The demand for contracts used to bet on municipal defaults may soon grow larger with the creation of an index which will be used to track the market for municipal credit protection.

Markit Group said earlier this week that it will create and manage the MCDX index - scheduled to launch May 6 - to track the growing municipal credit default swap market, used by investors to bet on the creditworthiness of municipal issuers. Investors and the seven dealers who have signed up so far to trade the index - Citi, Goldman, Sachs & Co., JPMorgan, Lehman Brothers, Merrill Lynch & Co., Morgan Stanley, and UBS Securities LLC - hope the index will bring added liquidity and consistency to the market.

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