The market may soon see the much-anticipated trading platform for synthetic European CMBS, said Nathan Kirk, director of product development at Markit Group, which is one of the dealers working on the new index.
The new platform ECMBX will be modeled after the U.S. CMBX platform that CDS IndexCo and Markit rolled out last year. "Because of the demand for paper in the European market, bidders' allocations are often revised down. The launch of a liquid synthetic index should help the market by satisfying this demand synthetically, and it's certain to generate significant volumes in these synthetic products," Kirk said. "The index will also allow investors to short the market very easily, which is something that can't easily be done at the moment."
Traders from Barclays Capital, Citigroup, Credit Suisse, Deutsche Bank, Lehman Brothers, Merrill Lynch, Morgan Stanley and UBS drew up plans for four different indices; a sterling-denominated triple-A, a euro- denominated triple-A, a sterling-denominated triple-B, and a euro- denominated triple-B.
The index is expected to consist of 20 single-name credit default swaps referencing eligible European CMBS bonds, and a new series will be created every six months. Eligibility criteria would include tranche size and weighted-average life, minimum number of ratings and publicly available trustee reports.
It's likely that the index will be finalized in the coming months, Kirk said. He added that the finalization of the International Swaps and Derivatives Association (ISDA) pay as you go documentation is expected in the next few weeks. Markit is also in the process of requesting votes from dealer groups in relation to standardizing the final terms of the index.
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