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Banks in India, including credit derivatives heavyweights J.P. Morgan and Deutsche Bank, have begun informal discussions with the Reserve Bank of India about setting up a credit derivatives market. Rajiv Baruah, co-head of Indian global markets at Deutsche Bank in Mumbai, said "the building blocks are there." Baruah added the development of a local market would allow local corporates to transfer credit risk through credit derivative products, such as credit default swaps and total return swaps.Srinivasan Varadarajan, treasurer at J.P. Morgan in Mumbai, said his firm is in regular dialogue with regulators about developments in the Indian market, declining to elaborate. He continued that there is enormous potential for a credit derivatives market, adding that it could reach an annual notional size of USD500 million in three years. Officials at the reserve bank declined comment.

AEGON has entered a cross-currency interest-rate swap to convert a CHF150 million (USD90 million) three-year bond into a synthetic euro-denominated liability. Wilma Schouten, capital markets officer in the Hague, said in the three-year swap it pays six-month Euribor and receives six-month Swiss LIBOR.

Five-year credit protection on Dutch telecom company Royal KPN narrowed 100 basis points last week to 250bps/260bps as the market waited on news about the KPN-Belagcom merger. London-based traders said volumes were between two and three times the average for this time of year, with approximately EUR40 million (USD36.4 million) notional trading everyday. Banks and investors taking profits before the merger announcements were behind the selling. The typical size of the trades was EUR5-10 million.

The Ministry of Finance and Economy of Peru is holding talks with bankers about using foreign exchange swaps and cross-currency interest-rate swaps for the first time to hedge its currency exposure on euro-denominated loans. It will use the swaps to convert euro-denominated debt into synthetic dollar denominated liabilities, according to Emerging Markets Week, aDW sister publication. Peru has USD5.8 billion, in euro-denominated debt. The remainding USD13.1 billion is denominated in dollars and yen.

Swiss Re Financial Products has hired Steven Olentine, credit derivatives marketer for U.S. clients at Morgan Stanley, as a structured credit derivatives salesman in New York. Olentine, who started two weeks ago, reports to Frank Ronan, head of credit in New York, according to a spokeswoman. Ronan declined comment on whether hiring Olentine was an expansion to the desk. While at Morgan Stanley Olentine reported to Peter Hamilton, head of credit derivatives sales. Hamilton declined comment on whether Morgan Stanley would look to replace Olentine, who was on vacation and could not be reached for comment.

Carlo Georg, managing director and Asian head of trading at KBC Financial Products in Tokyo, is relocating to London at the end of the month in a new position covering cash and derivatives trading across asset classes for both the European and Asian markets. Korossy said the move was decided in January after KBC Derivatives and KBC Financial Products merged but it has taken until now to execute.

Merrill Lynch has moved Ken Chang, co-head of Asia Pacific equity derivatives research in Hong Kong, to Tokyo as the new head of Japan and Asia Pacific equity derivatives strategy. He replaces Benjamin Bowler, managing director and head of U.S. equity derivatives research in New York. Bowler relocated to the New York office to replace Steve Kim, global head of equity derivatives research, who recently moved to Credit Suisse First Boston (DW, 6/8). Chang reports to Michael Maras, global head of equity derivatives research at Merrill in London. Maras said Todd Kennedy, co-head of Asia Pacific in Hong Kong, is now head of the department reporting into Chang. Chang said he is adding an additional researcher this month to the team of four in Tokyo, but declined further comment.

TD Securities plans to beef up the staff of its New York-based high-yield credit derivatives group over the next four months. Joe Hegener, managing director and head of global non-investment grade credit derivatives, said TD would look to make about five new hires. "We looking for good derivatives minds," he noted. The firm plans to increase its high-yield credit derivatives structuring and sales team. "We've just continued to see increased flow and we need to make more hires. We're not an active market marker but we have a large proprietary business and customer business," Hegener said. The group has about 25 team members, a high percentage of which are traders.

In the wake of continued earnings volatility and investment-banking layoffs at J.P. Morgan Chase (Aa2/AA-), analysts expect spreads on the firm's bonds to remain under pressure anywhere from six weeks to four months. Earnings volatility could easily lead to a downgrade, according to David Hendler, an analyst at CreditSights, an independent fixed-income research vendor. Hendler believes a downgrade would cause spreads to widen by 10 basis points by year-end, or the first quarter of next year. J.P. Morgan 6 3/4% notes of '11 were bid at 139 basis points over Treasuries last week.

Midway Airlines made repayments to its two principal shareholders, James Goodnight and John Sall, just prior to filing for Chapter 11 bankruptcy protection last month and attorneys say the funds will probably have to be returned and divided with the company's other creditors. The attorneys, including Stuart Gold, who has a practice in Southfield, Mich., say the repayment appears to be in violation of bankruptcy law. Midway has close to $300 million in enhanced equipment trust certificates, which are the main form of financing for most U.S. airlines. This is the first test of the structure in a bankruptcy proceeding (BW, 8/27). Calls to Goodnight and Sall at SAS Institute, a computer software company they own in Cary, N.C., were referred to a spokesman, who declined comment. Jeb Jeutter, an attorney at Kilpatrick Stockton in Raleigh, N.C., who represents Midway, did not return calls placed to his office.

Providers of electronic bond trading platforms are increasingly beginning to integrate straight-through processing to their platforms as buyside and sellside participants request the need for seamless execution in order to make markets, according to BW sister publication Financial NetNews. Back-office straight-through processing is the next major step on which many of the platforms are currently working, according to Tim Sangston, v.p. of Greenwich Associates, a research and consulting firm that focuses on institutional financial services.

Evergreen Investments, a Boston-based high-yield asset management firm, is moving assets from the broadcast sector into wireless telecom bonds, according to portfolio managerPrescott Crocker. The shift will reposition 4% of its total portfolio, or $44 million, and is being triggered by what he says are evolving industry fundamentals. Crocker reasons that the broadcast sector continues to deteriorate, partly because it depends too heavily on advertising sales. On the other hand, he sees a growing potential demand for wireless products, and he anticipates the sector will benefit from expected consolidations.