At its launch on May 22, dealers in New York reported a high level of activity in the new product, with around $1.5–2 billion notional traded between 7.00 and 9.00am alone. By 4.00pm, spreads on it had tightened to 104.6 bps, according to Markit.
The LCDX was launched by bank consortium CDS IndexCo, after the International Swaps and Derivatives Association finalised documentation for US LCDS index trades and revised standards for US single-name LCDSs.
“Isda has high expectations for the index,” said Robert Pickel, chief executive of the association. “The launch of LCDX addresses credit derivatives index settlement issues by ensuring strong liquidity and acting as an efficient means of hedging credit exposure.”
Isda is preparing a protocol for rolling legacy LCDS trades to the new standard, as well as documentation for LCDX tranches. Since the end of 2006 a working group has also been developing revised LCDS documentation for Europe. This was expected in May, but Isda said the group now plans to finalise it in June.