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Service brings transparency and efficiency to new asset class

Markit Group Limited (“Markit”), the leading provider of independent data, portfolio valuations and OTC derivatives trade processing to the global financial markets, today announced it has launched the first independent, daily consensus spread service for CDS of ABS. CDS of ABS, also known as ABCDS, are credit default swaps referencing asset backed securities.

Markit launched the service to increase transparency and foster growth in the increasingly dynamic structured finance markets. It provides independent spreads for mark-to-market, research and valuation purposes. The service will help satisfy the accounting requirements of the Financial Accounting Standards (FAS) 157 which requires a market-based measurement in order to recognise trading book profit and loss. FAS 157 will come into full effect in November this year.

Markit’s CDS of ABS spread service receives daily feeds from the leading market makers’ books of record. Spreads are cleaned and validated overnight before publication the following morning. A minimum of three contributions is required for a mark to be published to ensure only the highest quality, most accurate mid-point composite spreads are delivered. Clients of the service can view and analyse spread changes over a day, week or month and sort data by rating, issuer, sector or region.

The service covers the two largest asset classes: Residential Mortgage Backed Securities (RMBS) and Commercial Mortgage Backed Securities (CMBS). Additional instruments such as CDS referencing collateralised debt obligations, student loans, auto loans and credit cards are expected to be added to Markit’s CDS of ABS spread service according to demand.

Kevin Gould, Executive Vice President and Head of Data Products and Analytics at Markit, said: “We are launching the first daily CDS of ABS mark-to-market service in direct response to approaches by a number of key buy- and sell-side firms who are increasingly frustrated with the fragmented, inconsistent process of marking their CDS of ABS assets. Markit’s service is designed to offer accurate CDS of ABS spread data which will form the key element to enable independent trade valuations. We expect this to encourage the growth of the market, and we look forward to bringing new contributors and subscribers onto the service in the coming months.”

The service underscores Markit’s continuing commitment to the CDS of ABS market and complements the firm’s Reference Cashflow Database (RCD), the market standard central monitoring and settlement determination platform for the CDS of ABS market. RCD provides bond-level performance data, simplifies complex settlement calculations, reduces errors in payment matching and clearing, and replaces the need for a costly infrastructure.