expected trading profits and bad loans. Five-year default swaps were trading at 95 basis points Wednesday, up from 75-80bps before the announcement, according to traders. Volume was very high, with one trader at a large U.S. dealer reporting he had done USD60 million in JPMorgan trades on Wednesday alone, compared to a daily average of USD5-10 million.

HSBC recently hired Ernest Yip, interest rate derivatives trader at JPMorgan in Hong Kong, as a government bond trader on its fixed-income trading desk. Yip is a replacement for Sean Wan, bond trader, who recently left the firm, according to Justin Chan, head of Hong Kong dollar interest rate and derivatives trading at HSBC in Hong Kong. Wan could not be reached for comment.