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Banca Popolare di Sondrio has sold U.S. dollar calls/Japanese yen puts to a customer following the firm's prediction that the yen will weaken against the dollar in the coming months as Japan's economy continues to weaken. Carlo del Grosso, head of trading in Lugano, Italy, said the firm sold two dollar calls in the trade, each with a notional size of USD15 million, which mature in December and June, respectively. Both options are struck at JPY120. Del Grosso declined to name the customer.

The International Swaps and Derivatives Association is creating a list of five reporting requirements for parties that receive swap payments and are subject to U.S. tax laws. ISDA's tax committee is expected to finalize the requirements within the next two weeks, according to Kimberly Summe, general counsel in New York.

One-month Japanese yen/U.S. dollar implied volatility fell to 10.6% Thursday down from 12.5% a week earlier as demand for yen puts/dollar calls increased on news that the Bank of Japan had intervened to boost its economy. Banks' proprietary desks and hedge funds were the most active, buying one-week yen puts/dollar calls as the one-month 25-delta risk reversal moved further in favor of dollar calls. The options typically had strikes around JPY125.25 when spot was trading around JPY119.

Martin Fraenkel, managing director and co-head of the global commodities group at J.P. Morgan in London, said he has resigned from the division and could be about to leave the firm. Fraenkel, a Chase Manhattan Bank veteran who has run J.P. Morgan's European commodities division since last year's merger, would not be drawn on why he made the decision or whether he will leave the firm.

J.P. Morgan has made two hires for its structured credit products team in Tokyo. Ken Koh, head of credit derivatives structuring at Bear Stearns, joined last week and reports to Mahesh Bulchandani, head of structured credit products in Tokyo. Koh was traveling and could not be reached for comment. Bulchandani, who himself joined from Merrill Lynch earlier this year (DW, 4/9), said J.P. Morgan two months ago added Chandrakant Mohandy, a collateralized debt obligation credit analyst at Fitch.

J.P. Morgan is pitching an interest-rate swap strategy designed to win if the Federal Reserve cuts rates more than the Bank of England over the next month. Marius Langeland, interest-rate strategist in London, said the firm is predicting the Old Lady of Threadneedle Street will cut rates to 4.25% before November whereas it predicts the Fed will cut rates to 2% or lower. Langeland said it is predicting larger cuts in the U.S. because it thinks there will be a prolonged downturn with recovery coming after the second quarter.

The market abuse regime in the U.K. is Part VIII of the Financial Services and Markets Act 2000, due to come into force on Dec. 1 and is a new concept for English financial regulatory law. The fundamental concept of the regime is that users of a U.K. regulated market have a positive duty to ensure that they do not, by their acts, statements, conduct or omissions, impede the efficient operation of that market. This duty extends to persons who, although they do not use the market themselves, benefit from it--thus derivatives traders should not act in such a way as to damage the markets in the underlying securities by reference to which they price their derivatives. This duty is loosely equivalent to a duty of care and a breach of the duty is punishable by a fine. Section 118 of the act sets out that behavior is to be treated as market abuse if it is behavior which is "likely to be regarded by a regular user of that market who is aware of the behavior as a failure on the part of the person or persons concerned to observe the standard of behavior reasonably expected of a person in his or their position in relation to the market". This is an "objective intent" test--that is, the question of culpability is determined not by reference to what the person doing the act intended, but by reference to what an experienced external observer would have concluded that that person's intentions were. This has the interesting side effect that market abuse can be perpetrated entirely inadvertently--even where a person can prove that they had no intention of abusing a market, if the FSA can show that a reasonable market user would have objected to the conduct, then the conduct is prima facie market abuse. Note also that where a transaction between two parties to an over-the-counter derivative has the effect of abusing a market in a reference obligation, the question of what the counterparts to the derivative should have known and thought and what they must have intended will be assessed by reference to a regular user of the underlying market, despite the fact that neither of the parties to the OTC derivative may be users of that market at all. The point here is that if you do things which may have the effect of abusing markets, the FSA takes the view that it is up to you to educate yourself as to the customs and practices of those markets.

Royal Bank of Canada has hired Olivier Levitte, a collateralized debt obligation salesman at J.P. Morgan in New York, in a similar position. Levitte started in London last week but will be based in New York. He is starting in London because RBC's New York office at One Liberty Plaza is unusable after the Sept. 11 attacks.

Credit default-swap spreads on European technology names, such as Germany's Siemens and Sweden's Ericsson, widened last week following profit warnings and job cuts from North American and European telecom equipment companies. Five-year protection on Siemens widened to 55-65 basis points from 50-60bps on Wednesday after Nortel Networks said that it would post a USD3.6 billion loss for the third quarter. Five-year protection on Ericsson gapped out to 340-360bps from 290-330bps, according to a trader. Adding to the concerns was Alcatel of France's announcement that it plans to shed more than 3,000 jobs in its cable business. "All the techs went out on the back of that news," said one trader.

Charles Miller, head of U.S. institutional equity sales at Salomon Smith Barney in New York, left last month amid a reorganization of the firm's equity sales team.

Patterson & Associates is ready to swap 5% of its portfolio, or $40 million, out of commercial paper into agency debentures, should agency bond spreads on one-year rates widen by an additional 10 basis points, and by 15-20 basis points for two-year paper, says portfolio manager Linda Patterson. Patterson adds that this is not likely to occur soon, because, even if Treasury supply increases, yields are likely to fall further because of the increased demand for Treasuries as a flight-to-quality response due to the recent terrorist attacks. Patterson says she is currently buying agency paper yielding 2.50-2.60% for the one-year term, and 3% for the two-year term.

As prices of oil and gas continue to drop, energy analysts on the buy- and sell-sides expect spreads on bonds of oil and gas pipeline companies to tighten considerably through the rest of the year. Ross Payne, analyst at First Union Securities, says bonds of pipeline companies such as Kinder Morgan, Northern Border Partners and Enterprise Products Partners should benefit as they have locked in three- to four-year contracts with drilling companies that were negotiated when volumes were robust. They are fully sold out for the next two years--more than enough time, he says, to weather the current fall in prices.