ISDA PRESS REPORT - November 29, 2000

* Exchange Mergers To Encourage Derivatives Markets
* Equity Derivatives Growth Lures US Banks To Europe
* German Electricity Market Set For Growth
* Euro-MPs Seek Reform Delay

Exchange Mergers To Encourage Derivatives Markets
Asia Risk - November 2000

Malaysia's derivatives markets are set for big changes after
December.  This is now the mostly likely date for the merger between the
Commodity and Monetary Exchange of Malaysia (Commex).  The amalgamation will
bring together all the country's exchange-listed futures and options
trading.  Completion of the merger also seems likely to lead to the launch
of several new derivatives contracts, which had been put on hold pending the
union.  Kloffe, which is owned by the Kuala Lumpur Stock Exchange, currently
lists just one contract - futures on the KLSE composite share index.

Commex is itself the result of a merger in late 1998,
between the 18 year old Commodity Exchange, offering palm oil contracts, and
the Malaysian Monetary Exchange, which began operating in 1995 to provide
three month klibor futures.

The need to rationalise Malaysia's exchanges and cut costs
are the main reasons for the merger, according to Allan Au Yond, head of
business development at Commex.  This rationalisation is being strongly
pushed by the government as part of its broader plans for consolidation in
the financial sector.  Although volumes have fallen on both the Kloffe and
Commex since controls were imposed in September 1998.  Au Yond says this is
not the key factor in amalgamation.  In any case, activity on the Commex is
rebounding, he says.  A new name for the combined exchange has not been
decided.

After the proposed December merger, the trading of all
futures and options will be located in the stock exchange building.  All
trading will also be electronic.  At present, Kloffe trades on screen, but
Commex still uses the open-outcry system.  According to Commex officials,
they will be seeking approval for a bond futures contract to compliment the
short-term klibor one.  Kolfe, meanwhile, is planning to launch options on
the composite share index before the end of the year.

Exchange officials would also like to launch options on
individual shares.  However, this will have to wait until the authorities
lift the ban on "short" selling and the lending of shares.  Such practices
were banned in August 1997, during the Asian Crisis, although short
positions on composite index futures are allowed.  At that time, excessive
short-selling was blamed for the sharp drop in share prices.  While the ban
exists, options on individual shares would be unlikely to find much investor
interest.

Another launch proposal under consideration is a futures
contract on an Islamic index, covering shares acceptable under Shari law.

Kloffe was hit quite badly by the imposition of foreign
exchange controls in September 1998.  Until, trading volumes had been
rising.  The early days of East Asia's crisis inevitably created heaving
trading, with monthly contract volumes peaking at 94,850 in June 1998.  The
average monthly volume in the first half of this year has not been much more
than a third of that level.

This is hardly surprising.  Foreigners accounted for about
50% of the Kloffe turnover in 1998.  This year, the proportion is down to
20%, as foreign equity investors deserted the country once the repatriation
controls were relaxed.  New equity portfolio investment from overseas
remains low.

Along with other Asian markets, the Kuala Lumpur stock
exchange has seen a sharp fall in share prices in 2000.  In the year to
early October, the Malaysia dollar returns index, compiled by Standard &
Poor's IFC, was showing a fall of almost 16%.  But this was only half the
drop seen across much of the region, which posted an average slide of 30%.
Share price performances this year partially reverse the strong advances
made in 1999, when the Malaysian market climbed 47% and gains in Asia
averaged 73%.

Equity Derivatives Growth Lures US Banks To Europe
IFR - November 25, 2000
By Elisabeth Bertalanffy

US investment banks including Morgan Stanley Dean Witter and Merrill Lynch
are stepping up their bid to win equity derivatives business in Continental
Europe after a boom year. One area in which they are aiming to win market
share from European banks is the sale of derivatives
Alastair Cooper, managing director in the equity group at MSDW in London,
said that the bank has increased the headcount in its European equity
derivatives operations by 45% this year,
and is planning to add roughly the same number next year. The vast majority
of these hires have been, and will be, on the marketing side. The client
functionality side, such as research, has also been boosted.

The bank is also preparing to roll out an improved technology platform early
next year, which will provide sophisticated online facilities for its
clients. According to Cooper, the bank has invested a lot in the platform -
which offers, for example, state-of-the-art risk management and execution
management systems - and also in improving its infrastructure.

Over the last few years, MSDW has been rapidly building up headcount and
resources across virtually all product lines in Europe. Equity derivatives,
however, had been lagging behind in this
expansion drive, Cooper explained, owing in part to prioritization and risk
appetite considerations. Last year, the bank's management made the decision
significantly to expand MSDW's European equity derivatives business, with a
special commitment to carving out a market position in the
mushrooming local retail markets.

The decision was driven by several factors, according to Cooper. First, MSDW
wanted to leverage its strength in related areas, such as its equity cash,
high-net-worth individuals and mergers and acquisitions businesses, he said.
Also, the bank is extremely optimistic on economic prospects in Europe,
which it believes point to further growth in equity derivatives volumes in
the near future.

Additionally, Cooper noted that the range and sophistication of equity
products has been steadily
increasing - especially in the retail sector with strong growth in
single-name and sectoral products.

One of the most important elements in MSDW's foray into the European equity
derivatives and retail arena - where so far the bank has not left much of a
mark is its efforts on the technology side.  This is especially important
for retail clients, whom the bank can now reach directly.

MSDW's interest in the retail market has been sparked by the considerable
increase in the
volume of equity and equity-linked products in this area. Cooper pointed to
the advanced warrant
and certificate markets across Europe, as well as to the breadth of
alternative assets, like funds of hedge funds. "The retail market is
becoming more and more sophisticated, and the product
offering wider and more complex," he said. "Internet trading is furthering
this trend, because it makes it so easy to deal."

Merrill Lynch has been targeting the European retail market for some time
now, and is one of the largest US players on the Continent. The bank is
managing to leverage off its strong position in the US equity markets to
compete with European banks, and has also been willing to commit large
numbers of staff and significant investment in technology to make a name for
itself.

Merrill strongly emphasises the ecommerce side of the business, currently
offering a dozen product sites in eight languages around the world - in
Europe it provides sites for Italian,
German and UK clients - and a fully integrated global product menu. From
this month, its online site allows for the trading of warrants and
certificates.

On the retail side in Europe, the bank already offers a range of
equity-linked products, including certificates and LDRs - tracker shares,
jointly developed with European stock exchanges and
STOXX. On its certificate platform, the bank more than doubled issuance in
Europe this year. It has also rolled its successful US HOLDRS product out in
Europe. It is among the market leaders in warrants and listed options.

Aside from the well-developed Swiss and German markets, Spain and Italy are
also promising retail arenas for the future: MSDW's acquisition of Spanish
firm AB Asesores last year will provide
a valuable launching pad for the bank's foray into this market, as it
provides it with an extensive retail brokerage presence, Cooper said. At the
same time, it is expanding its credit card business in Europe, and stepping
up direct braking and marketing, he added.

Cooper acknowledged that it would be difficult to compete against
established retail market players like Deutsche Bank and UBS Warburg on
their home turf.

MSDW will thus focus on niche sectors, and will also take advantage of its
strengths, like its leading role in the technology sector. The bank will
also be able to add value in non-European indices and sectors.

Banks that want to be successful in the European retail markets have to
recognise that it is a staff-intensive, low margin, high-volume business.

Merrill, for example, has 210 equity derivatives salespeople worldwide, and
a staggering 18,000 retail financial consultants. Another crucial element is
a strong technology platform, which is
costly, and takes time to set up.

It remains to be seen if other US houses which have traditionally been
strong in equity derivatives are willing to take the plunge into the retail
market. Goldman Sachs, for example, has so far focused primarily on the
high-margin business of large institutional clients, using fewer staff to
cover large areas of the market.

However, the European equity derivatives retail market has been going strong
for some time now, and shows no signs of slowing down. It would come as no
surprise if more US players were to
push into the sector soon.

German Electricity Market Set For Growth
IFR - November 25, 2000

The German electricity derivatives market is expected to grow tenfold over
the next four years, a development that will be helped by the start-up of
several electricity spot and futures exchanges. Last month, the European
Energy Exchange (EEX) started simulating energy futures trades with 20
market participants, including banks and regional and international
electricity providers, according to an EEX spokesman in Frankfurt.

The Amsterdam Stock Exchange is also targeting the German, as well as the
Dutch, electricity futures market, in cooperation with the Hanover commodity
exchange. And the Leipzig Power
Exchange (LPX) is planning to roll out   futures trading in the first half
of next year.

An official at a leading German energy company said that volume in the
electricity forwards market in Germany is currently only about E25m per
year. By 2005, however, the company forecasts volumes of up to E250m - 10
times as much. The vast majority of these trades
are done over-the-counter. His company currently trades forwards, futures,
swaps and options, as well as hybrid   products linked to the prices of
commodities, whose production is very energy consuming, such as aluminum.
Tenors are usually a year.

Liquidity is still lagging behind, even in the spot markets. EEX, which
launched electricity spot trading in August, has average weekly trading
volumes of roughly 100,000 megawatt hours. Rival
LPX trades roughly half that amount. In the derivatives arena, the major
players are investment banks, like Morgan Stanley Dean Witter, and
international power companies, like Enron or Hess, as well as local
electricity company RWE.

But all the signs are there that the electricity derivatives market is
poised to take off. The official pointed to the fact that the market for
qualified energy derivatives personnel, such as traders as well as legal and
compliance experts, is completely exhausted. "It shows how everybody is
looking to build up, or strengthen, their capabilities in this business," he
said, adding that his company also is looking for International Swaps and
Derivatives Association documentation experts.

A two-pronged approach is necessary to foster the energy derivatives market,
the official stressed. First, it is important to conduct education and
information campaigns to draw smaller players into the market, and lobby for
the standardisation of contracts to increase trading
volumes and liquidity.  Another important application for energy derivatives
is as an access provider to lesser deregulated markets in Europe, according
to the official. He explained
that Germany and the UK are the most deregulated energy markets in Europe,
while other markets, like the Benelux countries and Italy, still lag behind.
The easiest way to enter and open up these countries is via derivatives,
which are unregulated.

Euro-MPs Seek Reform Delay
Financial Times - November 29, 2000
By Doug Cameron

The European parliament is seeking a moratorium on sweeping reform of the
global banking industry because of concern that US banks will gain a
competitive advantage.  The Bank of International Settlements (BIS), the
industry's de   facto regulator, is due to publish a consultation paper in
January on updating the 1988 Basle Accord, which governs how banks manage
risks on their balance sheets.

The BIS plans to allow banks to use their internal systems for managing and
monitoring risks, replacing the current framework where central banks set
minimum capital requirements to cover
potential losses.  However, while US banks may be able to implement the
changes by the start of 2002, European rivals will have to wait as long as
three years as legislation passes through the European Commission, Council
of Ministers and parliament.

Sarah Villers, the European parliament member for London who leads its
working group on the Basle reforms, said that while the US introduced the
1988 rules in a matter of months, the EU
took two-and-a-half years.  "European banks undoubtedly suffered last time,"
said Ms Villers.

A report passed last week by the parliament said the "EU  should also press
for a moratorium on the implementation of the revised accord for an agreed
period of time to allow Basle Committee members to adopt implementing
legislation and enable the accord to enter into force on the same day in all
countries."

However, the industry appears to be resigned to implementation at different
times, and many view it as the price worth paying for the greater management
flexibility that the internal                   ratings system will provide.


"We have to live with the fact that the EU cannot go any faster," said Jan
Kalff, the former chairman of ABN Amro who now heads work on Basle for the
Institute of International
Finance, a trade body for the global banking industry.

"There will be a competitive disadvantage for the EU-based banks unless we
can force the US to [slow down]," he said, adding that this was unlikely.
The large US banks, which are expected to benefit most from the revised
accord, are keen to push for its early implementation. Officials involved in
the Basle talks suggested that the BIS was unwilling as well as powerless to
become involved in any possible confrontation with the US over the
timetable.

However, officials conceded that a twin-track timetable would contradict its
intention of creating a level playing field in the way banks manage risk and
are monitored by local regulatory authorities.
Ms Villiers agreed that the US was unlikely to accede to any request for
delay and was pressing for fast-track European legislation which would, at
best, allow directives implementing the new accord to be passed in a minimum
of around 18 months.

End of ISDA Press Report for Wednesday,  November 29, 2000.

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