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One-week to one-month U.S. dollar/yen implied volatility rose sharply Tuesday afternoon on the expectation that the Bank of Japan would intervene in the yen--which happened Wednesday morning at a price of JPY123.70. One-week implied vol rose to 11% from 9% Tuesday and one-month implied vol climbed to 9.75% from 7.95% the week before. One-year implied vol did not move as much over the week, rising to 9.23% from 9.08% because investors were buying options based on expectations of short-term spot moves.

XL Capital Assurance, a financial guarantor, has recently added three securitization veterans to its growing New York operation. David Blakeslee, v.p. in the mortgage and asset-backed securities analytics group at Merrill Lynch, joined as v.p. in its analytics group; Scott Madden, assistant v.p. public finance in its structured single risk group, and Kate Manion, assistant v.p. in its surveillance and research group, both joined from MBIA where they were assistant vice presidents. Blakeslee will do quantitative analysis and modeling of structured finance products, reporting to Hong Jiang, v.p. analytics group. Madden will focus on new business and underwriting, reporting to Wynne Morriss, senior managing director in the structured single risk group. Manion will focus on surveillance for consumer ABS, franchise loans and CDO deals, reporting to Dick Heberton, managing director.

Emanuel Derman, managing director and head of the quantitative risk strategies group in the firm-wide risk department in New York, is leaving Goldman Sachs next month. Derman is "one of the most prominent quantitative analysts in the options area," according to Andrew Harmstone, head of European derivatives and quantitative research at Lehman Brothers in London. Derman also won the International Association of Financial Engineers' coveted Financial Engineer of the Year award in 2000.

First Chicago Tokio Marine Financial Products is looking to issue at least two synthetic collateralized debt obligations in Japan by year-end, according to Takeshi Yoshikawa, ceo in Tokyo. Yoshikawa said the firm completed its first CDO in Japan in March, a USD300 million deal, and believes FCTM will issue additional CDOs of up to USD500 million. He continued that the portfolio will likely contain Japanese credits as well as global names to insure diversity, but will be denominated in dollars.

Financial institutions in the U.S. are set to pull in billions of dollars of business providing capital guaranteed funds backed by over-the-counter swaps with insurance companies. Both Deutsche Bank and Salomon Smith Barney are working on products that will use derivatives with insurance companies to provide guarantees, according to officials at both firms. Jean-Marie Barreau, head of fund derivatives at Deutsche Bank in London, said the market could grow from around zero now to USD5 billion in the first year and USD10-15 billion the following year.

ING Financial Markets is planning to put itself back on the equity derivatives map in Asia by re-establishing a desk in Hong Kong in the coming months, according to market officials. "They're coming back into the market," noted one official, adding that ING had pulled the plug on its equity operation during the Asian financial crisis.

Algometrics, a London-based hedge fund, is entering the credit default swaps market for its USD33 million proprietary equity fund, Algometrics Cayman. Stephen Smith, managing director, said Algometrics is also entering the market on behalf of its investors. The firm trades for approximately three outside funds. Growing liquidity in the credit-default swaps market is spurring Smith to use the over-the-counter credit instruments. Currently, the fund only uses exchange-traded equity derivatives and over-the-counter equity options. "If you're trading the stock, credit derivatives are the way into the next tier of equity risk," Smith said. Algometrics has done some experimental credit-default swaps trading and is building a system to use for trading.

KBC Asset Management has entered an equity swap to guarantee a new product, and it plans to enter a similar swap this week. The three-and-a-half-year maturity fund, dubbed KBC EquiPlus, is split into three equal periods. Investors receive a 0.5% coupon for each of the 20 stocks that end the period above the initial level of the fund, said Lode Roose, product development manager in Brussels.

"The U.S. market is way behind Europe [for structured equity products], but it is catching up quickly."--Jean-Marie Barreau, head of fund derivatives at Deutsche Bank in London, commenting on the development of guaranteed funds in the U.S. For complete story, click here.

Merrill Lynch has hired two fixed-income marketing specialists from Morgan Stanley for its structured products and credit derivatives, according to the new recruits. Masahiro Sekino and Chikara Tanaka, of the fixed-income sales group at Morgan Stanley in Tokyo, joined three weeks ago. Sekino has joined as a managing director but said his exact role and reporting line are still being determined, declining to elaborate. Tanaka said he has joined as v.p. in the corporate coverage group specializing it marketing structured products and credit derivatives as well as interest-rate and foreign exchange derivatives to Japanese corporates.

SBI China Provident Capital Management, a newly established pan-Asian hedge fund with some USD10 million under management in Hong Kong, is looking to purchase and sell credit derivatives for its multi-strategy portfolio. "It's part of our mandate," said Adrian Churn, cio in Hong Kong, adding, credit derivatives are part of the fund's strategy.

Insurance transformer transactions are structured to transform a potential liability under a credit-default swap into an insurable loss falling within the scope of an insurer's permitted activities. As such, they are amongst a number of products used to transfer risk from the banking sector to the insurance markets (and to a lesser extent vice versa), which have been the subject of a discussion paper, Cross sector risk transfers, published this month by the U.K. Financial Services Authority. This article briefly considers some of the legal issues associated with this type of transaction.