Dealers plan to meet later this month for a fresh round of discussions on the development of a European synthetic ABS index, which will comprise CDS on ABS underlying, seen as vital for market evolution. This follows thwarted attempts last year in which a series of meetings produced a template for a AAA-only cash underlying CMBS index, now seen as unsuitable for the market. Coming talks will include buy-siders and Markit Partners.
Ganesh Rajendra, managing director and head of securitization at Deutsche Bank in London, said BBB or lower rated assets are arguably the only markets where there is sufficient volatility to be monetized via an index. CMBS and sub-prime assets were also mooted by speakers.
At present, derivative contracts can be written on the iBoxx EUR ABS 50, which was launched by a group of dealers in February. Trading on this index however has been slim, said Rob Ford, head of European ABS trading at Barclays Capital in London. "Of the 20 contributing dealers, a handful are still not in a position to trade it even though they are contributing prices." He attributed this to problems with documentation and system administration.