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Rules Are Changing

22 June 2017 by lberuti

“Following consultation with markets participants and the iTraxx Europe Advisory Committee, HIS Markit has decided that, subject to changes to market infrastructure (in particular clearing) being implemented in time, Itraxx Europe Series 28 will be issued in September 2017 under revised index rules. UK and Swiss banks will be included in the new index Series at HoldCo Level for the Senior and Subordinated Financial Indices.” The above press release by Markit triggered a massive reaction on UK and Swiss banks CDS which currently reference bank operating companies. Investors anticipated that the liquidity of OpCo contracts will be hampered going forward, and, despite that, except for CS ( Credit Suisse Group AG ) - an entity for which CDS already reference the HoldCo -, CDS referencing banks’ HoldCo are not commonly traded at the moment leaving them without any alternative hedge, they decided to dump protection aggressively. CDS referencing the OpCo of Barclays, HSBC, Lloyds, RBS, Standard Chartered and UBS were sent 14bps, 9bps, 10bps, 13bps, 14bps and 9bps tighter at 43bps, 30bps, 39bps, 52bps, 49bps and 27bps respectively. iTraxx Financials is now trading roughly flat to iTraxx Main – it was 13bps wider mid April – and iTraxx Main further outperformed CDXIG.