Markit itraxx Europe Index Rules

Transcription

1 Markit itraxx Eurpe Index Rules September 2016

2 Cntents Index Overview... 3 Markit itraxx Eurpean Indices Administratr... 3 Rll Dates... 3 Rule Revisin... 3 Maturity... 3 Weighting... 4 Relevant Rating... 4 Exchange Rates... 4 Markit itraxx Eurpe... 5 Markit itraxx Eurpe Liquidity List... 5 Markit itraxx Eurpe General Criteria... 6 Creatin f the New Markit itraxx Eurpe Index Series... 7 Publicatin f Prvisinal Markit itraxx Eurpe Index... 7 Markit itraxx Crssver... 8 Markit itraxx Crssver Liquidity List... 8 Markit itraxx Crssver General Criteria... 9 Markit itraxx Crssver Supplementary List Creatin f the Markit itraxx Crssver Supplementary List Ranking f the Crssver Supplementary List Selecting an Entity within a Ticker Debt Tier Classificatin Creatin f the New Markit itraxx Crssver Index Series Publicatin f Prvisinal Markit itraxx Crssver Index Markit itraxx Eurpe & itraxx Crssver Indices Final Review f Cnstituent List Publicatin f Annex Cupn & Recvery Rates Disclaimer Further infrmatin Cpyright 2016, Markit Grup Limited. All rights reserved. 2

3 Index Overview Markit itraxx Eurpean Indices Administratr Markit Indices Limited is the administratr f the Markit itraxx Eurpe and Markit itraxx Crssver indices and all related Sub-Indices. The cmpsitin f these indices is determined by the Administratr in accrdance with the rules and methdlgies set frth in this dcument (the Rules ). The Administratr has sle respnsibility t interpret the Rules. The Administratr shall make determinatins and perfrm all actins regarding the indices pursuant t the Rules except as fllws: Upn the ccurrence f an event that the Administratr determines materially impacts the integrity f ne r mre types f Markit itraxx Eurpe r itraxx Crssver Index-related transactins, including but nt limited t trading interruptins; market instability; and/r frce majeure events, the Administratr, acting in a cmmercially reasnably manner, may at its sle discretin determine that it is apprpriate t depart frm the methdlgies, timelines and/r prcedures set frth in the Rules in rder t btain a result that preserves the ecnmic intent f such itraxx Eurpe r itraxx Crssver indices. Where the best curse f actin is nt clear Markit will cnsult the Index Advisry Cmmittee fr guidance prir t making any such determinatin. The determined curse f actin will be dcumented, cmmunicated t all stakehlders and published n the Markit website under the itraxx News page. In the event that any critical input required in the cnstructin f a new series f the index is nt available, Markit will cnfer with the Index Advisry Cmmittee and publish the utcme f any material change as well as any decisins taken at Markit s discretin that have led t a methdlgy change. Rll Dates Each f Markit itraxx Eurpe, Markit itraxx Crssver and all related Sub-Indices will begin n September 20 and March 20 (r the Business Day immediately thereafter in the event that either such date is nt a Business Day) f each calendar year (each such date, a Rll Date ). All references t Business Days in this dcument mean days n which cmmercial banks and freign exchange markets settle payments and are pen fr general business (including dealings in freign exchange and freign currency depsits) in Lndn, England. All times referred t in this dcument refer t lcal time in Lndn, England. Rule Revisin The rules fr the index are reviewed semi-annually prir t the index rll. Decisins made fllwing an index rule review will be cmmunicated t stakehlders via and published n the Markit website. The publicatin will cntain an verview and timelines fr implementatin f such rules changes. Maturity The cmpsitin f each series f the Markit itraxx Eurpe, Markit itraxx Crssver and Sub-Indices is the same fr all maturities fr which a fixed rate is published. Fr Markit itraxx Eurpe and Markit itraxx Crssver: Each Index that has a Rll Date f September 20 shall be issued with the maturity date f December 20 ccurring 3 years, 5 years, 7 years and 10 years fllwing the Rll Date. Each Index that has a Rll Date f March 20 shall be issued with the maturity date f June 20 ccurring 3 years, 5 years, 7 years and 10 years fllwing the Rll Date. Fr Markit itraxx Senir and Markit itraxx Subrdinated Financials and Markit itraxx Nn-Financials: Cpyright 2016, Markit Grup Limited. All rights reserved. 3

4 Each Index that has a Rll Date f September 20 shall be issued with the maturity date f December 20 ccurring 5 years and 10 years fllwing the Rll Date. Each Index that has a Rll Date f March 20 shall be issued with the maturity date f June 20 ccurring 5 years and 10 years fllwing the Rll Date. Weighting Each entity in Markit itraxx Eurpe, Markit itraxx Crssver and all related Sub-Indices will have equal r apprximately equal weightings. The weighting f each entity will be equal t (i) ne divided by (ii) the number f entities in such index, expressed as a percentage with three decimal places (e.g., 3.226%). In the case where runding is necessary t express the weightings in this manner, the entities shall be arranged in alphabetical rder, with the weightings f the entities at the tp f the list being runded up t the nearest ne-thusandth f a percent and the weightings f the entities at the bttm f the list being runded dwn t the nearest ne-thusandth f a percent until the weightings f all entities have been runded and the aggregate f the weightings equals exactly 100%. Relevant Rating The Relevant Rating f each entity will be cnsidered when determining the inclusin r exclusin f cnstituents fr bth the Markit itraxx Eurpe and Markit itraxx Crssver, and all related Sub- Indices. Fr the purpses f these Rules, Relevant Rating means the lwest f: 1. The lwest f an entity's Issuer Rating, Senir Unsecured Debt Rating, Crprate Family Rating and Lng Term Rating fr Mdy s; 2. The lwer f an entity's Lng-term Issuer Credit Rating and Senir Unsecured Debt Rating fr S&P; r 3. The lwer f an entity's Issuer Default Ratings and Senir Unsecured Debt Rating fr Fitch. Rating changes that culd affect the index membership are taken int accunt if Markit is ntified f such change prir t 5:00 pm Lndn time n the last Business Day f the mnth prir t the mnth in which the Rll Date ccurs. A Relevant Rating f BBB-/Baa3/BBB- (Fitch/Mdy's/S&P) in cnjunctin with a psitive r stable Outlk while nt being n negative Watch will be defined as being Investment Grade fr the purpse f the Rules. A Relevant Rating f BBB-/Baa3/BBB- (Fitch/Mdy's/S&P) with negative utlk / n negative watch r belw will be defined Nn-Investment Grade. Exchange Rates The exchange rates used t cnvert any nn-eur denminated debt amunt t EUR will be the 16:00 Lndn rate frm WM Reuters fr the relevant currency as f the last Business Day f the mnth prir t the mnth in which the Rll Date ccurs. Cpyright 2016, Markit Grup Limited. All rights reserved. 4

5 Markit itraxx Eurpe Prir t the Rll Date the Administratr will create the new series f the Markit itraxx Eurpe Index based n the mst recent Markit itraxx Eurpe Liquidity List and by applying the Markit itraxx Eurpe General Criteria as set frth belw. The Markit itraxx Eurpe Index is cmpsed f ne hundred twenty five (125) liquid Eurpean entities with investment grade credit ratings that trade in the CDS market. Markit itraxx Eurpe Liquidity List As part f the Index Rll prcess, the Administratr will create the Markit itraxx Eurpe Liquidity List after each publicatin f the 6 mnth Analysis Tp 1,000 Single Names reprt r any successr reprt theret, each published by DTCC, r if such reprt is n lnger available, any successr reprt that measures liquidity within the CDS market (as applicable, the DTCC Reprt ). Using the average weekly trading activity ver the last six mnths prir t the Rll Date as measured in the then-current DTCC Reprt, the Administratr will create the Markit itraxx Eurpe Liquidity List by: Determining all entities which: are incrprated in Eurpe, where Eurpe means EU and EFTA member cuntries; are classified as Eurpe fr the DC Regin ( Determinatins Cmmittee Regin, referring t the relevant ISDA Credit Derivatives Determinatins Cmmittee, as defined in the relevant ISDA Credit Derivatives Definitins, the Credit Definitins ) in the DTCC Reprt; demnstrate trading activity greater than zer during the last eight weeks preceding the last Friday f the mnth prir t mnth in which the Rll Date ccurs, as measured in the DTCC Reprt; must have an Investment Grade Relevant Rating as defined abve. Ranking thse entities meeting the abve criteria, frm the mst liquid t the least liquid, based n the ntinal market risk activity as listed in the relevant DTCC Reprt. T the extent that tw r mre entities are determined t be equally liquid based n ntinals, the Administratr shall rank such entities frm the mst liquid t the least liquid based n (i) the number f trades specified in the relevant DTCC Reprt, r (ii) if an equal number f trades are specified, in alphabetical rder (such verall cmpleted rankings, the Markit itraxx Eurpe Liquidity Rankings, and such verall cmpleted list, the itraxx Eurpe Liquidity List ). In creating the Markit itraxx Eurpe Liquidity Rankings, traded ntinal vlumes as listed in the relevant DTCC Reprt fr entities that fall under the same ticker but trade separately in the CDS market (therefre having separate legal entity names) are aggregated t arrive at an verall vlume fr thse entities when ranking the entities as described abve. The mst liquid entity under the ticker qualifies fr inclusin in the itraxx Eurpe Liquidity List. Hwever in the event that the mst liquid entity under a ticker is nt eligible fr the index then the next mst liquid entity may be cnsidered instead. Cpyright 2016, Markit Grup Limited. All rights reserved. 5

6 Markit itraxx Eurpe General Criteria T be eligible fr inclusin in the Markit itraxx Eurpe Index and its sub-indices, an entity n the Markit itraxx Eurpe Liquidity List and Markit itraxx Eurpe Financial Supplementary List must satisfy the fllwing criteria (the Markit itraxx Eurpe General Criteria ): Entities must have issued r guaranteed an amunt f utstanding publicly traded debt securities (which, fr the avidance f dubt, excludes lans, equities and privately placed debt securities) equal t r in excess f 100,000,000 with a maximum remaining maturity f 30 years, at clse f business n the tenth Business Day preceding the Rll Date in a currency that is deliverable int a Eurpean CDS cntract. Fr this determinatin debt issued by Special Purpse Vehicles created by an insurer r reinsurer fr the sle purpse f issuing debt will als be taken int accunt. The ttal debt issued r guaranteed will be determined by the Administratr based n surces including, but nt limited t, public filings and financial reprts f the entity. Fr new issues f the relevant entities, the first settlement date f the issue will be used t determine whether the debt shuld be taken int accunt fr the abve determinatin. Crprate Events. If the Administratr determines at its sle discretin and based n publicly available infrmatin and thrugh cnsultatin with market participants that, due t a crprate event being annunced r ccurring it is n lnger apprpriate t include such entity taking int accunt the nature and cmpnents f the index, such entity will be excluded. Crprate events include mergers r ther similar events that make the entity unsuitable fr inclusin in the Markit itraxx Eurpe Index. Credit Events. The Administratr may determine at its sle discretin that an entity is nt suitable fr inclusin in the Markit itraxx Eurpe index if ne f the fllwing ccurs n r after the previus Markit itraxx Eurpe index rll date with respect t such an entity: (a) (b) a ntice is published n the ISDA Credit Derivatives Determinatins Cmmittee webpage ( r any successr webpage theret) annuncing that a request relating t a ptential Credit Event (as defined in the Credit Derivatives Definitins, the Credit Definitins) in respect f such an entity has been accepted by the relevant Credit Derivatives Determinatins Cmmittee (the "DC", as defined in the Credit Definitins); prvided that as f 5:00 p.m. Relevant City Time (as defined in the DC Rules published n the ISDA Credit Derivatives Determinatins Cmmittee webpage ( DC Rules ) n the first business day fllwing the day n which the relevant DC is required t cnvene t cnsider such request under the DC Rules (such timeline t be determined withut regard t any ability f the DC t amend the published timetables set frth in the DC Rules immediately prir t such request), a DC N Credit Event Annuncement (as defined in the Credit Definitins) has nt ccurred and n annuncement t the effect that such request has been dismissed, withdrawn, r rejected by the relevant DC has been published n such webpage; r a DC Credit Event Annuncement (as defined in the Credit Definitins) ccurs with respect t such an entity. As set frth in these Rules, the Administratr may cnsider any infrmatin and make any determinatins necessary in relatin t Credit Events t btain a result that preserves the integrity f the Markit itraxx Eurpe index. The entity must nt be guaranteed r cntrlled by (directly r indirectly), r guarantee r cntrl (directly r indirectly) in either case, an Affiliate, that has a higher ranking n the Markit itraxx Eurpe Liquidity List and therwise satisfies the relevant criteria as determined at the sle discretin f the Administratr. Where the nature f a crprate actin creates uncertainty as t which entity is higher ranking n the Markit itraxx Eurpe Liquidity List, the mst liquid entity as per the trading activity ver the last eight weeks preceding the last Friday f the mnth prir t the mnth in which the Rll Date ccurs as measured in the DTCC Reprt will be selected. Cntrl f any entity means wnership f a majrity f the vting pwer f that entity. Cpyright 2016, Markit Grup Limited. All rights reserved. 6

7 The final index cmprises 125 entities and is cnstructed by selecting the highest ranking entities in each sectr frm the Liquidity List, subject t the fllwing sectr restrictins: 30 Auts & Industrials 25 Cnsumers 20 Energy 20 TMT 30 Financials frm the itraxx Eurpe Liquidity List (separate Senir & Subrdinated indices) Financial entities classified under the sub-sectr Specialty Finance r Cnsumer Finance (per the itraxx sectr classificatin) will nt be eligible. Each entity is assigned t its apprpriate Markit itraxx Sectr and is ranked within its sectr, i.e. the entity with the highest liquidity is ranked #1. Sub-Indices are cmpiled as fllws: Markit itraxx Nn-Financials cmprises the 95 nn-financial entities frm the Markit itraxx Eurpe index. Markit itraxx Senir Financials cmprises the 30 financial entities frm the Markit itraxx Eurpe index referencing senir debt. Markit itraxx Subrdinated Financials cmprises the 30 financial entities frm the Markit itraxx Eurpe index referencing subrdinate debt. Swiss banking entities within the Subrdinated Financials index will be included in the index n the transactin type Eurpean CC Financial Crprate. Creatin f the New Markit itraxx Eurpe Index Series Prir t the Publicatin Date (as set frth belw) fr a new series f the Markit itraxx Eurpe Index, the Administratr will create the new Markit itraxx Eurpe Index by creating the Liquidity List and applying the General Criteria as stated abve t create the New Markit itraxx Eurpe Index. Publicatin f Prvisinal Markit itraxx Eurpe Index The list f entities resulting after the steps abve (the Prvisinal Markit itraxx Eurpe Index ) will be published n Markit s public website fr cmment n later than seven (7) Business Days prir t the Rll Date. The Administratr will review cmments received and determine whether amendments are necessary. The Administratr welcmes public cmment, but is nt required t fllw r therwise address any cmment received. The Administratr will publish the expected name changes (if any) n its public website as it determines such changes may be required. The cmment perid will end fur (4) Business Days prir t the Rll Date. The draft and final annexes fr the Markit itraxx Eurpe Index and Sub-Indices will be published as set frth in the 'Publicatin f Annex' sectin belw. Cpyright 2016, Markit Grup Limited. All rights reserved. 7

8 Markit itraxx Crssver Prir t the Rll Date, the Administratr will create the new series f the Markit itraxx Crssver Index based n the mst recent Markit itraxx Crssver Liquidity List and Markit itraxx Crssver Supplementary List and by applying the Markit itraxx Crssver General Criteria as set frth belw. The Markit itraxx Crssver Index is cmpsed f up t 75 Eurpean entities which d nt have Investment Grade credit ratings. Markit itraxx Crssver Liquidity List As part f the Index Rll prcess, the Administratr will create the Markit itraxx Crssver Liquidity List after each publicatin f the DTCC Reprt. Using the average weekly trading activity ver the last six mnths prir t the Rll Date as measured in the then-current DTCC Reprt, the Administratr will create the Markit itraxx Crssver Liquidity List by: Determining all entities which: are incrprated in Eurpe, where Eurpe means EU and EFTA member cuntries; demnstrate trading activity greater than zer during the last eight weeks preceding the last Friday f the mnth prir t the mnth in which the Rll Date ccurs as measured in the DTCC Reprt; are classified as Eurpe fr the DC Regin ( Determinatins Cmmittee Regin, referring t the ISDA Credit Derivatives Determinatins Cmmittee, as defined in the Credit Definitins) in the DTCC Reprt; either: have a Nn-Investment Grade Relevant Rating as defined abve; has n Relevant Rating, i.e. is nt rated by Fitch, Mdy's and S&P ( Unrated ). Ranking thse entities meeting the abve criteria, frm the mst liquid t the least liquid, based n the ntinal market risk activity as listed in the relevant DTCC Reprt. T the extent that tw r mre entities are determined t be equally liquid based n ntinals, the Administratr shall rank such entities frm the mst liquid t the least liquid based n (i) the number f trades specified in the relevant DTCC Reprt, r (ii) if an equal number f trades are specified, in alphabetical rder (such verall cmpleted rankings, the Markit itraxx Crssver Liquidity Rankings, and such verall cmpleted list, the Markit itraxx Crssver Liquidity List ). In creating the Markit itraxx Crssver Liquidity Rankings, traded ntinal vlumes in the relevant DTCC Reprt fr entities that fall under the same ticker but trade separately in the CDS market (therefre having separate legal entity names) are aggregated t arrive at an verall vlume fr thse entities when ranking the entities as described abve. The mst liquid entity under the ticker qualifies fr inclusin n the Markit itraxx Crssver Liquidity List. Hwever in the event that the mst liquid entity under a ticker is nt eligible fr the index then the next mst liquid entity may be cnsidered instead. Cpyright 2016, Markit Grup Limited. All rights reserved. 8

9 Markit itraxx Crssver General Criteria T be eligible fr inclusin in the Markit itraxx Crssver Index, an entity n the Markit itraxx Crssver Liquidity List must satisfy the fllwing criteria (the Markit itraxx Crssver General Criteria ): The entity must have issued r guaranteed an amunt f utstanding publicly traded debt securities (which, fr the avidance f dubt, excludes lans, equities and privately placed debt securities) equal t r in excess f 100,000,000 with a maximum remaining maturity f 30 years, at clse f business n the tenth Business Day preceding the Rll Date in a currency that is deliverable int a Eurpean CDS cntract. The ttal debt issued r guaranteed will be determined by the Administratr based n surces including, but nt limited t, public filings and financial reprts f the entity. Fr new issues f the relevant entities, the first settlement date f the issue will be used t determine whether the debt shuld be taken int accunt fr the abve determinatin. Crprate Events. If the Administratr determines at its sle discretin and based n publicly available infrmatin and thrugh cnsultatin with market participants that, due t a crprate event being annunced r ccurring it is n lnger apprpriate t include such entity taking int accunt the nature and cmpnents f the index, such entity will be excluded. Crprate events include mergers r ther similar events that make the entity unsuitable fr inclusin in the Markit itraxx Crssver Index. Credit Events. The Administratr may determine at sle its discretin that an entity is nt suitable fr inclusin in the Markit itraxx Crssver index if ne f the fllwing ccurs n r after the previus Markit itraxx Crssver index rll date with respect t such an entity: (a) (b) a ntice is published n the ISDA Credit Derivatives Determinatins Cmmittee webpage ( r any successr webpage theret) annuncing that a request relating t a ptential Credit Event (as in the Credit Definitins) in respect f such an entity has been accepted by the relevant DC; prvided that as f 5:00 p.m. Relevant City Time (as defined in the DC Rules) n the first business day fllwing the day n which the relevant DC is required t cnvene t cnsider such request under the DC Rules (such timeline t be determined withut regard t any ability f the DC t amend the published timetables set frth in the DC Rules immediately prir t such request), a DC N Credit Event Annuncement (as defined in the Credit Definitins) has nt ccurred and n annuncement t the effect that such request has been dismissed, withdrawn, r rejected by the relevant DC has been published n such webpage; r a DC Credit Event Annuncement (as defined in the Credit Definitins) ccurs with respect t such an entity. As set frth in these Rules, the Administratr may cnsider any infrmatin and make any determinatins necessary in relatin t Credit Events t btain a result that preserves the integrity f the Markit itraxx Crssver index. The entity must nt be guaranteed r cntrlled by (directly r indirectly), r guarantee r cntrl (directly r indirectly) in either case, an Affiliate, that has a higher ranking n the Markit itraxx Crssver Liquidity List and therwise satisfies the relevant criteria as determined at the sle discretin f the Administratr. Where the nature f a crprate actin creates uncertainty as t which entity is higher ranking n the Markit itraxx Eurpe Liquidity List, the mst liquid entity as per the trading activity ver the last eight weeks preceding the last Friday f the mnth prir t the mnth in which the Rll Date ccurs as measured in the DTCC Reprt will be selected. Cntrl f any entity means wnership f a majrity f the vting pwer f that entity. Financial entities (per the itraxx sectr classificatin) are nt eligible. Hwever entities classified under the sub-sectr Specialty Finance (per the itraxx sectr classificatin) will be eligible. Cpyright 2016, Markit Grup Limited. All rights reserved. 9

10 The entity must have an average spread at least ne and a half (1.5) times the average spread f the cnstituents f the new Markit itraxx Nn-Financial Index. Fr this determinatin the Markit End f Day Cmpsite CDS Spreads 1 at the 5 Year tenr are used. The average spread ver the last 10 Business Days f the mnth prir t the mnth in which the Rll Date ccurs are calculated fr each entity, and evaluated against the average spread f all cnstituents f the Markit itraxx Nn-Financial Index (ver the same 10 Business Day perid) t determine eligibility. (Fr example, if the average spread f the all entities in the new Markit itraxx Nn-Financial Index effective 20 March was 40 bps ver the last 10 Business Days in February, then nly thse entities whse average spread ver the last 10 Business Days in February was 60 bps r higher will qualify fr the new series f the Markit itraxx Crssver index). The entity must have a maximum CDS upfrnt f 50 pints crrespnding t 500 bps running spread. Fr this determinatin, the Markit End f Day Cmpsite CDS Upfrnts at the 5 year tenr are used t calculate the average upfrnt f the entity ver the last 10 Business Days f the mnth prir t the mnth in which the Rll Date ccurs. The upfrnt levels used are calculated by Markit by cnverting Markit End f Day Cmpsite CDS Spreads t upfrnts using the ISDA standard mdel. Markit itraxx Crssver Supplementary List If less than 75 entities are available frm the Markit itraxx Crssver Liquidity List that satisfy the abve criteria, a supplementary list cmpiled in accrdance with this sectin ( the Crssver Supplementary List ) is used t select additinal names. Creatin f the Markit itraxx Crssver Supplementary List The Administratr will create a list accrding t the fllwing criteria: Entities must be incrprated in Eurpe, where Eurpe means EU and EFTA member cuntries. Entities must have issued a minimum f 500,000,000 (under the same ticker) ver the last 12 mnths (as f the last Business Day f the mnth prir t the mnth f the Rll Date referencing the first settlement date as date f issuance) in a currency which is deliverable int a Eurpean CDS cntract ( New Debt Issuance ) which satisfies the fllwing criteria: at least 250,000,000 f the New Debt Issuance shuld be issued in the three Eurpean currencies: CHF, EUR and GBP; include all publicly traded debt at all tiers, including senir and subrdinated, secured and unsecured; lans, debt guaranteed (but nt issued) by the entity, cnvertibles and privately placed debt securities will be excluded; New Debt Issuance by entities with Investment Grade Relevant Ratings will nt be cnsidered; New Debt Issuance by entities which are Unrated but have Senir Unsecured r Senir Secured debt rated belw Investment Grade utstanding will still be cnsidered; 1 Where credit default swap spreads are required t determine eligibility fr inclusin, whether it be in par spread terms r in pints upfrnt, the Markit CDS End f Day service will be used. Markit receives cntributed CDS data frm market makers fficial bks f recrd. This data underges a rigrus cleaning prcess befre being aggregated t frm the Markit CDS End f Day Cmpsite. Cpyright 2016, Markit Grup Limited. All rights reserved. 10

11 debt exchanges which d nt result in a material change t the ecnmic terms f previusly issued debt will nt be cnsidered as New Debt Issuance. The ecnmic terms f issued debt will be viewed t have changed if there is a reasnable adjustment t any f the fllwing: the ntinal, maturity r senirity f the issued debt; r the amunt, currency r cmpsitin f cupns r principal payments. Entities must nt be guaranteed r cntrlled by (directly r indirectly), r guarantee r cntrl (directly r indirectly) in either case, an Affiliate, that has a higher ranking n the Markit itraxx Crssver Liquidity List r Markit itraxx Crssver Supplementary List and therwise satisfies the relevant criteria as determined by the Administratr. Cntrl f any entity means wnership f a majrity f the vting pwer f that entity. Entities must nt appear n the DTCC Reprt in rder t be candidates fr the Crssver Supplementary List, thugh affiliates f entities n the DTCC Reprt are eligible fr the Crssver Supplementary List as lng as existing rules cncerning affiliates within the Crssver index are met. Entities must nt have issued debt via Lan Participatin Nte (LPN) prgrams. Ranking f the Crssver Supplementary List Once the list is created as set ut under the Creatin f the Crssver Supplementary List abve the list will be ranked by ticker accrding t the belw rules. The Crssver Supplementary List will cnsist f thse entities which satisfy the abve criteria and ranked by the largest amunt f New Debt Issuance frm all eligible entities under the relevant ticker in the 3 Eurpean currencies: CHF, EUR and GBP. T the extent that tw r mre entities are determined t have the exact same amunt f New Debt Issuance in the 3 Eurpean currencies, the Administratr shall rank such entities by (i) New Debt Issuance frm all eligible entities under the relevant ticker in all currencies which are deliverable int a Eurpean CDS cntract, then (ii) by the ttal amunt f senir unsecured debt utstanding at all eligible entities under the relevant ticker and if still tw r mre names are equally ranked by (iii) the mst recent senir unsecured issuance frm all eligible entities under the relevant ticker in any f the 3 Eurpean currencies: CHF, EUR and GBP. Selecting an Entity within a Ticker Fr the purpses f the Crssver Supplementary List, entities will be cnsidered Eligible if ne r mre f the fllwing criteria is satisfied: the entity has a Nn-Investment Grade Relevant Rating; is Unrated and at least ne bnd issued by the entity is rated Nn-Investment Grade by at least ne f S&P, Mdy s r Fitch (entities which are Unrated and have nly have Unrated debt utstanding will nt be Eligible); fr the abve determinatin prvisinal ratings frm Fitch/Mdy's/S&P will als be used if available; If multiple entities have issued bnds under the same ticker, the entity that is a candidate fr inclusin in the Crssver Supplementary List is the ne which has issued the largest amunt f Senir Unsecured debt. If nne f the entities under the same ticker have issued Senir Unsecured debt then entities which have issued Senir Secured debt will be cnsidered. Cpyright 2016, Markit Grup Limited. All rights reserved. 11

12 Where there is nly ne entity under the relevant ticker and this entity has nly issued Senir Secured debt, this entity will be selected fr the Crssver Supplementary List. If there are multiple Eligible entities under the relevant ticker and all f these entities have nly issued Senir Secured debt, the Administratr will endeavur t select the Eligible entity which has issued the largest amunt f lwer ranking Senir Secured fr the Crssver Supplementary List. The Administratr may use bnd and/r entity ratings and cnsult with Markit RED in rder t achieve this. If the Administratr believes that the Senir Secured debt issued by these entities is f equal ranking, then the Eligible entity with the largest utstanding amunt f Senir Secured debt will be selected. Where mre than ne entity have issued debt under the same ticker, if the entity with the largest amunt f Senir Unsecured r Senir Secured debt utstanding (as identified by abve rules) is nt Eurpean, then the entity (and ticker) will nt be included. Fr the purpses f chsing an entity within a ticker: Only bnds with maturities f 30 years r belw frm the new index start date will be cnsidered when determine utstanding amunts. PIK ntes and cnvertibles will nt be cnsidered. (T clarify - PIK ntes are cnsidered when determining New Debt Issuance.) Z-Spread Requirement: Fr an Eligible entity t be cnsidered fr inclusin a bnd issued by such entity needs t be identified with an average Z-spread at least ne and a half (1.5) times the average spread f the cnstituents f the new Markit itraxx Nn-Financial Index. Fr this determinatin the average Z-Spread t maturity fr the last 10 Business Days f the mnth prir t the mnth in which the Rll Date ccurs is used. The Z-Spread t maturity is used even if the Markit End f Day Cmpsite CDS Spreads are available frm Markit fr these entities. The Z-Spread, which is based n the dirty prices f the issuer bnds, is calculated ver the Swap Yield Curve by Markit Evaluated Bnds Service. Fr the Z-Spread test the Eligible entity with the largest amunt f relevant debt utstanding as described abve will be tested first. The relevant bnd fr an entity shuld be the bnd with the clsest maturity t the 5- year maturity date f the current index series which satisfies the fllwing criteria: the bnd shuld be Senir Unsecured if available, else a Senir Secured bnd will be cnsidered; if the entity is Unrated the bnd must be rated Nn-Investment Grade; the amunt utstanding fr the bnd shuld be at least 200,000,000, r the equivalent in a Standard Specified Currency (as defined in the Credit Definitins) (as f the last Business Day f the mnth prir t the mnth in which the Rll Date ccurs); if tw r mre bnds are equidistant frm the 5-year CDS maturity date and satisfy all f the ther criteria, the bnd with the highest amunt utstanding in a Standard Specified Currency (as defined in the Credit Definitins) (as f the last Business Day f the mnth prir t the Rll Date) is selected. Cpyright 2016, Markit Grup Limited. All rights reserved. 12

13 if n Senir Unsecured r Senir Secured bnds are available fr verificatin f the Z-spread criteria fr a specific entity under a ticker, such entity is nt cnsidered fr index membership - in this event the next Eligible entity under the ticker will be cnsidered; If the first Eligible entity tested fails the Z-spread test, then n entities under the ticker will be cnsidered. If there are n Eligible entities with bnds meeting the Z-spread requirement under a ticker then n entities under this ticker will be cnsidered fr index inclusin via the Crssver Supplementary list. Bnds fr which Z-spreads are nt available frm Markit s Evaluated Bnd Service will nt be cnsidered. Debt Tier Classificatin The belw criterin is used t establish the Debt Tier classificatin f a bnd fr determining eligibility f the issuing entity fr the Markit itraxx Crssver Supplementary List, as fllws: The bnd will be classified as Senir Unsecured if any f the belw criteria are satisfied: The bnd's rating frm Mdy s is equal t the Mdy s Senir Unsecured r Mdy s Senir Subrdinate Debt Rating. The bnd rating frm S&P is equal t the S&P Senir Unsecured r S&P Senir Subrdinate Debt Rating. The bnd rating frm Fitch is equal t the Fitch Senir Unsecured r Fitch Senir Subrdinate Debt Rating. The bnd will be classified as Senir Secured if any f the belw criteria are satisfied: The bnd's rating frm Mdy s is equal t the Mdy s Senir Secured Debt Rating. The bnd rating frm S&P is equal t the S&P Senir Secured Debt Rating. The bnd rating frm Fitch is equal t the Fitch Senir Secured Debt Rating. If the abve tests are incnclusive, then the Markit RED Tier classificatin (if available) is used. Bnds with a Subrdinated Markit RED Tier classificatin will be ranked as Senir Unsecured. If the abve tests are incnclusive and the Markit RED Tier classificatin is unavailable then the bnd is cnsidered t be Senir Unsecured. Creatin f the New Markit itraxx Crssver Index Series The final prtfli cmprises up t 75 names with the highest ranking entities frm the Markit itraxx Crssver Liquidity List and if required, the Crssver Supplementary List. In bth cases all entities must meet the itraxx Crssver General Criteria set frth abve t be included. If there are less than 75 entities available the index will cnsist f the number f entities available runded dwn t a multiple f 5. Cpyright 2016, Markit Grup Limited. All rights reserved. 13

14 Publicatin f Prvisinal Markit itraxx Crssver Index The list f entities resulting after the steps abve (the Prvisinal Markit itraxx Crssver Index ) will be published n Markit s public web site fr cmment n later than seven (7) Business Days prir t the Rll Date. The Administratr will review cmments received and determine whether amendments are necessary. The Administratr welcmes public cmment, but is nt required t fllw r therwise address any cmment received. The Administratr will publish the expected name changes (if any) n its public website as it determines such changes are required. The cmment perid will end fur (4) Business Days prir t the Rll Date. The draft and final annexes fr the Markit itraxx Crssver Index will be published as set frth belw. Markit itraxx Eurpe & itraxx Crssver Indices Final Review f Cnstituent List If n any day prir t the date f the publicatin f a final index annex, the Administratr determines that any entity that is intended t be included in the relevant index fails any f the Markit itraxx Eurpe General Criteria r Markit itraxx Crssver General Criteria, then such entity shall be excluded frm the Markit itraxx Eurpe r Markit itraxx Crssver Indices, as applicable. If the Administratr determines that any entity shall be excluded frm the Markit itraxx Eurpe r Markit itraxx Crssver Index in accrdance with the preceding paragraph, then the highest ranked entity in the Markit itraxx Eurpe r Markit itraxx Crssver Liquidity Lists (r Crssver Supplementary List, if the new entity cannt be selected frm the Markit itraxx Crssver Liquidity List), as applicable that has nt already been included in the Markit itraxx Eurpe r Markit itraxx Crssver Index, as applicable, shall be added t the new Markit itraxx Eurpe r Markit itraxx Crssver Index, respectively, as a replacement entity. If the new entity cannt be selected frm the Markit itraxx Crssver Liquidity List fr the new Markit itraxx Crssver Index, the entity will then be selected frm the Crssver Supplementary List as described abve. Where a determinatin with regard t cnstituent selectin is made by the Administratr which invlves discretin and/r expert judgement, Markit will cnsult the Index Advisry Cmmittee fr guidance. Such determinatins will be dcumented, cmmunicated t stakehlders via and published n the Markit website under the itraxx News page. Where similar determinatins are made, precedents set by previus decisins will be cnsidered acrss all CDS indices. In the unlikely instance an inaccuracy is nt caught and reslved prir t the publicatin f the final list, r if input data used in the cnstituent selectin prcess is revised retrspectively, Markit will review the impact n the affected indices. In rder t determine whether t restate the final list r any index parameters, Markit will cnsult with the Index Advisry Cmmittee t determine the impact f such actin. If it is decided t update the Final List r any related parameters, the reasn fr such revisin tgether with revised material will be published. In additin, Markit will cmpile an incident reprt t summarize the incident, the rt cause, and set frth remedial actins t avid such an errr in the future, where such remedial actins are applicable. Publicatin f Annex N later than three (3) Business Days prir t the Rll Date f a Markit itraxx Eurpe r Markit itraxx Crssver Index, the Administratr will publish a draft f the annex fr such Markit itraxx Eurpe r Markit itraxx Crssver Index and each Sub-Index, alng with the weighting and final Reference Obligatins (as defined in the Credit Definitins) fr each entity. The final annex fr the Markit itraxx Eurpe and Crssver Indices and each Sub-Index will be published after 5:00 p.m. n the Business Day immediately preceding the Rll Date f the Indices. Cpyright 2016, Markit Grup Limited. All rights reserved. 14

15 Cupn & Recvery Rates Fixed rates and recvery rates will be determined by the Administratr in its sle discretin based n industry rates and updated frm time t time. Disclaimer The Administratr des nt undertake any duty f care and will nt be liable t any party t a transactin referencing a Markit itraxx Eurpe r Markit itraxx Crssver r related Sub-Index fr any frm f damages, whether direct, indirect, special, cnsequential r therwise, that might arise in cnnectin with the Administratr's perfrmance f its duties under the Rules, except in the case f the Administratr's grss negligence, fraud r willful miscnduct. Further infrmatin Markit Indices Limited Tel: Fax: supprt@markit.cm Internet: Licenses and Data Markit (thrugh the entities Markit Nrth America, Inc., Markit Indices Limited and Markit Grup Hldings) wns all itraxx, itraxx SvX and CDX data and indices and the intellectual prperty rights therein. A license is required t create and/r distribute any prduct that uses, is based upn r refers t any itraxx, itraxx SvX and CDX index r itraxx, itraxx SvX and CDX data. Cpyright 2016, Markit Grup Limited. All rights reserved. 15