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Abbey National Financial Products is about to launch a capital guaranteed FTSE 100 tracker fund that is structured using over-the-counter derivatives. Nigel Cannon, head of equity derivatives marketing in London, said the notes are innovative because they offer 100% participation within what is essentially a capital guaranteed structure, as the FTSE 100 would have to drop by more than 50% in the next five years for investors to lose capital. Traditional capital guaranteed structures do not have that downside feature but usually only offer 70% upside, he noted. "There's a one-for-one downside risk if the market ever falls by more than 50%, but you're talking about the FTSE 100 going below 2,500, and God forbid this market should ever go down that far," he said. The U.K. equity benchmark closed at 5,135 Tuesday.

Banks that sold a European-style dollar/yen double no-touch barrier option with a payout of some USD20-50 million were scrambling last week to cover their exposure as the option looked increasingly likely to expire in the money. Traders said firms short the option have been active selling strangles, in which they sell dollar calls/yen puts struck at the upper barrier and sell dollar puts/yen calls struck at the lower barrier, in order to generate premium in the event the barrier option expires in the money.

Five-year credit-default protection on U.K. telecom company Cable & Wireless blew out 100 basis points Wednesday before tightening to about 70bps wider than the previous week. The move comes amid concern over the telecom operator's accounting practices, which also caused similar widening in the cash bond market and sent its shares to a 12-year low. Mid-market default swaps were quoted around 250bps Thursday, from roughly 180bps earlier in the week.

Euro/dollar one-year implied volatility hit a two-year low last week dropping to 10.4% on Wednesday from 10.7% a week earlier. Demand for options was low as traders cleared out their books ahead of the long weekend in the U.S., according to traders.

CIBC World Markets is structuring a synthetic collateralized debt obligation that market officials said would resemble the firm's first CDO, Imperial 1, which it issued in December (DW, 12/8). The firm is planning to issue the CDO before the end of the first quarter, said one market official.

The increase in the number and scope of CDO downgrades highlights the need for investors to understand how CDOs are evaluated in stressful environments. The purpose of this article is to describe Fitch Ratings' approach to evaluation of its ratings of CDOs in light of changing market conditions. The article will not address the reasons underlying the defaults and downgrades of corporates and sovereigns.

Verspieren, the third biggest direct insurance broker in France, has teamed up with weather derivatives broker United-Indar to offer weather derivatives in Europe. Thierry Bizdikian, chief executive of the commercial division of Verspieren in Paris, said the insurance broker wants to expand its market reach by adding the ability to offer weather derivatives. It already has several clients, including industrial and construction concerns, which are interested in the products, he added, declining to name them.

Isreal plans to create a risk and liability management office within the Ministry of Finance in the coming months and as a result will boost its use of over-the-counter derivatives, according to Arnon Ikan, senior director for foreign currency transactions in Jerusalem. The country has only used a handful of interest-rate swaps to date.

Ivy Asset Management, a fund of hedge funds asset manager in Garden City, N.Y. with more than USD5 billion in assets, has hired Anil Babbar, former fixed-income structurer at ING Barings in New York and Hong Kong. Ivy made the hire to develop structured products, which relate to the firm's principal-protected notes and leveraged offering business, according to Babbar, who declined to detail the products. He joins a six-member team.

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.