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Citibank and Merrill Lynch are racing to become the first to offer over-the-counter derivatives on Indian stocks and expect to hit the market in the next six to 12 months. "We want to be the first to bring this out," said an official at Merrill in Mumbai.

An exchange-traded credit derivatives market could emerge from the rubble of Enron's failure as over-the-counter professionals start kicking around the concept of credit products that bypass counterparty credit risk. Paul Mullin, global head of sales at broker CreditTrade in London, expects one of the big exchanges will list some form of credit derivative by year-end. While it would be a liquidity boon to the credit market, a listing would also benefit the exchanges. "They need product and credit is the one that is missing," he noted.

Aquila Energy has hired Valter Stoiani, weather derivatives marketer and structurer at Enron in Houston, in a similar position in Kansas City, Mo. Stoiani, who will do both marketing and structuring, is scheduled to join at the end of January, according to a company official. The official declined to comment on whether this is an expansion to the department.

Convertible bond players in Japan were left with millions of dollars of paper losses after Chugai Pharmaceutical called back a JPY30 billion (USD227 million) 12-year convertible bond issue last month. The Tokyo-based pharmaceutical company exercised early redemption on its 2006 convertible bonds at JPY104 near the end of December after a merger agreement with the Swiss healthcare giant F. Hoffman-La Roche. The bonds were trading at a premium of JPY125 before the early call, which resulted in paper losses of up to JPY19 per bond for firms that held the underlying.

FleetBoston Financial is planning to launch its first synthetic collateralized debt obligation in the Asian market this year on the back of increasing client interest. "Hopefully we'll have this out in the next few months," said Sean Ko, head of fixed-income in Singapore. He noted the CDO is likely to be a USD500 million balance sheet transaction. However, he added, the firm will also structure arbitrage synthetic CDOs.

Natexis Banques Populaires plans to open a London office for fixed income and derivatives sales and initially hire up to 10 salesman as part of the effort. Olivier Regis, co-head of global capital markets, said the bank will open the desk at the end of next month. "To be a global bank without anything for sales in the U.K. is crazy," he acknowledged, adding the firm hopes to change that. Natexis currently has commercial bank branches in London but not on the securities side.

Foreign exchange options pros are at odds over South Africa's rand and related options bets, as the currency continues to weaken against the U.S. dollar and amid the launch of an official South African government investigation into the rand's fall. In a controversial move, the Reserve Bank of South Africa hiked rates by a full percentage point last week to counter the inflationary risks posed by last year's weakness in the rand, which fell 37% against the dollar. Following these moves, Bear Stearns thinks the rand will find support and gain from its recent lows and as a result the firm is recommending zero or low-cost option packages to take advantage. Other firms, such as Citibank/Salomon Smith Barney and BNP Paribas, have less confidence in a rand rebound and said the rate hikes will only further crimp economic growth.

HSBC Asset Management plans to buy over-the-counter equity call options to structure a guarantee on a global sector equity fund it will launch at the end of the month. Bill Maldonado, head of the tactical investment unit in London, said the fund manager will buy calls on baskets of stocks in four underlying sectors: financials, pharmaceuticals, energy and healthcare.

Crédit Agricole Indosuez has hired three professionals for its interest-rate and credit derivatives desks. The French bank has added Pierre Trecourt, v.p. of financial engineering at Société Générale in Hong Kong, as Asian head of credit derivatives structuring, and Lucille Chu, derivative sales and trading at China Construction Bank in Hong Kong, as director for Greater China derivative sales. It has also hired Dennis Wong, interest-rate derivatives trader at Bank of America in Hong Kong, who will hold a similar role when he joins in the coming weeks, according to officials at the firm. Wong could not be reached for comment.

Nomura International plans to hire two or three asset-backed securities specialists for its securitization team in London. Tariq Rafique, head of securitization and asset finance in London, said the new recruits will structure cash and synthetic securitizations. He added that the new hires will report to him and he aims to have them on board by the end of the quarter.

Lehman Brothers reportedly entered over EUR3-4 billion in (notional) two-year interest-rate swaps last week, which traders said was the first massive trade of the year. Traders in London said the swaps were executed Tuesday and Wednesday and were probably on behalf of a U.S. fund manager reducing its exposure to Europe. The size of the trade caused rates in the short-end of the curve to raise approximately four basis points, according to traders. In the swaps Lehman pays fixed at between 3.93-3.87% and receives Euribor. A swaps trader at Lehman referred calls to the press office, who did not return calls.

Penn Mutual Life Insurance in Philadelphia has reinstated David O'Malley, v.p. of credit derivatives product management and marketing to U.S. clients for Morgan Stanley in New York, as a portfolio manager. An official at Morgan Stanley said O'Malley left the bulge-bracket firm because he received an offer from Penn that increased his annual salary and gave him more oversight of the insurance company's derivatives strategies than he had when he left. Penn had not yet filled O'Malley's position and had become a virtual non-player in the derivatives market following O'Malley's departure, one Penn official said. O'Malley now reports to Peter Sherman, cio. Sherman did not return calls and O'Malley declined to comment.