Mark-it set to sign 12 dealers to Red in next fortnight

UK credit data company Mark-it Partners expects to sign up between 12 and 20 major credit derivatives dealers to use its credit reference entity database, Red, within the next two weeks.

The company has marketed the service to dealers after purchasing Red from its founders, Deutsche Bank, Goldman Sachs and JP Morgan Chase, in February in a cash and equity swap deal. The three leading investment banks now each own a 5.19% stake in Mark-it Partners along with its original bank backer Toronto Dominion of Canada. Nine other leading dealers – ABN Amro, Bank of America, Citigroup, Credit Suisse First Boston, Dresdner Kleinwort Wasserstein, Lehman Brothers, Merrill Lynch, Morgan Stanley and UBS – have an option to buy 5.19% apiece in Mark-it until December 31 this year. Mark-it declined to provide the option price.

Red confirms a reference entity’s legal name and its relationship in a pair to a reference obligation. It helps eliminate legal uncertainty in credit derivatives contracts and should help banks avoid the monetary and reputational damage suffered in the event of high-profile disputes. The database contains 1,000 reference entities and Mark-it plans to double this figure by the end of the year.

Red creates two alphanumeric codes – cusip-linked entity MIP codes – and integrates directly with the two leading electronic trade confirmation platforms, the Depository Trust & Clearing Company and SwapsWire.

Deutsche Bank, Goldman Sachs and JP Morgan Chase last year tried to sell Red’s services to other investment banks while retaining ownership of the database. This proved unacceptable to other market participants, which were wary of high costs. Through the Red divestment, every major bank will be charged according to the same formula, said Lance Uggla, Mark-it’s chief executive.