Credit Risk (CDS Indices)
Credit Risk (CDS Indices)
Update : Jun. 18, 2013
The Tokyo Stock Exchange, Inc. (TSE) in cooperation with Markit Group Limited (hereafter referred to as Markit), is pleased to announce publication of the daily Markit iTraxx Japan index values on its website. This initiative aims to promote better understanding of CDS and Credit Indices by providing easy-to-understand explanation for the instruments which are at present known only to institutional investors. Also, TSE will earnestly enhance transparency in the market by providing clear explanation on CDS and credit indices, and also promoting standardized CDS settlement.
Markit iTraxx Japan for Today (Jun. 18, 2013)
| Index Name | RED Code | Term | Spread (bps) |
| Markit iTraxx Japan Series 19 | 2I668HBS2 | 5Year | 109.21 |
Descriptions of Markit iTraxx Japan
Spread Convention
Markit iTraxx Japan is the leading Credit Index in the Japanese credit market consisting of a basket of 50 CDS investment-graded Japanese entities. CDS and credit index contracts primarily trade on a spread basis, which represents the premium the protection buyer pays the protection seller. It is generally expressed in basis points (bps) (1bp = 0.01%, 100bps = 1%). As the credit quality of an entity or index deteriorates, the spread widens /increases.
Markit Red Code
Markit RED (Reference Entity Database) Code is a set of standardized identifiers for corporations and countries (referred as "Reference Entities") that trade in the CDS market. The RED database confirms the legal relationship between a reference entity (e.g. Corporation, Sovereign) and a reference obligation (e.g. a Bond or Loan). Each series of credit indices also has index RED code. They are widely and successfully used by CDS market participants to electronically match and confirm CDS transactions.
Term
Term is the index maturity. The five year index contracts are the most frequently traded contracts; however, three, seven, and ten year contracts are also traded. Please note that the term for the Markit iTraxx Japan Series 19 index is five years.
About Markit iTraxx Japan
Price Calculation Method and Constituents
Markit iTraxx Japan index is the leading credit index for CDS trading in Japan. Markit has the license with TSE to calculate and publish the settlementprice on a daily basis for TSE. Markit collects tradable closing prices from the licensed market makers every day and calculates the settlementprice by cleaning and averaging the contributed data.
The index rolls every six months (on 20Mar and 20Sep)-a new series of the index is created with updated constituents. As per the Markit iTraxx Japan Rules; 50 investment-grade Japanese entities are selected for the index based on a liquidity poll involving the licensed market makers. The latest index series is called the "on-the-run"series, while the previous series are called "off-the-run". It is important to note that each previous series continue trading independently while the latest “on the run” series trades. Markit publishes the daily prices for the off-the-run indices and access to it requires subscription. More detailed information on Markit iTraxx Japan and the index rules and constituents are available on:
Settlement Statistics for Credit Default Swap
For Settlement Statistics for Credit Default Swap, please use the link below.
What Differentiates Credit Indices from Other Indices?
CDS indices including the Markit iTraxx Japan index are called the "Hedge Index". They serve as liquid index to assess the credit risk in a certain market segment. The price of bond or equity indices is calculated on the basis of spot price of the constituents, while the one for the Credit Indices trade independently from their intrinsic value (they trade as a unique instrument).
Since CDS indices are swap trades, it is important to note that cash flows occur not only on the trade date, but also on coupon payment dates during the contract term and on credit event settlement dates. Buying and selling protection on the indices is equivalent to buying and selling protection on a portfolio of single name CDS.
If a credit event occurs in one of the index constituents, settlement is by one of two means-physical or cash settlement, similar to single name CDS. Markit, as the administrator of the index, will create a new version of the index after credit event has been announced. This new version will trade without the defaulted entity.
About Markit Group Limited
Markit is a leading, global financial information services company with over 2,800 employees. The company provides independent data, valuations and trade processing across all asset classes in order to enhance transparency, reduce risk and improve operational efficiency. Its client base includes the most significant institutional participants in the financial marketplace. For more information, please use the link bellow.
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Contact
Tokyo Stock Exchange, Inc. Derivatives Department
Tel : +81 50 3377 7629