4/1/2008: CMSA calls for CMBX trading data

Excerpts from CMSA Calls for Greater Transparency in Trading Data
Commercial Mortgage Securities Association (CMSA), the leading voice of the commercial real estate capital market finance industry, last week requested that trading data on the CMBX Index, including total volume and number of daily trades, be made publicly available in order to increase market transparency. CMSA made the request in a letter to Markit, the administrator of the CMBX Index, a synthetic credit default swap derivatives index introduced in March 2006.

CMSA, an industry organization dedicated to promoting the ongoing strength, liquidity and integrity of commercial real estate capital market finance worldwide, has been instrumental in increasing the transparency in the structured credit markets.

"Public disclosure of derivatives trading data in the CMBX Index would provide an invaluable service to investors in the commercial real estate capital market finance arena," said Leonard W. Cotton, Vice Chairman of Centerline Capital Group and President of CMSA. "We believe the volatility in the CMBX index caused by momentum traders, rather than fundamental traders, distorts the true picture of the value of CMBS bonds, which are backed by the cash flows from loans on income-producing commercial real estate."

"Given the role the Index has come to play in determining the ‘mark-to-market’ value of securities held by financial institutions in the current market environment, greater transparency on CMBX trading volumes and the number of daily trades would aid investors in assessing the merit of values as indicated by the Index," Cotton added.

Dottie Cunningham, CEO of CMSA, expressed concern that the Index is not indicative of the underlying fundamentals of the investment product. "In a volatile market, this mark-to-market process becomes a self-fulfilling prophecy, driving prices down based on index trading activity rather than asset fundamentals," she said. "Some market participants may be relying on what we believe is a distorted value that perpetuates the current cycle of no issuance, erroneous spread widening and additional mark-to-market write downs."