New CBOT contract offers transparency while replicating traditional OTC trading conventions
The Chicago Board of Trade plans to launch electronically-traded credit default swap Index futures contracts. The new CBOT CDR Liquid 50TM North American Investment Grade (NAIG) Index futures contracts are scheduled to begin trading on 25 June 2007.
Credit default swaps (CDS) are over-the-counter derivative contracts used to transfer or obtain credit exposure between market participants. The contracts allow buyers to hedge against potential credit losses, while CDS sellers assume credit risk in exchange for payment. Typical CDS market participants include banks, hedge funds and other institutional investors.
CBOT Senior Vice President of Business Development Robert D. Ray said: "CDS market participants will gain all the benefits of an exchange-traded contract which features complete price transparency, reduction of counterparty risk, actionable pricing and a transparent, rules-based index methodology. The CBOT CDR Liquid 50 NAIG Index futures contract best replicates traditional OTC credit default swap trading conventions."
The CBOT CDR Liquid 50 NAIG Index futures contract will be based on the CDR Liquid 50 NAIG Index, developed and maintained by Credit Derivatives Research, LLC (CDR). The CDR Liquid 50 NAIG, which includes 50 North American investment grade reference entities, offers a transparent, unbiased selection process based upon a defined set of rules, including minimum levels of liquidity. For this reason, the index is reconstituted every three months to ensure it includes the most liquid entities from the OTC market.
CDR Manager of Credit Indices Dave Klein said, "For the past three years, CDR has published market-driven credit indices designed to track the most liquid names in the global credit market. The CBOT CDR Liquid 50 NAIG Index futures contract, based on our transparent credit index, enables credit derivatives trading for all market participants."
Credit Market Analysis (CMA) will provide pricing information for all the underlying component issues within the CDR Liquid 50 NAIG index. The CMA pricing data will be used to calculate the index value on the quarterly expiry date of the CBOT CDR Liquid 50 NAIG Index futures contracts. CMA's DataVisionTM service offers high-quality pricing data sourced from the front offices of buy-side firms including leading hedge funds, asset managers and global investment banks.
CMA Chief Executive Officer Laurent Paulhac said, "We are very pleased that CMA has been chosen as the pricing data provider by CDR for this exciting new project. The CBOT's new contract is a key innovation in the CDS market, and it is essential that it uses accurate and comprehensive data. This partnership serves as further recognition that CMA DataVision is becoming an important industry standard for CDS data."
The CBOT CDR Liquid 50 NAIG Index futures contracts will be traded on the CBOT electronic trading platform from 6:00 p.m. 4:00 p.m. CT (the following day) under the ticker symbol CX. Beginning June 1, 2007, daily cash value of the Liquid 50 NAIG index will be published on www.cbot.com/cds. Following the launch of the product, the daily cash value will also be carried under the symbol CXX over the CBOT quote vendor network. The CBOT intends to create a market maker program to help ensure that a two-sided market will be readily available for electronic trading.
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