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Spreads on Enron credit-default swaps widened about 500 basis points to 800bps on the back of the company's plummeting stock performance last week. Enron's shares have tumbled 55% over the last two weeks over concerns surrounding a lawsuit filed by the company's shareholders that alleges Enron misled investors by issuing false and misleading information about its future prospects. The lawsuit against Enron fueled fears that it could negatively impact future earnings. "There's been a real panic," noted a trader in New York.

Hedge funds will pile into the Japanese equity derivatives and cash market next month to take advantage of upcoming changes to the MSCI Japan index, according to officials at Merrill Lynch and Bear Stearns in Tokyo. The hedge funds are expected to enter total-return swaps, in which they pay the return of stocks leaving the index and receive the return of stocks joining, as well as equity basket options, according to Ken Chang, head of Japan and Asia Pacific equity derivatives strategy at Merrill in Tokyo.

Indian asset managers, including Reliance Capital Asset Management, are planning to execute their first interest-rate derivatives transactions following last Monday's rate cut that brought interest rates to lows not seen since the 1970s. Rajiv Baruah, co-head of Indian global markets at Deutsche Bank in Mumbai, said the rate cut to 6.5% could double the notional size of the market by the second quarter. He estimated notional daily volume is USD20-40 million. Asset managers account for 5-10% of the volumes at the moment but Baruah expects that to increase to 25-30%.

The World Bank and International Finance Corp. have teamed up with Aquila Energy to launch a global weather risk facility that will sell weather derivatives to companies in the emerging markets. Ulrick Hess, project officer at the IFC in Washington, said the IFC plans to supply up to USD10 million in risk capital to the facility with Aquila putting up USD20 million and a group of five reinsurance companies and banks putting up another USD10 million each. The IFC's capital will only be called upon in the event of losses. Calls to Aquila were not returned by press time.

Melbourne, Australia-based mining company BHP Billiton is looking to hire five traders for its commoditized coal-trading desk in Amsterdam. Peter Sceats, head of the three-strong team in Amsterdam, said the company wants to more than double its coal-trading desk in what is a relatively new part of the market. The desk executes both proprietary and hedging trades for all types of coal derivatives, said Sceats, declining to elaborate.

Mitsui Sumitomo Insurance, a Tokyo-based insurer with JPY7.57 trillion (USD61 billion) in assets, is considering purchasing its first synthetic collateralized debt obligation in the coming months, likely referenced to Japanese credits. The firm is the result of a merger this month between Sumitomo Marine & Fire Insurance and Mitsui Marine & Fire Insurance. Both have previously invested in the synthetic CDO market, but the combined entity will be more active than the sum of its parts, said Akihiro Yoshikawa, deputy manager of the financial solutions department in Tokyo. The two insurers had a combined synthetic CDO portfolio of around USD3 billion prior to the merger.

The declaration of a war on terrorism and subsequent attacks on Afghanistan by the U.S. has prompted Lehman Brothers to recommend clients sell volatility on a basket of stocks it dubs "war" securities versus a basket of "peace" stocks. Implied volatilities for the stocks in the war basket have increased despite a decline in realized volatilities because there has been a perceived increase in systematic risk, said Paul Lieberman, v.p. of equity derivatives and quantitative research in New York.

Merrill Lynch and J.P. Morgan are leading an initiative to net credit-default swap contracts for the first time to reduce the amount of time traders have to spend settling contracts in the event that the reference asset defaults. "Net settling will be a great thing if we can do it because anything that will increase liquidity is good," according to Anjan Malik, a credit derivatives trader at Lehman Brothers in London. He added that an obstacle could be firms' reluctance to share information on positions with their competitors.

J.P. Morgan and Deutsche Bank separately plan to start offering derivatives based on economic statistics, such as inflation and productivity, published by the U.S., European and Japanese governments. The conracts will be based on a model, dubbed the parimutuel digital call auction model, which prices risk based on a commitment of capital and the cost of hedging the position. The products will allow investors to trade and get pricing on economic indicators, according to officials at both firms. They will start offering digital options and digital spread trades by year-end.

Royal Bank of Scotland has entered an interest-rate swap with Morgan Stanley on the back of a EUR500 million (USD452 million) bond as part of its regular funding process in the European market. Sanjay Sofat, treasury manager in London, said the company entered the 12-year swap to convert the fixed-rate bond into a floating-rate liability. In the swap, RBS will pay a spread over six-month Euribor and receive 6%, matching the coupon of the bond offering. A Morgan Stanley interest-rate official confirmed it entered the swap but declined further comment.

Liz Parminter, a power trader at RWE Trading in London, will join Aquila Energy on Jan. 2. Parminter has been hired as head of commodity and direct trading. In the role she will focus on structuring bilateral trades for clients and other power trading companies, rather than trading standardized contracts through the broker market, explained Parminter. She decided to join Aquila because of its "can-do attitude and willingness to commit to the market," she explained. Parminter will report to Rusty Smith, director of trading in London.