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Enron is working on a swap product that will allow U.K. corporates to hedge exposure to rising gas prices. In a typical transaction, a corporate will pay an up front premium and enters a gas swap with Enron. If gas prices reach a predetermined strike price the corporate receives an offsetting payment from Enron, according to Catherine Woolgar, a trader in the weather risk management group in London.

CreditTrade has put on hold its ambition to move credit derivatives customers away from voice brokered trades to transacting on its electronic platform. Increasing volatility, caused by last month's terrorist attacks in the U.S., means investors want to conduct transactions with a person because voice-brokers can give the story behind the credit, according to Paul Mullin, global head of sales in London. But Mullin added that its long-term plans still revolve around its electronic platform.

Credit default swap spreads on Enron tightened 40 basis points in the wake of the company's agreement to sell a U.S. utility for nearly USD2 billion. A trader in New York reported that credit default swap spreads on Enron tightened to 275bps last Thursday from 315bps the previous week as investors began gaining confidence in the power company's ability to finance itself. The major players were investment and commercial banks. Enron agreed to sell its Portland General Electric utility to Northwest Natural Gas Co. for approximately USD1.9 billion in cash and stock. The transaction was heralded as a move that will unite the largest gas and electric utilities in Oregon. As part of the deal Northwest Natural agreed to assume USD1.1 billion in debt. Enron will receive USD1.55 billion in cash, USD200 million in Northwest Natural preferred stock and USD50 million in Northwest's common stock.

Lutheran Brotherhood, a Minneapolis-based member-owned fraternal benefit society that provides investment services to its 1.2 million members, is planning to use single-name credit-default swaps for the first time next year for both hedging and investment. Steven Lee, portfolio manager, said it is too early to determine if Lutheran would look to buy or sell credit-default swaps. "We could potentially do either," he added. Several undisclosed investment banks are currently providing research on credit derivatives for Lutheran, but it has yet to decide on possible counterparties, Lee said. He added that Lutheran has used bond options in the past, but on a limited basis. "We decided to take a look at credit derivatives now basically because they're very available. A few years ago you couldn't get into it," he added. Lutheran sees credit derivatives as a way to tailor its risk and manage its credit.

Tokyo-based Daiwa Securities, Japan's second largest domestic securities house, is considering setting up a credit derivatives operation within the next year and will look to become a player in the interbank market. An official at Daiwa added that the firm is in the initial research and development stage for the operation and that no timetable has been established. Daiwa will wait for market conditions to improve and may wait for a rating upgrade that would allow it to be more competitive with international banks. The official expects its rating to be upgraded within 12 months. Daiwa is rated Baa1 by Moody's Investors Service.

The Dai-Ichi Mutual Life Insurance Co., with over USD255 billion in assets, is looking to purchase a yen-denominated synthetic collateralized debt obligation in the coming months. The insurer aims to invest around USD30 million in a CDO structured on Japanese credits, according to Yuji Nakada, senior assistant manager of the capital markets department in Tokyo.

Shinhan Bank and Koram Bank are setting up won interest-rate derivatives desks and intend to begin trading in the coming months. "We're getting involved to make money of course," said Y.D. Kim, deputy general manager of the foreign exchange and derivatives department at Shinhan Bank in Seoul. He continued that the bank, which has KRW55 trillion (USD42 billion) in assets, is currently setting up systems and should be ready to trade within two or three months. Whereas Kyung Lae Kim, head of the derivatives desk at Koram Bank in Seoul, said "we'll probably start trading by the end of October."

Seoul-based insurer Kyobo Life Insurance has decided to put on hold investments in synthetic collateralized debt obligations while it awaits the credit market's reaction to the terrorist attacks in the U.S. and the war in Afghanistan, according to Bum-Jun Lee, general manager of the fixed-income department. He added that when it does invest it will likely buy a portion of an equity tranche, along with a rated tranche.

Lehman Brothers plans in the coming months to launch an interest-rate swap index that fund managers will be able to benchmark their performance against. The firm is planning to offer total rate of return swaps on the index once it has gained popularity. This is the first index of its kind, according to Bruce Phelps, senior v.p. in fixed income research in New York. Lehman is planning the product because European investors are already using the swap market as a benchmark and the U.S. is slowly moving toward doing the same.

Hedge funds have traditionally used repo agreements to short securities and gain short-term exposure to illiquid assets but increasingly are starting to use total rate of return swaps instead. Frederik Barnekow, head of securities finance at SEB Merchant Bank in Stockholm, attributes this to the growing sophistication of hedge funds. Stuart Pyott, equity derivatives trader at Schroder Salomon Smith Barney in London, added that the demand for swaps has grown over the last year because they have become more liquid, standardized and competitively priced.

A weather derivative transaction executed last week by ABN AMRO on behalf of a Dutch counterparty--and said to be the largest end user deal to trade so far--caused swap spreads to blow out and threw dealers into a frenzy. "The market is jittery to say the least," said a weather professional in London. He noted that spreads on heating degree-day (hdd) swaps for the November-March winter season referenced to Heathrow Airport widened by as much as 10 hdds Wednesday from levels close to 1,700/1,702 hdds prior to the trade. Alex Schippers, head of the weather group at ABN in Amsterdam, and a spokesman declined comment.