MIAMI-Tuesday afternoon at the CREFC January Conference, a panel of experts took the crowd through the intricacies of TRX.II indices, which Markit launched in early October 2011.

Brian Lancaster, head of MBS, CMBS and ABS Strategies at the Royal Bank of Scotland moderated. “The reason CREFC devoted this session to this one particular product and this topic is very important because CREFC believes that it has the potential to be a critical piece of the CMBX origination puzzle, as well as the investment puzzle,” Lancaster explained.

With uncertainty in Europe making it difficult for conduits to originate and price bonds, “TRX.II is designed to serve as a hedge—both for conduits and others—as well as an attractive investment vehicle,” he added. “Just like the pre-crash total rate of return swaps.”

Edward Lipes, vice president of Markit, took the crowd through the TRX.II basics—what it is and how it works. Lipes explained that it’s a total return swap, not CMBX. The first version of the product launched in 2009, he pointed out. That original version didn’t fare so well, according to Chris Callahan, managing director of Credit Suisse Securities USA.

The original index had 125 different bonds. It didn’t work, Callahan said, because “origination fell off of the cliff.” Now, he said, the underlying bonds—which can’t go over a maximum of 25—are pretty well commoditized.

The new index, Lipes said, was launched to “account to the recent changes in issuance—a big topic of this conference.”

Todd Jaeger, managing director at the Royal Bank of Scotland, said that there are currently 21 bonds in the index—with different review dates and public as well as private exposure.