Dow Jones, SGX sign index deal

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Singapore Exchange Limited (SGX) and Dow Jones Indexes have inked a 'memorandum of understanding', signaling an intention to list Trac-x credit derivatives futures. SGX says that the move is intended to help create a global marketplace for credit derivatives futures.

The exchange expects the Trac-x products to be launched some time this summer, and they will represent the first exchange-traded credit derivatives. Traditionally, credit derivatives have not been included in exchange trading due to lack of standardization.

"For the first time with the Dow Jones Trac-x family we can offer a transparent, neutrally branded, unbiased and well-recognized family of indexes to underline the product," says Michael Petronella, president of Dow Jones Indexes. The company expects to make similar advances with European and US exchanges, he adds.

The Trac-x product family was launched in April of last year and has since grown to include 38 indexes, collectively worth over $150 billion in trades on the over-the-counter market.

Lehman’s ABS launch

Lehman Brothers has launched the first pure asset-backed securities index in Europe. The floating-rate index comprises 492 securities with a market value of $248 billion, divided into euro and sterling components. The new index is intended to improve price transparency in the growing ABS market. Lehman Brothers has also expanded its existing fixed-rate ABS index to 85 bonds. The European ABS market is primarily floating rate.

Krishna Prasad, head of European structured finance research at Lehman Brothers, describes the index as "a sign of the coming of age of the European asset-backed securities market".

The European ABS market has grown quickly over the past few years. Issuance of asset-backed securities reached $272 billion in 2003, up from $64 billion in 1998. Trading volume is estimated at $89 billion last year. At first, banks dominated the ABS investor base. But in recent years insurance companies, fund managers, hedge funds and builders of collateralized debt obligations have been active investors in the ABS market.

With the market's credit quality and issuer base becoming more diverse, fund managers are finding it harder to manually track market performance.

" Investors are demanding better ability to track the performance of their portfolios on an absolute basis and relative to benchmarks," says Prasad. "They also want to manage risk better. The new set of indices will go a long way towards meeting these needs."

More technology news...

• CreditVantage, the credit risk modeling arm of Fitch Risk, an affiliate of Fitch Ratings, has announced the launch of its CRS PD model, a new probability of default tool. In the early stages of launch, the model will cover solely North America, with expectations to expand to additional countries throughout 2004.

• The Depository Trust & Clearing Corporation has pledged its support for a recent report issued by the International Swaps and Derivatives Association (Isda), which calls for the automation of all major derivatives product classes by 2006. Isda's report calls for automated trade verification, confirmation and legal execution for interest rate derivatives, credit derivatives, equity derivatives, foreign exchange derivatives and commodity derivatives by June 2005, and cashflow matching and cross-product netting and portfolio reconciliation by December 2006.

• Barra, the Berkeley, California-based risk management advisory firm, has announced the availability of Barra Credit from January 20. Barra Credit, a new web-based product, allows credit analysts and portfolio managers to identify potential default risk earlier and more accurately, the company said in a statement.

• Online trading platform MarketAxess has announced the addition of SG Corporate & Investment Banking, part of the Société Générale Group, as a participating dealer on its MarketAxess Europe platform. The European platform now provides institutional clients with a central pool of aggregated liquidity from 16 global debt dealers.

• BNP Paribas has become a full price contributor to the iBoxx sterling index. A BNP release stated that the move to include its prices in the sterling price index will help to enhance the quality of the consolidated prices and the indexes.