Markit Plots New Regional Indices

Markit is looking to launch credit derivative indices in new markets in the New Year. Regions of interest include Latin America, Russia, Eastern Europe and the Middle East, said Stephan Flagel, managing director and head of indices in London, adding it is too early to say which will come first. "We are working with dealers to identify new markets, and hoping we will come up with something and launch towards the end of the first quarter or early second...We’re just waiting to see how the market develops."

In America, Markit has the CDX family of indices. In Europe it has the iTraxx and in Asia it has the iTraxx Asia ex-Japan and the iTraxx Japan. In May this year, it launched the MCDX index—an index referencing municipal bond credit defaults swaps. The strategy called for launching another by year-end, but the credit crisis and the debate on clearing CDS derailed those plans. "Had the market been healthy enough, we would have been able to do this by the end of this quarter," said Flagel. "At the moment, it’s not really liquid enough in single names in other regions than what we already cover. Most dealers are less interested in launches—[we’re] making sure that everyone has their positions hedged with the end of the year coming."

Another possibility, Flagel said, is a global credit index, which would not require any new infrastructure. "It’s a great idea and I don’t think it would have distracted the market much, but it may have diverted liquidity away from some of the other indices." Any launch would likely be around the time of Markit’s next roll date on March 20, so that dealers are concentrating on both at the same time and there is minimal disruption.

Earlier this year, Markit launched a series of exchange-traded funds referencing the performance of its iTraxx indices in Europe. A separate Total Return Index was created for each of the iTraxx Europe main, Senior Financials, Sub Financials, Crossover and HiVol, which allowed investors in the ETF to be either long or short exposure to protection. Deutsche Bank and a joint venture between Axa and BNP Paribas were licensed to link ETFs to the indices. So far there is insufficient demand to do the same with the CDX family.

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