Future developments in credit derivatives will depend on an efficient market pricing system, which is often referred to as a fix, according to officials speaking at the International Swaps and Derivatives Association's regional conference in London last week. Pierre Mathieu, head of credit trading at BNP Paribas in London, said, "Fixing is definitely the next development." Traders say exotic credit derivative instruments, such as range accruals and constant-maturity credit-default swaps, have been slow to take off and so demand has grown for a price-fixing service that could boost these structures.
Mark-It Partners already creates composites of prices at market close and the data aggregation group is working with creditex, a credit derivatives broker, and officials from banks to work out how a tradable credit fixing would work. They will discuss what names will be included, how frequently they will be fixed and what methodology will be used. The project is focusing on European and U.S. credits, but may cover Asia at a later date. Sunil Hirani, ceo of creditex in New York, and Kevin Gould, executive v.p. for European sales at Mark-It Partners, declined comment.
The aim of credit fixing is to produce reference prices that could be used for cash settlement of swaps. The International Swaps and Derivatives Association publishes ISDAFIX, a price fixing service for interest rate swaps, in association with Reuters and broker Garban-ICAP. The service works by polling dealers for prices at a specified time each day and then calculating an average of the prices and publishing them. It is likely the Mark-It Partners and creditex service would work in a similar way, said officials.
