BMO Bank of Montreal is considering developing a Canadian credit-default swap index. The index would be created to boost Canada's CDS market and deliver pure Canadian risk to the country's historically home-biased investors. The firm has been talking with its offices worldwide about the idea, but is yet to hold formal discussions with any other firms or an index administrator. RBC Capital Markets is also thought to have considered building an index, but structuring officials at the firm declined comment.
Andrew Gates, a managing director of global credit products at BMO Nesbitt Burns, the London operation of the BMO, said an index would likely comprise Canadian-based credits, of which there are roughly 60 candidates. These include names in natural resources, oil and gas, transport and retail. Gates noted while not all these names are heavily traded through CDS, they all have credit ratings and could therefore be included in an index. "There is a real range of risk there and with an index investors could get in and out of that risk quickly," Gates said.
The idea to develop a Canadian index has been driven by BMO's clients, who Gates said are eager to trade greater volumes of CDS. He added an index would be equally beneficial for BMO Nesbitt Burns, which is currently building its structured credit business in London. "It would give us an instrument to build a portfolio around, reducing the reputation risk if we were to build a portfolio ourselves," he said. Feedback from investors, as well as support from firms and the involvement of a sponsor such as Dow Jones, will determine if the index is built.