S&P Launches Credit Derivatives Indices

Standard & Poor’s is launching three U.S. based CDS indices:

• The S&P 100 CDS Index initially consists of the 80-90 members of the S&P 100 that have CDS with sufficient liquidity. The weight of each constituent in the S&P 100 CDS Index is based upon its weight in the S&P 100.
• The S&P CDS U.S. Investment Grade (IG) Index consists of 100 equally weighted investment grade U.S. corporate credits which meet certain liquidity criteria
• The S&P CDS U.S. High Yield (HY) Index consists of 80 equally weighted high yield U.S. corporate credits which meet certain liquidity criteria

Three Calculations

Each CDS Index will offer three calculations that reflect the performance of a basket of single name credit default swaps, according to S&P.   The first type of calculation, consistent with industry standards, according to the announcement, removes a reference obligation from the index upon a credit event. The second type (S&P CDS Event Inclusive Indices) will augment its calculation of the performance of the CDS indices by incorporating the effect of credit events and corporate actions on the affected issues. The third type (S&P CDS Rolling Indices) will calculate the performance of each CDS basket on a continuous basis.

  “With the launch of the S&P CDS U.S. Indices, Standard & Poor’s is responding to the market’s need for transparent and objectively run credit default swap indices,” says James Rieger, Vice President of Fixed Income Indices at Standard & Poor’s Index Services. “Working closely with market participants, Standard & Poor’s designed the Indices to track the most liquid credit default swaps and be efficient enough to support investment products such as index funds, index portfolios, and derivatives.”

The complete methodology for the S&P U.S. CDS Indices can be found by going to www.fixedincomeindices.standardandpoors.com .