The main CDS indices are iTraxx, covering Europe and Asia-Pacific, and CDX, covering North America and emerging markets. Every six months, the index administrator reviews the constituents and creates a new series. When a constituent suffers a credit event, a new version without that name is published, and trading from then on takes place in that version.
Consider a hypothetical example in which protection with a notional amount of 10 billion yen is bought on an index of 50 equally weighted companies. Each company has a weight of 2%. If one constituent suffers a credit event and the recovery rate is set at 30%, the protection seller pays 10 billion yen × 2% × (1 − 30%) = 140 million yen, and the notional amount falls to 9.8 billion yen. If no credit event occurs, the protection buyer keeps paying the coupon and the seller keeps receiving it.
A bond or equity index is calculated from the prices of its constituents, but a CDS index is itself traded, and that trading sets its spread. Materials from Japan Securities Clearing Corporation call it "クレジットインデックス" (credit index), and its list of cleared products calls it "インデックスＣＤＳ取引" (index CDS transactions).