JP Morgan Chase and Morgan Stanley team to launch new credit indexes

JP Morgan Chase and Morgan Stanley plan to issue a raft of new 'Tracx' credit default swap indexes over the coming 12 months. The two have already launched their own versions of such products under the names Hydi and Jeci for JP Morgan Chase, and Tracers for Morgan Stanley.

The banks plan to structure, market and trade a set of regional, rules-based credit derivatives instruments in the US, Europe and Asia, by selecting the best aspects of their current index offerings.

But JP Morgan Chase still launched its Japanese (Janice) and emerging market (EMDI) credit derivatives indexes and Morgan Stanley launched its newest US synthetic Tracers on Tuesday. They do, however, plan to offer a euro-Tracx product on April 15 – pending agreement of the 2003 Isda credit derivatives definitions. Current indications point to a delayed launch, with some reports that the new Isda definitions are unlikely to be implemented until May 6, as a number of banks do not have their operations in place to cope with the new language. There is also still resistance from a number of European companies to adopt the new, modified, modified Isda credit derivatives definitions.

Tracx will typically be an unfunded product, but it can be traded in a funded format – a move aimed at European institutional clients that are restricted from unfunded trades. Tracx backers said other dealers have been invited to market-make the product. So far, BNP Paribas, which makes markets for JP Morgan Chase’s Jeci products, has yet to sign up to Tracx. A JP Morgan Chase official said BNP Paribas is likely to make a decision on the matter within a couple of weeks, and the indications so far are positive.

Tracx indexes will comprise the most liquid credit derivatives products in five segments – telecoms, media and technology; consumers, industrials, senior financials and subordinate financials – containing 25 names apiece. Either one of the financials can be added to the other three to make a Tracx 100 index. JP Morgan Chase and Morgan Stanley have agreed to make markets in Tracx indexes with a guaranteed maximum 15-cents bid-offer spread, or about three basis points. The banks have the option to 'kick-out' names they deem to impair overall liquidity.

Tracx prices will be distributed via Bloomberg and JP Morgan Chase and Morgan Stanely’s interactive web portals.