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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.

Europe's primary bond markets should reopen to corporate issuers rated less than triple-A in the second half of this month, predict analysts. Since the Sept. 11 tragedy, the markets have been quiet with only a few issues from the likes of GMAC (E1.75 billion). "Rates are low, and the market is not necessarily too bad. People are looking for yield and issuers will take advantage of that," said Géraud Charpin, senior credit analyst at BNP Paribas in London. Graham Neilson, a credit analyst at Bear Stearns, also in London, added there is decent demand for non-cyclical, defensive names in the auto and utility sectors, which should lead to a growing level of activity in the second half of the month.

Lehman Brothers and Salomon Smith Barney are vying for dominance in the European fixed-income indexing market. Portfolio managers are encouraging clients to switch from government bond indices to more comprehensive indices, such as the Lehman Brothers Euro aggregate indices and the Salomon Smith Barney Euro big index, London-based managers and consultants say. "The preferred aggregate indices for European fixed-income appear to be becoming the Salomon and Lehman series. It is not yet clear which, if any, of these series will become the accepted market standard in the way that, for example, the Lehman aggregate has achieved dominance for U.S. broad market mandates," says Bob Collie, director of consultants at Frank Russell Company in London. Merrill Lynch, J.P. Morgan and Morgan Stanley also have index series, but Lehman and SSB's are the most widely used, the consultants say.

Easy come easy go. Austrian police arrested a 28-year-old man who robbed the Salzburg branch of Austrian savings bank Sparkasse where he was known as a customer. The APA news agency reported the Austrian man held up the bank at gunpoint Monday, escaping on foot with a haul of $20,070. After being identified as a customer by a bank employee, the man was detained by police at a late-night bar in Klagenfurt, where by the time of his arrest Tuesday, he had guzzled five bottles of champagne in the company of several bar hostesses. APA said the thief did not resist arrest.

Fixed-income portfolio managers say they are adding longer maturity corporates viewed as recession-resistant, in order to pick up additional yield. One New York-based firm has been swapping out of long Treasuries into bonds of companies such as Kroger, IBM, Tyco International, Qwest Communications andCoca Cola. A portfolio manager at the firm says that on a total return basis, long corporates declined 2.44% in September, while long Treasuries were up 0.23%. "We think this represents an opportunity," she says. She declines to mention specific issues at the which the firm is looking, but says they are all 30-year issues trading 10-20 basis points wider than where they were prior to Sept. 11.

Scott LaPorta, the cfo of Park Place Entertainment, strongly hinted to BondWeek last week that the company will play a role in restructuring Aladdin Gaming, a competitor which filed for Chapter 11 bankruptcy protection on Sept. 30. Such a move by Park Place, which owns one-third of Aladdin's outstanding bonds, could have a significant impact on their value. The $221.5 million zero coupon notes of '10 (Ca/CC), which were to go cash pay in 2003, fell from a range of 19-20 to 15 after the attacks. LaPorta declined comment on the reasoning behind why his company feels it can lead a turnaround for Aladdin. LaPorta says Park Place purchased the bonds because it considered them a good value even if Aladdin were to end up in Chapter 11. "We thought we could be helpful; what being helpful means remains to be seen," he says, adding only that investors should "stay tuned."

Missouri Valley Partners is seeking to resume an asset reallocation from corporates to mortgage-backed securities that was interrupted by attacks on the World Trade Center. Steven Jones, portfolio manager of some $200 million, says the St. Louis shop shifted to an overweight position in MBS from a neutral position, and from overweight to neutral in corporates, just prior to Sept. 11. Jones says the fund will consider swapping a total of an additional $10 million in two- to three-year bonds of Heller Financial, which will soon be acquired by General Electric (Aaa/AAA), Banc One and Merrill Lynch into similar duration MBS paper if spreads return to pre-Sept. 11 levels.