Morgan Stanley last week was forced to correct a Bloomberg page showing its TRAC-X Asia credit-default swap index after discovering the listing contained four incorrect reference entities. The mistake, which is believed to have gone unnoticed for over three months, comes at a particularly embarrassing time for Morgan Stanley as it is locked in an all-out battle for market share with the owners of rival credit index iBoxx.
Richard Stuart-Reckling, product manager for TRAC-X at Morgan Stanley in London, said, "We've been contacting counterparties and are in the process of revising confirmations." He attributed the mishap to an administrative error. Mark Lake, spokesman for Morgan Stanley in New York, said, "Clients did not lose money. The mistake was corrected and rectified before any trades were settled."
There is little chance that clients lost money over this mistake because the risk profiles of the two groups of names are evenly matched. Had one of the names defaulted, Morgan Stanley or its clients could have had significant basis risk as a result of buying or selling exposure on the wrong set of names.
"This doesn't do much for the credibility of a new product," said a rival credit head. His back office staff had to amend trade confirmations when it found out the names were incorrect. "In economic terms there's not much difference, but it did add some confusion," noted another dealer.
A London-based credit professional said the managers responsible for TRAC-X may have taken their eyes off Asia because they have been pre-occupied with trying to launch credit futures referenced to the index.