Warm welcome for electronic trading of indices
Total Derivatives.com, February 24, 2004

By Roger James

Credit default swap indices – Trac-X and iBoxx—are the runaway success story of the CDS market these last 12 months, and they appear to have got another little nudge along the glory path with the unveiling of the first electronic trading system for credit derivative indices.

The system, developed by international broker Creditex, was described today by the Creditex CEO as “essential to the evolution of the CDS market,” a sentiment which satisfied customers are so far happy not to dispute.

The major names in the market are already subscribing, or test-driving, the product, and it seems to have been well-received whether the users line up alongside Trac-X or alongside iBoxx in the currently divided land of CDS indices.

One user, who has been trialling for a short time, told TotalDerivatives today that the service was the state-of-the-art toy, the equivalent of an iPod or e-book, for the CDS index aficionado.

“It’s fantastic, everything can be onscreen at once, it’s easy to go and there are good functions,” said the trader.

Such as? “You can set it up so that if you’ve shown a stream of prices and been hit on one, the others become subject (or frozen, so that one trader doesn’t get swamped by a rush of hits all at the same time).” In addition, there are scrolling tickers, good graphing facilities and easy-to-grasp functionality that swappers reckon will make it a hit.

More importantly though “it’s a fraction of the price of standard brokerage,” said one trader at another major CDS bank.

Will it help to promote index unity?

Officials at Creditex in New York refused to discuss who has so far taken its new system on board, and declined to comment on whether it has a role in planned market unification (see CDS: iBoxx / Trac-X merger in the air).

However, TotalDerivatives has been told that among the early users are ABN Amro, Barclays, BNPP, JP Morgan, Morgan Stanley and UBS. Apologies to any not included but Creditex is keen to respect customer privacy.

Nonetheless, with at least seven of the ten biggest names in CDS and in index trading already enrolled, and the pricing working in the user’s favour, presumably only the emergence of a hideous technical defect is going to stop it (or even more advanced rivals) from becoming the future of the increasingly high-volume market for CDS index trading.

So should iBoxx and Trac-X both turn up for the summer wedding that many in the CDS market predict, and even demand as a precursor of further improved liquidity, how will the new Creditex system fit in? Well, again, Creditex was reluctant to comment, but traders noted that with the two systems trading on identical software in an ever-more transparent pricing environment, that raised familiarity can only help smooth the path to an easy union of the two rivals, when the time is right.

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