Markit Group, which provides OTC derivatives valuation and trade processing services, has extended its pricing service to loan credit default swaps (LCDS).
Markit says LCDS was launched in response to strong interest in the nascent LCDS market from dealers and institutional investors wishing to take synthetic exposure to secured loan issuers. Volumes in the LCDS market have surged, with notional outstandings estimated to have grown over 300% to $40 billon since July this year. The launch of the iTraxx European LCDS index, LevX, in October this year has spurred liquidity.
The service provides same day and T+1 spreads for over 300 reference entities and tiers traded in the European and North American markets. Markit draws prices from contributing dealers and cleans them to create a composite which is made available at 4:00pm daily in London and New York. Sell-side firms using the service will see spreads on a particular reference entity when there is a minimum of three dealers making markets in that name while buy-side firms will be able to access even thinly quoted entities.
Markit will also offer valuations on LCDS. The new service rounds off Markit’s CDS and syndicated loan pricing services which are regarded as the pre-eminent source of independent mark-to-market pricing.
The LCDS pricing service complements Markit’s role as official calculation agent for LevX and LCDX, the North American LCDS index which is expected to launch in the first quarter of 2007.
“We expect to see enormous growth in the trading of single-name LCDS and LevX over the coming year, with interest in the product coming from a very broad cross-section of institutional investors,” says Matthew Smith, Director and Head of European Loan Trading at Deutsche Bank. “The introduction of Markit’s LCDS pricing service will bring transparency to this new market which will in turn encourage greater liquidity and growth.”
Tim Frost, Principal, Cairn Financial Products, says it is a sign of the increasing maturity of the product that Markit has extended its pricing service into the LCDS market. “We would expect the availability of this pricing service to stimulate further growth, and we look forward to Markit launching their LCDS parsing service soon,” he says.
Tom Price, Director and Head of Loans and LCDS at Markit, adds that the recent launch of the LevX index in Europe and the forthcoming launch of the LCDX index in North America means investor interest in loan CDS has grown fast. “With the assistance of our contributing dealers, we are now able to provide investors with the first independent source of daily loan CDS spreads suitable for mark-to-market,” he says.