Although one of this summer's revelations about the misuse of consultants involved the arcane world of derivatives, underwriters and issuers say they legitimately need outside advice in this area.

In July, Merrill Lynch & Co. admitted it had secretly hired Mark S. Ferber, a politically connected banker then working at Lazard Freres & Co., as a consultant on swaps.

Most derivatives consultants are hired for their technical expertise, not their political connections.

Such consultants may include computer programmers, prominent university professors, or professionals who have left large dealer firms or commercial banks active in structured finance.

Arthur Levitt Jr., chairman of the Securities and Exchange Commission, is mindful of the role of derivatives consultants.

"I think that with the increasing complexities, the kinds of municipal bonds that are being offered, there is a legitimate place for certain kinds of consultants. So to try to ban consultants as a group would be a mistake," Levitt said in an interview last month.

Even large, established firms and sophisticated issuers use derivatives consultants on occasion.

"We might bring in a valuation expert to ensure we are accurately pricing a new product," said one new products specialist.

Big firms also hire academic experts and computer programmers as derivatives consultants. Creating a new derivative may require new computer software for a firm's back office and new valuation models for the trading floor.

Leslie Rahl, now president of her own derivatives consulting firm, was the head of interest rate risk management at Citibank. Dealers, issuers, and municipal insurers have hired Rahl's firm, Leslie Rahl Associates, for derivatives advice.

An issuer or investor might ask Rahl's advice on a specific transaction or bring Rahl in to train employees. "We do training for people who might be using derivatives and want to know about the risks and benefits," Rahl said.

Another former Citibank official, Peter Shapiro, is now at Euro Brokers, a major derivatives broker.

Euro Brokers does not provide advice or training, but tries to bring parties together to enter a trade. The firm is also available to conduct competitive bidding of derivatives transactions for issuers.

Regional firms trying to break into derivatives without setting up a separate departments also use consultants.

Large firms starting departments can afford to reassign corporate derivatives specialists and hire from their competitors or from the big commercial banks. But the smaller regionals, feeling the need to offer some derivatives products or advice, can turn instead to consultants.

Patriot Securities LP started a municipal derivatives business this summer with four derivatives professionals. The firm consults with regional underwriters and financial advisers on derivatives transactions, but does not work directly for issuers.

Patriot pitches itself as a pinch-hitting derivatives team. "Consider us your on-call derivatives department available to help identify, evaluate and realize opportunities to further your client's objective," the firm's marketing materials say.

The firm also acts as a derivatives broker.

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