iTraxx

iTraxx (Thomson Reuters Eikon code 'ITRAXX'; Bloomberg code 'ITRX') is the brand name for the family of credit default swap index products covering regions of Europe, Australia, Japan and non-Japan Asia. Credit derivative indexes form a large sector of the overall credit derivative market. The indices are constructed on a set of rules with the overriding criterion being that of liquidity of the underlying credit default swaps (CDS). The group of indices was formed by the merger in 2004 of the Trac-X indices created by J.P. Morgan & Co. and Morgan Stanley and the iBoxx CDS indices created by IBoxx. Credit default swap indices originated in 2001, as did synthetic credit indices, when J.P. Morgan launched the JECI and Hydi indices.(Nolan 2011) Then Morgan Stanley's Credit desk (under Annabel Littlewood) launched Synthetic TRACERS.(Nolan 2011) 'The two banks subsequently merged their indices under the Trac-X name in 2003.(Packer, 2003 & 82) In parallel, iBoxx launched the iBoxx CDS indices. In 2004, Trac-X and iBoxx merged to form CDX in North America and iTraxx in Europe and Asia.'(Nolan 2011) The iTraxx suite of indices are owned, managed, compiled and published by Markit, who also license market makers. Markit administered the CDX family of indices and acting as the calculation agent for the iTraxx indices. In November 2007 Markit acquired CDX and iTraxx. By 2011 Markit owned and managed 'the Markit iTraxx, Markit CDX, Markit iTraxx SovX, Markit iTraxx LevX, and Markit LCDX families of CDS indices as well as the Markit iBoxx cash bond indices.'(Nolan 2011) By 2011 Markit iTraxx and Markit CDX index trade volumes exceeded US$70 billion a day. They had a 'net notional outstanding over US$1.2 trillion.' In 2011 Markit iTraxx and Markit CDX index traded almost 50% of the market in single name credit derivatives.(Nolan 2011) On 25 February 2013 ICC launched iTraxx instruments for dealer-dealer and client clearing. Credit default swap indices allow an investor to transfer credit risk in a more efficient manner than using groups of single credit default swaps. They are standardised contracts and reference a fixed number of obligors with shared characteristics. Investors can be long or short the index which is equivalent to being protection sellers or buyers. In 1996 the outstanding notional value of credit derivatives (credit default swaps (CDSs)) was $40 billion. By the end of 2001 it was approximately $1.2 trillion. By 2004 it was expected to be $4.8 trillion. Credit default swaps (CDSs) accounted for roughly 45% of the overall credit derivatives market in 2002.(Packer, 2003 & 79)