SDRFIX, a new index for a post-reform world

Today we put out a press release announcing a new product, see SDRFIX, a new index for a post-reform world.

The announcement is also covered today on Risk.net (subs access), see ISDAFIX faces rival based on swap repository data.

The latter has the tag-line “New end-of-day benchmark is “much harder to manipulate” than industry standard IsdaFix”.

Not the tag-line that I would have chosen, but that is journalistic license for you.

It just stems from the fact that ISDAFix is an index determined by contributed quotes (for a good reason) while SDRFix is an index determined by actual trades (also for a good reason).

Any index can be manipulated, the question is what does it take, what is the cost, what is the likelihood of success versus the penalty of failure? The higher the cost, the lower the likelihood of success and the higher the penalty of failure, the more likely an index is to reflect the true cost of supply and demand.

So an index that is based on actual trades, on a sufficient volume of trades and an index that is transparent (so the methodology and underlying trades are disclosed) is going to be better at reflecting the true cost of supply and demand.

There is nothing wrong in self-interest, indeed we would expect a rational person to adjust their quotes to reflect their firms self-interest (economic theory assumes this and capital markets depends on this). We would not call that price manipulation. However when a number of firms (insiders) colluded in influencing an index, as evidenced by the Libor-rigging scandal, we would call that price manipulation.

I would encourage you to learn about SDRFix from both our press release and the Risk.net article.

The first to understand our positioning and view (with our bias), the second to get an independent journalistic take on the index (with their  bias).

Finally, I would encourage you to look at SDRFix itself, both the methodology and data.

And send us your comments, opinion, feedback.

 

 

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