Markit Buying Owners of iTraxx, CDX Credit Indexes
By Neil Unmack and Shannon D. Harrington
Nov. 14 (Bloomberg) -- Markit Group Ltd. agreed to buy the owners of the iTraxx and CDX credit-default swap indexes, giving it control of the benchmarks for the world's $45.5 trillion credit-derivatives market.
Markit, majority-owned by 16 broker dealers, said at news conferences today in New York and London that it bought iTraxx owner International Index Co. and will buy CDS IndexCo LLC, operator of the CDX, ABX, CMBX and LCDX corporate credit and structured finance indexes. Terms of the deals weren't disclosed.
Investors use the CDX and iTraxx credit-default swap indexes to speculate on the credit quality of more than 500 companies in Europe, Asia and North America. Contracts based on the indexes make up the biggest part of worldwide trading of credit derivatives. The market for credit derivatives, or contracts based on debt, grew by 75 percent in the first half of 2007, according to the International Swaps and Derivatives Association.
``The acquisitions will give us the ability to bundle indexes together and offer global index packages at a very competitive rate,'' Niall Cameron, Markit's head of equities and indexes, said in an interview in London.
The indexes account for as much as half of all credit derivatives traded globally, Markit Executive Vice President Kevin Gould said at the news conference in New York.
Markit said it plans to expand the indexes by creating a global credit-market benchmark, as well indexes covering emerging markets and interest rates. The company began discussions with dealers to create an index tied to so-called Alt-A mortgage securities, considered a step above subprime mortgages, which have been defaulting at record levels.
Same Hands?
The change in ownership of the indexes keeps them in largely the same hands.
Markit, founded in 2001 by Toronto-Dominion Bank executives Gould and Lance Uggla, is majority-owned by banks including JPMorgan Chase & Co., Morgan Stanley and Deutsche Bank AG. Those three banks also are members of an 11-bank group that owns IIC and a 16-member group that owns CDS IndexCo.
Four fund managers and employees also own Markit.
The acquisitions bolster Markit's ability to create benchmark derivatives contracts for other asset classes, such as commodities and currencies, said Fergus Lynch, chairman of IIC and Deutsche Bank's global head of index development in London.
`Applicable' Model
``In every other marketplace -- in FX, commodities, emerging markets, inflation, virtually anything you can think of outside of equities -- this model is absolutely applicable,'' Lynch said in an interview. Stock markets are too developed to expand in the area, he said.
Dealers including Deutsche Bank have been creating their own commodity-linked indexes that trade in the privately negotiated over-the-counter market.
``The market could really benefit from some consolidation,'' Lynch said. ``You want an index that is equally accessible to everybody, that's transparent and neutrally priced.''
Bloomberg LP, owner of Bloomberg News, competes with Markit in selling information to the financial-services industry.
To contact the reporter on this story: Neil Unmack in London at nunmack@bloomberg.net ; Shannon D. Harrington in New York at sharrington6@bloomberg.net
Last Updated: November 14, 2007 17:44 EST |
