A synthetic collateralized debt obligation (synthetic CDO) that is based on a CDS index, where each tranche is associated with a different segment of the loss distribution of the underlying CDS index. The tranche has a tailor-made exposure to a specific segment of an index loss distribution.

It allows market participants to trade correlation products (index related) according to their risk profile, standardized form and liquidity requirements. Index tranches (tranched index products) are similar in multiple respects to synthetic CDO tranches. However, the two sets of products differ in one key respect. Each tranche, in an index, is defined by its attachment point (which in turn determines its level of subordination) and its exhaustion point (detachment point) (which determines the maximum loss of the underlying reference pool that would result in a loss of the entire tranche notional).