The ongoing efforts to merge iBoxx and TRAC-X, the two credit derivatives indices that have been fighting for supremacy for the past year, could hinge on finding an administrator that is acceptable to the backers of the rival indices. Under the terms of the merger proposal, Dow Jones, the administrator of the TRAC-X index, would run the new index. But Deutsche Bank, one of the main backers of the iBoxx index, disputes the notion that Dow Jones is a neutral administrator.
Fergus Lynch, global head of index development at Deutsche Bank in London, believes Dow Jones is already too closely associated with the TRAC-X brand. "We are also looking for a merger, not a reverse takeover," he said, saying the proposal appears more like the latter.
The firm instead wants dealers to find a neutral resolution. Lars Hamich, executive director at Dow Jones Indexes, argues that it is independent and its independence is the reason it was asked to administer the TRAC-X indices. "We are not involved. We are not a trading house. We have no conflict of interest," said Hamich. He believes that the rules-based approach to TRAC-X ensures transparency and safe-guards Dow Jones' independence. He added, however, that, "These two families [of indices] are similar and with minor adjustments you could get a combined set of rules that would allow both to save face."
Aside from the issue of allowing both sides to save face, the proposed merger could result in an unfair cost burden on the iBoxx partners, according to Chase van der Rhoer, senior v.p. and senior trader at HSBC. Merging the two indices would be an expensive process and under the current proposal iBoxx traders would ultimately end up trading the same index, albeit under a different name and administrator. Meanwhile, TRAC-X stands to benefit from maintaining Dow Jones as the administrator because it would not have to pay down Dow Jones' licensing fee, he noted.
The proposal is further limited because it only covers North America, argues Deutsche Bank's Lynch. Even if an agreement is reached for the U.S., there is no reason to assume Europe and Asia would agree to the same terms, he said.
