The Next Financial WMD?

Updated from Tuesday, Nov. 16

The creators of an index that some say gave hedge funds the fuse they needed to blow up the subprime mortgage market postponed the expected launch of a new benchmark to track U.S. prime mortgage securities.

Markit, a 1,000-person financial technology and data firm that is highly influential among derivatives dealers such as Morgan Stanley (MS Quote), Goldman Sachs (GS Quote), JPMorgan Chase (JPM Quote) and Deutsche Bank (DB Quote), said in a statement Wednesday that it had "put on hold" the launch of an index of synthetic U.S. prime mortgage-backed securities after "extensive discussions" with major market participants.

Markit had been expected to disclose further details on the new index on Wednesday, a source close to the talks had told TheStreet.com. The company acknowledged the talks, but not the timing of an announcement. Market participants held a vote on the potential launch Tuesday evening, after TheStreet.com reported on the index.

Markit said it would reassess the index's launch in 2009.

Financial companies around the world, including large banks such as Citigroup (C Quote), Bank of America (BAC Quote) and Wells Fargo (WFC Quote), collectively hold trillions of dollars worth of prime mortgage securities on their books, but they have a great deal of latitude in how they price them. A prime mortgage index would take away a lot of this latitude, as banks carrying mortgages on their books at a significantly higher price than the index would have a lot of explaining to do to their auditors. That could lead to new writedowns on a massive scale.