The International Securities Exchange (ISE) today announced the upcoming launch of ISE Alternative Markets with the introduction of derivatives auctions based on the ReXX Commercial Property Indices. These auctions will enable market participants to take positions on the total return and changes in rent of commercial property for individual U.S. cities and an All Market Composite. ISE Alternative Markets is able to provide liquidity and transparency to the real estate derivatives market through the use of its patented Longitude Auction Platform. This pari-mutuel technology pools liquidity across all orders to allow investors to trade derivatives on asset classes that lack a liquid underlying market.
"We are incredibly pleased that our first new product offering on the Longitude Auction Platform is with Rexx Index, LLC, and the ReXX Indices, which benchmark returns on commercial real estate," said Mike Knesevitch, Head of ISE's Alternative Markets business. "For the first time, market participants can quickly and efficiently manage real estate risk through an auction market that offers transparent pricing and eliminates counterparty risk. The auctions provide hedging capabilities that range from protecting parties against increases or decreases in future rent, to enabling investors to gain immediate exposure to investment-grade commercial real estate in 15 U.S. cities without the cost of owning or managing a group of buildings."
"This is an exciting development for all players in the U.S. commercial real estate market," said Paul Frischer, Managing Member of Rexx Index, LLC and founder of the Rexx indices. "The ReXX indices are the leading indicator of current commercial real estate market performance, and market participants will now be able to use our proprietary index values to manage risk and return. Through our relationship with ISE Alternative Markets, this valuable tool will enable real estate and financial markets to adopt strategies in changing real estate market conditions with an end-to-end solution."
The ReXX Commercial Property Indices are the first rent-based commercial real estate indices for commercial property derivatives and represent nearly two billion square feet of real estate valued at two trillion dollars. Unlike traditional real estate indices that serve as lagging indicators and are purely appraisal or transaction-based, ReXX is a leading indicator based on current market asking rents, lease transactions, inflation and interest rates. With 15 individual metro markets and the All Market Composite Index, ReXX provides a granular view of the market as well as an all encompassing measure of 15 of the largest metro markets. Real estate performance is location specific, and ReXX provides important geographic market changes in value not available in other indices.
The first auctions are scheduled for the second quarter of 2008 and will be based on property in New York Midtown, Houston, Chicago, San Francisco and the All Market Composite Index, which is a benchmark that aggregates data from all 15 U.S. metro regions that ReXX covers. The Options Clearing Corporation (OCC) will provide central clearing for these products. ISE is finalizing the regulatory framework for the auctions with the CFTC.
