The European Securitization Forum as part of its ongoing European Securitzation Indicators project, has launched a weekly asset-backed securities market price index. The index, the first of its kind, takes the average price of benchmark residential mortgage-backed securities in four jurisdictions from information provided by 12 ABS dealers. Scott Rankin, executive director of ESF, says in addition to promoting liquidity in the market, the new indicator should help to develop a repo market for ABS in Europe.
This type of index is sorely needed in the market to promote pricing transparency. With the index, some market participants believe deals will be better priced.
Rankin says repo market makers have inquired to ESF about the possibility of doing repo deals in Europe with ABS and MBS. In addition, ESF has held talks with the European Central Bank, which according to Rankin is very supportive of having ABS and MBS as part of tier-one collateral eligible for repo deals.
However, before a repo market for ABS can be developed in Europe, the ECB and repo dealers need improved pricing information and the market has to become more liquid. Rankin and his colleagues on the European Securitization Indicators project hope their new market price index will help, in part, to provide this information and foster liquidity. The index provides another source of information on the Europe markets that is unique, because it avoids the subjective view of a price from a single dealer.
The index went live last Friday on ESF's Web site www.europeansecuritisation.com. Price information from the U.K., the Netherlands, Italy and Spain will be available on a weekly basis. ESF is using benchmark MBS prices because it can be seen as a proxy for the entire market.
