Standard & Poor’s is starting three indexes that measure corporate creditworthiness tied to the S&P 500 stock index and is linking with swaps exchange trueEX Group LLC to create futures contracts on them.
One of S&P Dow Jones Indices’s gauges, which begin today, will be tied to 120 issuers of the most liquid investment-grade debt in the stock index. The S&P/ISDA U.S. Corporate 120 Credit Spread Index, combined with the S&P/ISDA U.S. Financial 30 Credit Spread Index, make a third basket, the S&P/ISDA U.S. 150 Credit Spread Index.
“Investors have longed for a transparent and standardized way to express views on credit spreads of the largest and most liquid corporate and financial debt issuers in the U.S.,” Sunil Hirani, chief executive officer of New York-based trueEX, said in a press release distributed by PR Newswire today. The futures contracts “will provide a transparent, standardized way for the global investor community to express its view on corporate credit spreads in futures form - something that has never been offered before.”
The Dodd-Frank Act, passed in 2010 to overhaul financial-market regulation, is moving most credit swaps into clearinghouses. The contracts will also trade on electronic systems after the unregulated transactions contributed to and complicated efforts to resolve the credit crisis. Futures on credit swaps would open the market to small hedge funds and other investors who couldn’t afford to participate or didn’t want to take the risk.
Intercontinental Exchange Inc., based in Atlanta, said in October that it obtained the right to link futures contracts to credit-default swap indexes owned by Markit Group Ltd. Credit swaps tied to Markit’s indexes are the most actively traded derivatives in credit markets.