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Capital Markets

Credit derivatives: SG to launch investable CDS index

SG aims to capitalize on the increasing demand for credit derivatives as a risk mitigation tool.

SG CIB plans to launch an investable CDS index before the end of the year. The bank hopes that the new index, to be called Credindex, will become a benchmark for the market and facilitate retail investment in credit. It describes credit as a “hidden” asset class, and points out that iTraxx in Europe and CDX in the US cannot be bought by 99% of investors. “iTraxx and CDX are traded for institutions. The idea of Credindex is for it to be a FTSE equivalent – a benchmark,” says Hubert Le Liepvre, global head of credit structuring at SG CIB.

SG claims that the new index is necessary because the nature of investors’ involvement in the credit derivatives market is changing. “Current activity in CDS is mostly investing,” says Le Liepvre. “But it will move more towards risk mitigation and hedging.” The argument is therefore that the market needs an index that can be bought and sold simply and easily and can be used as a risk management tool. “iTraxx is a price indicator. It is not an investable index – you can’t buy and sell it. You don’t know what your total return is,” he says.

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