Benchmark for CDS (Credit Risk)
Benchmark for CDS (Credit Risk)
Update : Feb. 09, 2012
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 (Feb. 9, 2012)
| Index Name | RED Code | Term | Spread (bps) |
| Markit iTraxx Japan Series 16 | 2I668HBP8 | 5Year | 139.71 |
Descriptions of Markit iTraxx Japan
Spread Convention
Markit iTraxx Japan is the benchmark Credit Index which refers a basket of CDS of 50 investment-graded Japanese entities. CDS and credit index contracts generally trade on a spread basis, which represents the premium a protection buyer has to pay the protection seller. It is generally expressed in basis point (bps) (1bp = 0.01%, 100bps = 1%). As the credit quality deteriorates, the spread increases.
Markit Red Code
Markit RED (Reference Entity Database) Code is a set of standardized trade codes for corporations and countries (referred as "Reference Entities") that trade in the CDS market. 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. Credit indices are in general five-year contracts; however, sometimes three, seven, and ten year contracts are also traded. Please note that the term for the Markit iTraxx Japan Series 12 index is five years.
About Markit iTraxx Japan
Price Calculation Method and Constituents
Markit iTraxx Japan index is the benchmark credit index for CDS trades in Japan. Markit has the license to calculate and publish the official price on a daily basis. Markit collects tradable closing prices from the licensed market makers every day and calculates the official price 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. 50 investment-graded Japanese entities are selected for the index based on a liquidity poll involving the licensed market makers and the Markit iTraxx Japan index rules. The latest index series is called the "on-the-run", while the previous series are called "off-the-run". It is important to note that the previous series continue trading together with the latest series. 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 are available on:
For the list of constituents for the Markit iTraxx Japan index, 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 not only serve as a benchmark index to assess the credit risk in a certain market segment but are also tradable indices. 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 is calculated from the price for CDS trades.
Since CDS indices themselves 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 credit event settlement dates.Buying and selling protection on the indices is equivalent to buying and selling protection on a portfolio of single name CDSs. If a credit event occurs in one of the index constituents, settlement is by one of two means-physical or cash settlement, the same way as for single name CDSs. The credit index contract still remains valid for the remaining index constituents after the settlement.
About Markit Group Limited
Markit is a leading, global financial information services company with over 1,900 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.
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Contact
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Tel : +813 3665 1385