CDS Indexo LLC and Markit Group Ltd have launched CMBX, a synthetic index of US commercial mortgage-backed securities (CMBS).
The following institutions are market-makers in the index, which started trading on 7 March: Bank of America; Bear Stearns; Citigroup; Credit Suisse; Deutsche Bank; Goldman Sachs; JPMorgan; Lehman Brothers; Merrill Lynch; Morgan Stanley; Nomura International; RBS Greenwich Capital; UBS; and Wachovia.
Markit is the administration, calculation, and marketing agent for CMBX, and will serve as the central source of information about the index. Responsible for the index's rules, operations and analytics, Markit will publish daily prices on its website, provide monthly fixed and floating payment amounts, and supply a calculator for the settlement of trades.
Valuations analytics will be made freely available on www.markit.com  and will utilize cashflows from Trepp, the leading provider of CMBS and commercial mortgage information, analytics and technology to the securities and investment management community. Markit will negotiate dealer and data licenses; produce marketing materials; and communicate information to the wider market.
CMBX consists of five traded index tranches. Similar to the ABX index which launched in January this year, the index family consists of five indices based on the 25 most recent CMBS deals. The minimum deal size is USD 700 million, and one bond from each deal will be referenced in each index.
The five indices, which were equally weighted at index launch, are based on the rating of the reference obligations, and reference AAA, AA, A, BBB and BBB- rated tranches. Ratings are required from at least two of the following rating agencies: Moody's, Fitch and Standard & Poor's.
Each index consists of a standardized basket of CMBS reference obligations, which are selected through an algorithm that identifies the most recently issued deals that meet specific size and diversity criteria. In order to qualify for index selection, the following rules apply: Deals must be secured by at least 50 separate mortgages that are obligations of at least 10 unaffiliated borrowers; no more than 40% of the underlying mortgages can be secured by properties in the
same state; and no more than 60% of the properties can be of the same property type. Markit then polls the CMBX dealer group to verify the basket's liquidity.
As with ABX, a new series of CMBX indices will be issued every six months. CMBX is based on the standard ISDA Pay-As-You-Go template.
'The market for CDS of CMBS has been growing rapidly for several months and we expect CMBX to provide market participants with new ways to take synthetic exposure to the CMBS market,' says Bradford S Levy, managing director of Firmwide eBusiness Group at Goldman Sachs and acting Chairman of CDS IndexCo. 'CMBX is a tradable benchmark that will give clients a liquid and standardized tool for trading and structuring.'
Kevin Gould, Executive Vice President and Head of Data Products and Analytics at Markit, adds: 'CMBX has been designed to provide investors with an efficient means to gain diversified exposure to the US CMBS market. The standardized nature of the index, coupled with the fact that trades can be confirmed through DTCC, will pave the way for a liquid
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