Earlier this week,
) announced its intention to launch four credit index futures
(CDX), which will be based on the Markit CDX and Markit iTraxx
indices. While the release is scheduled for May this year, it is
subject to the review of Commodity Futures Trading Commission
CDX are contracts that offer greater efficiency in credit risk
management while hedging in the corporate credit market. These
futures also tap the expanded client base, including
non-traditional CDS market participants as it operates in a
transparent and regulated market structure.
Further, these derivatives can be used to hedge against credit
exposure as it provides risk-protection to the buyer and
guarantee of the credit worthiness of the debt or loan from the
seller. As a result, CDX also helps eliminating the risk of a
Accordingly, IntercontinentalExchange tends to offer four
contracts based on the Markit indices including CDX NA IG, CDX NA
HY, iTraxx Europe (Main) and iTraxx Crossover. Moreover, all the
contracts will be settled in cash. Meanwhile, these CDX contracts
will be listed on ICE Futures U.S. and cleared by ICE Clear
Additionally, IntercontinentalExchange has decided to list
these CDX contracts twice annually, while its expiration will be
on the dates of the commencement of the trading of a new series
in the swaps market.
Going ahead, IntercontinentalExchange aims to launch more
credit derivatives based on the market response and demand from
clients. Over the past years, other derivative players such as
CME Group Inc.
CBOE Holdings Inc.
) and Deutsche Boerse's Euronext have introduced such credit
derivatives into the market. However, these products did not
showcase the desired growth momentum, which makes us skeptical on
the future of IntercontinentalExchange's products.
While IntercontinentalExchange, CME Group and CBOE carry a
Zacks Rank #3 (Hold), another outperformer of the financial
),carries a Zacks Rank #1 (Strong Buy), and appears
CBOE HOLDINGS (CBOE): Free Stock Analysis
CME GROUP INC (CME): Free Stock Analysis
INTERCONTINENTL (ICE): Free Stock Analysis
MOODYS CORP (MCO): Free Stock Analysis Report
To read this article on Zacks.com click here.