Reflecting the growing desire of issuers for more objective assessments of derivatives, Patriot Securities L.P. has initiated a municipal derivatives advisory business.

The firm, started in 1990 by Liberty Brokerage and a group of private investors, plans to give derivatives advice to issuers and firms lacking their own in-house derivatives departments.

John F. Sickles, Patriot's director, will head up the firm's municipal business. Sickles was a principal at Quailridge Associates Ltd., where he provided advice on infrastructure projects in Eastern Europe. Sickles began in the municipal market in 1970 as a trader for Shearon Hammill.

Most municipal derivatives activity to date has been handled by only a handful of large firms, market sources observed. Medium-size firms have tried to break into derivatives by entering into alliances and joint ventures with foreign banks and other financial institutions.

For example, Smith Barney Shearson has offered clients swaps through AIG Financial Products, a subsidiary of the triple-A rated American International Group, Inc.

And, much as Patriot hopes to do, PaineWebber has structured derivatives transactions for clients and then acted as a swap broker, helping the issuer choose among various swap counterparties to receive the best price.

But few medium-size firms have executed derivatives transactions, and smaller firms have been almost entirely shut out, market sources said.

Patriot will try to fill this niche by offering advice to issuers on transactions designed by other firms and acting as a broker on swaps the issuers are considering. Patriot will also help structure derivatives proposals for firms lacking derivatives expertise.

But the niche may be tough to fill, several derivatives professionals warned. They said Patriot's activities may be limited to providing objective assessments of derivatives structured and executed by the bigger players.

"We have seen cases where [issuers] want an outside opinion," said one professional at a firm active in municipal derivatives. "But I think we will always have a big advantage in offering the full range of services. We can manage a large fixed-rate deal and throw in [a derivative portion] to lower the issuer's costs."

Three former Merrill Lynch officials round out Patriot's municipal department.

Brett F. Whysel was a swap marketing consultant at BV Capital Markets, Inc., a subsidiary of Bayerische Veriensbank AG, and worked in the municipal swaps and futures department at Merrill Lynch.

Thomas R. Turnbull worked at both Sumitomo bank Capital Markets and Merrill Lynch in the global derivatives area.

Quitterie M. Louit will head up research for the new firm. Previously, she was a supervising capital markets specialist at the New York State Banking Department. Louit also worked at Citibank, Bankers Trust, and Chase Manhattan in the derivatives area, and was an economist at Merrill Lynch.

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