An Index You Can Bank On

When espousing the many capabilities and applications we see for the WAIN Street Business Credit Health Index there is always a concern about coming off as too ambitious or “pie in the sky” which can hurt credibility, especially in an industry that is practical and risk conscious. However, we keep finding hints, nearly every day, suggesting that we’re tapping into something real and very powerful.

In fact this month, the InterContinentalExchange (ICE) plans to create new derivatives that will allow investors to easily access and hedge corporate credit risk. It’s something they see a market need for as “Farley, senior vice president of ICE’s financial markets, said the products were invented to meet customers’ credit risk management needs.” This is significant to WAIN Street because it demonstrates the customer need for an “investable index” of credit risk.  We believe this need is not unique to investors with exposure to large corporates.

Mid-market and small business credit risk can also be managed.  However, few financial tools exist to do so. And even fewer are suitable for use by middle-market or small businesses themselves.  The BCH Index provides an opportunity to customize investable indices based on industry, business size, or geography.  This would give investors and creditors unheard of flexibility to adjust and manage their SMB credit risk profile.  Further, a robust futures market around SMB credit health would facilitate developing insurance products targeting credit risks borne by small and medium-sized businesses.  We believe such products could become as ubiquitous as general liability insurance.

You may ask if there is such a market potential, why has this not already been done? Well, WAIN Street’s answer is simple: until now, it couldn’t be. WAIN Street believes the BCH Index is the catalyst because it has the depth, reach, and flexibility to become an authoritative national standard of business credit health.