Bank CDS Indexes Added To S&P/ISDA CDS Sector Indices, Are CDS Index Futures Coming Soon?

Lehman Brothers, Merrill Lynch, Morgan Stanley, Goldman, 
Citi, JP Morgan CDS in 2008 (Bloomberg chart via Mish)
CreditLime, a blog that covers the credit default swap market, reported that S&P/ISDA added two bank indexes to its family of CDS Sector Indices, the S&P/ISDA CDS U.S. Financials Select 10 Index and S&P/ISDA CDS European Banks Select 15 Index. On ISDA's website you can track the daily activity of the S&P/ISDA CDS indices, the most active single name reference entities (with some historical percent change data), and Markit's CDX and Itraxx indices (there are short-term charts available at Markit's site). So, when do CDS index futures start trading on exchanges? And what about exchange traded credit protection (insurance, hedges, or whatever you want to call it) on single name corporate bonds and sovereign debt? More on this later. Here is more info on the new CDS indices via ISDA.org:

"NEW YORK, March 20, 2012 – S&P Indices and the International Swaps and Derivatives Association, Inc. (ISDA) announced today the launch of the S&P/ISDA CDS U.S. Financials Select 10 Index and the S&P/ISDA CDS European Banks Select 15 Index. The Indices provide a day-to-day measure of the credit quality of the U.S. and European banking sectors.

The S&P/ISDA CDS Sector Index family seeks to reflect the credit default swap market for corporate credits, increasing transparency for market participants. Today’s launch coincides with the scheduled role for the existing indices in the S&P/ISDA CDS Index family.

The S&P/ISDA CDS U.S. Financials Select 10 Index and the S&P/ISDA CDS European Banks Select 15 Index concentrate on the most liquid and relevant names within the U.S. Financial and European Banking sectors, respectively. The Indices provide a targeted measure of counterparty risk in these very important market segments. Furthermore, the Indices provide insight into how the markets view the credit risk of the majority of trading counterparties for over the counter derivatives and other credit sensitive transactions. Both Indices are equally weighted with no minimum ratings criteria for inclusion.

The S&P/ISDA CDS U.S. Financials Select 10 Index and the S&P/ISDA CDS European Banks Select 15 Index target financial intermediaries that seek a standardized index to hedge broad financial counterparty risk. The Indices may be used as a basis for a credit default swap, and can also be used to the track the overall health of the U.S. Financial and European Banking sectors.

“Since the credit crisis began, market participants have been looking for efficient methods to hedge against perceived counterparty risk within the U.S. financial and European banking sectors,” says Michael Kondas, Associate Director at S&P Indices. “The launch of the S&P/ISDA CDS U.S. Financials Select 10 Index and the S&P/ISDA CDS European Banks Select 15 Index will provide that measure of counterparty credit risk the market has been seeking.”

“We are very pleased that we are able to broaden the family of S&P/ISDA CDS Indices with the launch of the S&P/ISDA CDS U.S. Financials Select 10 Index and the S&P/ISDA CDS European Banks Select 15 Index,” said George Handjinicolaou, ISDA Deputy Chief Executive Officer and Head of Europe, Middle East and Africa. “These CDS Indices will further increase transparency and efficiency in the OTC derivatives market.”

The current family of S&P/ISDA CDS Sector Indices includes:

S&P/ISDA CDS U.S. Homebuilders Select 10
S&P/ISDA CDS U.S. Consumer Discretionary Select 20
S&P/ISDA CDS U.S. Consumer Staples Select 10
S&P/ISDA CDS U.S. Energy Select 10
S&P/ISDA CDS U.S. Health Care Select 10
S&P/ISDA CDS U.S. Financials Select 10 Index*
S&P/ISDA CDS European Banks Select 15 Index*


* Launched today"

Hat tip CreditLime 

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