Trac-x, iBoxx merge North America and emerging market indexes

Credit default swaps (CDS) indexes Dow Jones Trac-x and iBoxx are set to merge their North America and emerging markets indexes, the parties involved said late yesterday. The new indexes are to be called Dow Jones CDX Indices.

The Trac-x family of CDS indexes was created last year by JP Morgan Chase and Morgan Stanley. Dow Jones Indexes was then selected last October to manage the products, in terms of maintaining and marketing the indexes. The iBoxx family of indexes was created last October by a consortium of 14 banks led by Deutsche Bank, ABN Amro and Citigroup. CDS IndexCo owns the iBoxx North American indexes.

CDS IndexCo, Dow Jones Indexes and Trac-x said they have signed a letter of intent to merge their North American investment-grade and high-yield indexes as well as their emerging market indexes. The agreements are expected to be finalised before the end of June.

As part of the agreement, Dow Jones Indexes will take up marketing and licensing responsibilities of the merged indexes. The parties involved said they will choose a new third-party administrator.

JP Morgan and Morgan Stanley will also be part of the CDS IndexCo consortium, joining ABN Amro, Bank of America, Barclays Capital, Bear Stearns, BNP Paribas, Citigroup, Credit Suisse First Boston, Deutsche Bank, Goldman Sachs, HSBC, Lehman Brothers, Merrill Lynch, UBS and Wachovia.

The index administrators have been negotiating for several months, under pressure from index users to merge into one liquid index. In the statement, the parties involved said, “By providing a clear benchmark in credit derivatives, the combined indices will give clients the best method to manage and trade credit.”

In addition to those indexes, Dow Jones Trac-x has four indexes for Europe, Japan, Australia and Asia ex-Japan. The iBoxx consortium has a European index, and preparations are currently being made for an Asian series.