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Salomon Smith Barney is pitching an equity derivatives trade designed to isolate the energy assets from telecom and energy conglomerate Williams and capitalize on their relative cheapness.

Credit default swap spreads on five-year protection narrowed in the telecom sector last week after France Telecom came to market Wednesday with a USD16 billion bond. The five-year spread on France Telecom came in 10 basis points to 170bps and the same contract for British Telecommunications and Deutsche Telekom both moved in 15bps to trade at 155bps on Wednesday.

The Merton Miller Group, (MMG) which is composed of four founding fathers of the derivatives markets, met recently in Reston, Va., to continue their dialogue on the dramatic forces that are changing the futures industry. Senator Richard Lugar (R-Indiana), chairman of the Senate Agriculture Committee, participated in the event, filling a chair left vacant by the late Nobel Laureate Merton Miller, which is now reserved for guest participants in his honor.

Schroder Salomon Smith Barney is recommending clients enter interest-rate swaps in which the customer wins if Polish interest-rates fall and Czech interest rates rise. Poland's central bank is expected to cut interest rates further next month as the threat of inflation has diminished, while the spread between short-dated Czech and euro interest-rate swaps likely will widen as interest rates in euro-land and the Czech Republic diverge.

Several banks in Taiwan are looking to beef up their derivatives teams in interest rate, currency and equity products to meet increasing client demand for hedging these risks.

Ekachart Finance, a Thai finance company with THB24 billion (USD553.4 million) in assets, hopes to become a market maker in the Thai derivatives market once it receives a restricted bank license from the Bank of Thailand. The finance company plans to merge with four other financial institutions, after which it hopes to receive the license and engage in many of the same activities as commercial banks, including derivatives, said Pattana Setthachayanon, v.p., treasurer in Bangkok. The new entity will likely be called National Bank.

Deutsche Bank has reportedly agreed in principle to pay up on a disputed credit default swap in which it provided protection to UBS on a company that designs and manufactures floors and ceilings. An official close to the situation said UBS will dismiss a lawsuit it brought against Deutsche Bank for failure to pay in the swap after what it thought was the reference company filed for Chapter 11 bankruptcy protection last year. Terms of the settlement had not been finalized by press time, the official said, noting that neither party had yet signed on the dotted line. Spokespersons and officials at Deutsche Bank and UBS declined to comment.

Implied one-month U.S. dollar/Canadian dollar vol retraced in the latter half of last week after seesawing in the middle of the week. Implied one-month vol rose as high as 6.6% just prior to the Bank of Canada announcing a 50 basis point interest rate cut on Tuesday. The cut was seen as positive for the Canadian dollar--immediately after the cut, the Canadian dollar rose to about CAD1.5375, said Ashif Jiwani, executive director, head fx options trader at CIBC World Markets in Toronto.

BNP Paribas is set to issue a EUR3.25 billion (USD3.03 billion) synthetic collateralized loan obligation in two weeks with a unique predetermined amortization schedule. Paul Mazataud, v.p. senior credit officer at Moody's Investors Service in Paris, said this is the first synthetic amortizing CLO in which the investor enters the trade knowing what the amortization schedule is likely to be. BNP Paribas is structuring the trade to achieve regulatory capital relief on the basket of loans, explained Laurent Lagorsse, asset-backed security syndicate manager at the firm in London. Lagorsse said demand for CLOs is strong right now but supply has slackened since the turn of the year.

Credit Lyonnais is preparing to offer by year-end structured equity products that pay the performance of baskets of hedge funds. Eric Debray, equity derivatives salesman in London, said the recent downturn in the U.S. equity markets is driving demand for hedge fund-like returns. However, insurance companies and pension funds are still haunted by the Long-Term Capital Management debacle in 1998, and as a result Lyonnais is pitching products featuring principal protection.

Deutsche Bank is recommending investors purchase an at-the-money forward U.S. dollar call against the Singapore dollar and finance the position by shorting a greenback/Sing dollar strangle. The strategy, known as a seagull, pays out if the Singapore dollar weakens or trades in a range against the U.S. dollar, according to Peter Redward, Asian currency strategist at Deutsche Bank in Singapore.