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Several automobile credits are trading up, as dealers speculate that the industry may be starting to recover on better sales earnings. Hayes Lemmerz is trading 87, up from the low 80s. A $5 million piece of Tenneco Automotive's bank debt traded in the 75-76 range, from the low 70s. JL French's debt is trading in the low 80s.

The Prague Stock Exchange, in a bid to increase liquidity and investor interest, is planning to open a derivatives market in the second half of the year, according to Vladimir Ezr, secretary general deputy and director of trading in Prague. He said the exchange is awaiting approval from the Czech Securities Commission, which should happen in the coming months, before going forward with the plan later in the year. The market would consist of listed derivatives, likely for local interest rates and the index, Ezr said. He said it could encompass other products as well, though he declined to speculate given the plan has yet to be approved by local regulators.

A unit of Samsung Capital has entered into a USD200 million cross-currency swap on the back of an asset backed security it issued in the U.S. The ABS securitized won-denominated auto-installment credit, but the bond pays a dollar-denominated coupon. As a result, in the five-year swap, the special purpose vehicle issuing the securities pays a fixed Korean won rate, 7.14%, and receives a margin over U.S. dollar LIBOR.

Williams is planning to set up a credit derivatives trading operation within about the next six months. The energy and communications company is looking at managing its internal credit risk and offering liquidity to corporates, according to Jones Murphy, director, hybrid derivatives in Tulsa, Okla. It will trade plain vanilla credit default swaps and structured credit products, with the bulk of its activity being in proprietary credit structures, which Murphy declined to describe.

Société Générale is structuring a EUR500 million (USD440 million) five-year synthetic collateralized debt obligation linked to companies in the Dow Jones Euro Stoxx 50. Pierre Matussiere, head of product management for credit derivatives in London, said the terms of the transaction have not been finalized, but investors in the portfolio will likely get EUR10 million of exposure to each of the 50 names in the portfolio. SG expects to back up the portfolio by selling protection on each name in the portfolio in the single-name credit default swap market. With the market uncertain about the future direction of corporate profits, credit default swap levels are wide, offering attractive yields to investors. This environment makes the timing right for such a product, said Matussiere.

Stark Investments is considering launching a global multi-strategy arbitrage fund next month in an effort to reach smaller institutional clients, including foundations and endowments. The Milwaukee-based firm, which manages some USD1.6 billion in assets split between high-net-worth and institutional clients, initially would seek to raise USD25 million in its first opening of the fund, which is set to be launched May 1, said Chris Greer, managing director of sales and marketing. The fund would use strategies including convertible and risk arb.

Options derive their value from underlying assets. In the case of traded underlyings, the option value is affected by the asset liquidity. The impact of liquidity on equities and bonds is a well-known phenomenon: selling the asset pushes the price down, buying the asset moves the price up. Option hedging is nothing but selling and buying some quantity of the underlying asset. Liquidity can be viewed as part of a chain reaction in hedging: changes in the asset value result in the option owner re-hedging which in turn impacts the asset's liquidity and so on. Therefore, liquidity has to be taken into account when pricing traded options.

CDC Ixis Asset Management plans to launch by the end of June two convertible arbitrage funds that will use derivatives. Dahlia Marteau, head of alternative fund management in Paris, said the funds will use equity, interest-rate and credit derivatives. One fund is expected to be approximately EUR500 million (USD440 million), and the other, EUR100 million.

Bank One plans to hire a fixed-income derivatives marketer to financial institutions. The bank recently hired two fixed-income derivatives marketers in new positions in Chicago. Fred Smithson, former v.p., fixed-income derivatives marketing at J.P. Morgan in New York, has joined as director, fixed-income derivatives marketer to financial institutions, and Jim Hargrove, associate, municipal derivatives sales origination at First Union in Charlotte, N.C., has joined as director, fixed-income derivatives marketing for tax-exempt institutions, said Matt Bayles, managing director, fixed-income derivatives marketing at Bank One in Chicago. He declined to elaborate on the planned hire.

Banc Of America Securities has started offering equity derivatives research to institutional clients. Although BofA's sales force has always generated trading ideas for clients, it is generating formal equity derivatives research to meet client demand for regular written reports, said Chris Innes, managing director, global head of marketing for equity financial products in New York. The bank mainly gives clients specific trading ideas, rather than top-down market analysis, in the reports.

Credit Suisse First Bostonis recommending a trade in which investors can take advantage of the wide differential between Nasdaq 100 and S&P 500 longer-dated implied volatilities.