Nasdaq OMX Index Launch Will Benchmark Government Bailouts
January 08 2009 - 4:16PM
Dow Jones News
Nasdaq OMX Group Inc. (NDAQ) unveiled plans Thursday to launch a
suite of trading and investment products tied to companies
receiving state aid during the global financial crisis.
The transatlantic exchange operator's first launch is the
Government Relief Index, or GRI, tracking 24 companies that have
received more than $1 billion apiece in backing from the U.S.
Troubled Asset Relief Program or other support mechanisms.
John Jacobs, Nasdaq OMX's executive vice president, said the
exchange plans to launch indices tracking smaller recipients of
U.S. state aid as well as versions reflecting support to European
companies.
Jacobs, in an interview with Dow Jones Newswires, said Nasdaq
OMX is also looking at licensing options and exchange-traded funds
based on the initial GRI index to undisclosed third parties.
He said the first index will act as a long-term benchmark to
measure the effectiveness of the TARP and other programs.
"If these companies outperform the overall market over next five
years, we can say that this was the right thing to do," he
said.
Components include receipients of federal aid such as General
Motors Corp. (GM), American International Group Inc. (AIG) and
Citigroup Inc. (C), as well as other financials such as JP Morgan
Chase & Co. (JPM) that the U.S. federal government enlisted in
the TARP.
Jacobs said that GRI components would remain in the index even
after they repay any government aid or investment.
"The whole goal is to measure how the companies that got that
bailout money perform," he said. "Ten years from now we'll be able
to look back and see how the bailout program of 2008 worked."
Ed Ditmire, exchange analyst at Fox-Pitt Kelton Cochran Caronia
Waller, said the GRI was "timely and very interesting," though he
noted that only a few of the thousands of index-based products
deliver big profits.
"When they're successful, like the Nasdaq Composite Index,
indexes are very lucrative businesses," said Ditmire. "But the vast
majority of indexes don't find a groundswell of interest or
support."
-By Jacob Bunge, Dow Jones Newswires; (312) 750 4117;
jacob.bunge@dowjones.com
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