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Dresdner Kleinwort Wasserstein has set up a replicable index of hedge funds, which it will also use as a reference for derivative products. Mehraj Mattoo, co-head of alternative investments in London, said the index consists of over 100 managers. Investors can hand pick 30-40 funds as the basis for structured products, such as principal protected funds, total-return swaps and options. David Besancon, co-head of alternative investments in London, said, "if you can't replicate [the index] you can give a wrong image of performance. You can crunch numbers but if you can't invest it is not meaningful." He added the index is diverse in terms of location and style.

Credit default-swap spreads on Asian names, such as Hong Kong-based conglomerate Hutchison Whampoa, widened last week on continuing investor concerns that Hong Kong would sink into a recession. "Hutchison moved out big time," said Bill Xie, credit derivatives trader at BNP Paribas in Hong Kong. Emmanuel Dianflon, Asian head of credit derivatives at BNP Paribas in Hong Kong, added that two-year protection on Hong Kong's Hutchison Whampoa widened to 160-180 basis points Thursday from 115-130bps in the last two weeks. Xie added that while demand for protection has remained strong, caution has pushed offers higher.

HDFC Mutual Fund in Mumbai is waiting for liquidity to improve before it makes its first use of over-the-counter equity options. A fund manager at the firm said it has received board approval and will look to purchase and sell over-the-counter options as a hedging instrument for its INR2.5 billion (USD52 million) equity portfolio within a year. He continued that the firm will start with futures and exchange-traded options within six months. "We're aware of how equity derivatives work. The point is its difficult to implement strategies in a market with poor liquidity," the manager said. One of the strategies HDFC will use is writing covered puts. The fund manager explained that this generates premium for the fund and does not put the fund at risk, since it is long the underlying stock.

Man Investment Products plans to hire a derivatives savvy product engineer to develop investment products in the wake of increasing demand. David Browne, head of funding in London, said an increase in demand for guaranteed products and alternative investment products is largely responsible for its assets under-management increasing to USD8 billion from USD6.7 billion at year-end. Man structures guaranteed products in several ways including frequently using over-the-counter equity options and zero-coupon bonds, according to Browne.

Sumitomo Mitsui Banking Corp. plans to set up a credit derivatives operation in the coming months for trading and hedging credit risk on its JPY77 trillion (USD650 billion) loan book. Yamamoto Toru, v.p. and head of the portfolio management department in Tokyo, said he will spearhead the effort, "hopefully [starting] within six months."

Two heads of J.P. Morgan's cash and derivatives credit team were let go last week as reverberations from the merger with Chase Manhattan continue to rumble through Asia. Warren Burroughs, co-head of Asian credit trading, and Martin Matsui, head of Asian credit sales, left the firm last week. Both reported to Chris Nicholas, Asian regional head of credit markets in Hong Kong. Nicholas said J.P. Morgan is reorganizing the department because of the economic downturn and because it is still in the process of combining J.P. Morgan, Chase and Robert Fleming. Burroughs and Matsui could not be reached for comment.

Jae Oh, director of integrated credit trading at Deutsche Bank in Singapore, moved to London two weeks ago. He ran the credit swaps desk for Asia ex-Japan and now trades investment grade credit default swaps in London, according to Prakash Krishnan, spokesman in Singapore. Oh made the move because he wanted to trade the London credit market, which is much larger than its Asian equivalent, according to an official familiar with the situation.

J.P. Morgan is recommending clients buy Korean won puts/dollar calls to capture volatility as the won sinks lower against the dollar, following a slump in the global technology sector. "The best thing to do is buy outright volatility," according to Louis Cucciniello, head of options in the Lion City. "Now's not the time to get fancy," he added. Cucciniello recommends buying volatility through options and avoiding using structures, such as call spreads, that would limit the upside potential.

French rail operator SNCF has entered a cross-currency interest-rate swap to convert a USD200 million fixed rate bond into a euro-denominated synthetic floater. Mizuho International, formerly known as IBJ International, was the bookrunner and swap counterparty. Frank Toulouze, director in primary and structured finance at Mizuho International in London, said in the swap SNCF pays six-month Euribor and receives the 4.81% coupon on the bond. Six-month Euribor was 3.55% on Tuesday. The swap matches the five-year maturity of the bond.

Stamford, Conn.-based Citizens Communications plans to tap the interest-rate derivatives market for its first use of any type of derivatives. Don Armour, treasurer and v.p. of finance, said the company has recently started discussions with several investment banks about entering fixed to floating interest-rate swaps to hedge interest-rate risk on part of its USD4.25 billion debt portfolio. About USD3.5 billion of the debt was raised over the last eight months through two separate bond offerings of USD1.75 billion each. He declined to name the banks.

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Steven Goldstein, president of TradeWeather.com, an on-line weather derivatives company, is among the thousands still unaccounted for following the Sept. 11 terrorist attack on the World Trade Center in New York. Goldstein, who launched Tradeweather.com in 1999, moved into the North Tower of the WTC about three weeks ago. The move followed Cantor Fitzgerald's acquisition of the company which was incorporated into the broker's emissions trading group, according to a market official. Cantor occupied floors 101-105 in the North Tower. Officials at Cantor did not return calls.