Two separate dealer-led initiatives are underway in the U.S. to create synthetic indices referencing asset-backed securities by year-end. The projects are a response to investor appetite for synthetic ABS structures. Firms in Europe are already working on a synthetic ABS index (DW, 7/18).
The first U.S. index, dubbed CMBX, will be for commercial mortgage-backed securities and will reference a pool of AAA-rated tranches of liquid, on-the-run conduit CMBS deals, said one market participant. The index will roll every six months to rebalance. Once the index of AAA traches gains momentum, sub-indices of lower rated tranches will be published.
The second index, dubbed RMBX, will reference sub-prime residential mortgage-backed securities, the participant added, noting CMBS and sub-prime RMBS are the most liquid sectors in the ABS market, accounting for well over 90% of referenced securities. Each index will reference between 20 and 30 names.
