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Derivatives

JPMorgan Sounds Out Rival About iBoxx Index

JPMorgan, a co-founder of the TRAC-X credit default swap index, has requested information about trading procedures on iBoxx, its bitter rival backed by a consortium of 11 market makers, including ABN AMRO and Deutsche Bank. JPMorgan's overture is surprising because the backers of TRAC-X and iBoxx have been locked in a peevish version of the struggle between PlayStation and Xbox in an effort to win market share. Like the fight for video game supremacy, there is only room for one credit default swap index, according to dealers. iBoxx began trading in the U.S. on Oct. 20. Despite the approach to iBoxx,Tom Benison, head of credit derivatives marketing for North America at JPMorgan in New York, said the firm has no plans to trade its rival's index. The objective is to better understand the product with the ultimate goal of moving toward one standard index.

JPMorgan has been a vocal opponent of iBoxx, recently sending an e-mail to its credit-default swap index clients in which it opposed the product's U.S. launch and asserted that: "competing indices are bad for clients, as they cannibalize liquidity," (DW, 10/19). The firm co-founded TRAC-X, an index of 100 credit default swaps, with Morgan Stanley earlier this year. iBoxx is an index of 125 credits backed by a consortium of 11 dealers.

The main problem confronting the long-term survival of iBoxx and TRAC-X is dealers complain that making markets in both indices is too arduous and time-consuming. Lisa Watkinson, global product manager for credit default swaps at Morgan Stanley, said TRAC-X had one of its strongest weeks last week despite the launch of iBoxx. One official at an inter-dealer broker diplomatically observed that volumes in the two indices had been roughly equal.

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