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JPMorgan is working toward setting up its first prime brokerage desk in London and New York. The desk will start by offering total-return swaps, dubbed Prime Swap, in which hedge funds can pay or receive baskets of assets in return for a LIBOR-based rate, according to Christian Dalban, European head of equity and equity derivatives trading in London.

Lehman Brothers is considering setting up an interest-rate and equity derivatives operation in Korea because of planned changes to the Securities and Exchange Act in July. The firm, which has an investment banking operation in Seoul and runs an offshore Korean trading book from Tokyo and Hong Kong, plans to make the push on the back of establishing a branch in Seoul. "We [expect to] receive a branch license in March and expect trading to begin shortly thereafter," said David Kim, managing director of the financial institutions group at Lehman in Seoul. Kim will be responsible for the cash equity and fixed-income products.

Alastair Cooper, managing director and head of equity derivatives sales at Morgan Stanley in London, has left the firm. Cooper has been replaced by Tom Levy, head of program trading, according to Andrea Bothamley, spokeswoman. Levy, who will keep his previous responsibilities, did not return calls.

Nationwide Building Society, the largest U.K. thrift with more than GBP75 billion (USD107 billion) in assets, is looking to hire four derivatives-savvy professionals for its treasury department as it continues to increase its assets and therefore increase its risk management activities. The company is looking to hire a head of treasury risk to manage the GBP30 billion the department oversees.

Fitch Ratings, Moody's Investors Service and Standard & Poor's are planning to allow investment vehicles set up by banks and fund managers, known as structured investment vehicles or SIVs, to sell credit-default swaps for the first time. SIVs can only invest in instruments approved by the rating agencies. The rating agencies are taking this initiative now because liquidity in credit-default swaps is improving and because capital adequacy, settlement and documentation issues relevant to SIVs have been ironed out, according to Serj Walia, associate director in structured finance at S&P in London. The development is significant because some USD80 billion is invested in SIVs.

Scholastic Corp., a children's book publishing company in New York, has entered an interest-rate swap on the back of a USD300 million bond offering it issued last month. Vinnie Marizano, company treasurer, said the swap was used to convert the 5.75% coupon on the bond into a floating-rate liability. He added that the swap was included as part of the offering and executed simultaneously.

RBC Capital Markets is merging its cash and synthetic investment grade credit business in response to convergence between the two markets, according to Walter Gontarek, head of global credit products in London. "The merger of these businesses is in response to investor demand for one-stop credit products shopping and the need to manage cash and synthetic credit liabilities under one management structure," Gontarek added. RBC's global credit products unit will now handle synthetic investment grade credit risk in loan trading, corporate bonds, credit derivatives and synthetic collateralized debt obligations.

UBS Warburg is working on a proprietary credit derivatives model which will allow end users to create baskets of default swaps to achieve tailored levels of risk over the Internet. Alberto Thomas, director in European structured products in London, said the innovation will allow potential investors to play around with specific credits to determine the expected default rate of the basket based on Moody's Investors Service's methodology. The initiative is customer-driven and comes as there is growing demand for rated default swap baskets, said Thomas.

Northern Rock has entered an interest-rate swap to convert a GBP250 million (USD354 million) fixed-rate bond into a synthetic floating-rate obligation, according to an official in the treasury department in Newcastle, U.K. The building society issued in a fixed-rate as part of its regular funding to generate cash to fit its fixed-rate mortgage portfolios and fixed-rate savings products, he said. However, it is converting the proceeds to floating because it uses three-month LIBOR as a benchmark for risk management.

UFJ Bank, created by the merger last year of Japanese Bank's Sanwa Bank and Tokai Bank, is planning to structure its first yen-denominated synthetic collateralized debt obligations and expects to issue up to USD1.5 billion this year. "I expect this will happen within six months," said Hiroyuki Yoshizawa, credit derivatives trader at UFJ. Synthetic CDOs are more attractive investment vehicles for some investors than credit-default swaps because the former can be structured to avoid mark-to-market accounting, he explained.

John Rusnak, the currency trader under investigation for losing USD750 million in foreign exchange trades at Allfirst, Allied Irish Bank's U.S. subsidiary, wanted to buy a new risk management system for the firm more than a year ago, but was turned down because of budget contraints. David Aaron, director of sales and marketing at DerivaTech, a risk management software vendor in New York, said Rusnak approached DerivaTech more than a year ago because he wanted to replace Allfirst's risk management software.