Ground Rules. FTSE ASFA Australia Bond Index Series v1.8

Transcription

1 Ground Rules FTSE ASFA Australia Bond Index Series v1.8 ftserussell.com March 2018

2 Contents 1.0 Introduction Management Responsibilities FTSE Russell Index Policies Index Eligibility Criteria Index Rebalancing Index Calculation Appendix A: Index Sector Schema Appendix B: Further Information FTSE Russell Ground Rules for the FTSE ASFA Australia Bond Index Series, v1.8, March of 14

3 Section 1 Introduction 1.0 Introduction 1.1 The FTSE ASFA Australia Bond Index Series The FTSE ASFA Australia Bond Index Series is designed to measure the performance of the domestic Australian Dollar (AUD) denominated bond market, covering bond issued by governments,corporations and SSAs (Sub-sovereigns, Supranationals and Agencies) The index series consists of the following index families: FTSE ASFA Australia Overall Bond Index FTSE ASFA Covered Bond Index FTSE ASFA Australia Inflation Linked Government Bond Index These index families will be further broken down by sector, rating and maturity, where a sufficient number of constituents exist. 1.2 FTSE Russell FTSE Russell is a trading name of FTSE International Limited, Frank Russell Company, FTSE Global Debt Capital Markets Limited (and its subsidiaries FTSE Global Debt Capital Markets Inc. and MTSNext Limited), Mergent, Inc., FTSE Fixed Income LLC and The Yield Book Inc. 1.3 Statement of Principles for FTSE Bond Indexes Indexes need to keep abreast of changing markets and the Ground Rules cannot anticipate every eventuality. Where the Rules do not fully cover a specific event or development, FTSE Russell will determine the appropriate treatment by reference to the Statement of Principles for FTSE Bond Indexes which summarises the ethos underlying FTSE Russell s approach to index construction. The Statement of Principles is reviewed annually and any changes proposed by FTSE Russell are presented to the FTSE Russell Policy Advisory Board for discussion before approval by the FTSE Russell Product Governance Board. The Statement of Principles for Bond Indexes can be accessed using the following link: Statement_of_Principles_Bond_Indexes.pdf FTSE Russell Ground Rules for the FTSE ASFA Australia Bond Index Series, v1.8, March of 14

4 1.4 FTSE hereby notifies users of the index series that it is possible that circumstances, including external events beyond the control of FTSE, may necessitate changes to, or the cessation of, the index series and therefore any financial contracts or other financial instruments that reference the index series should be able to withstand, or otherwise address the possibility of changes to, or cessation of, the index series. 1.5 Index users who choose to follow this index or to buy products that claim to follow this index should assess the merits of the index s rules-based methodology and take independent investment advice before investing their own or client funds. No liability whether as a result of negligence or otherwise is accepted by FTSE nor its subsidiary undertakings (or any person concerned with the preparation or publication of these Ground Rules) for any losses, damages, claims and expenses suffered by any person as a result of: any reliance on these Ground Rules, and/or any errors or inaccuracies in these Ground Rules, and/or any non-application or misapplication of the policies or procedures described in these Ground Rules, and/or any errors or inaccuracies in the compilation of the Index or any constituent data in the FTSE ASFA Australia Bond Index Series. 1.6 Index Series Objective The FTSE ASFA Australia Bond Index Series is designed to be a broad measure of the Australian Investment Grade bond market, providing a comprehensive set of benchmarks that are objective and transparent. 1.7 Total Return Index A total return index is calculated for all the Indexes. The total return index takes into account the price changes, interest accrued and coupon payments of each bond. Any intra-month cash flows from coupons and redemptions will be treated as cash and will be re-invested in the index at the monthly review In addition to the total return index, the following index analytics are calculated: Price Return Index Yield Index Duration and Convexity Average Coupon Average Time to maturity The number of bonds in each index The Total Notional/Market Value of all the bonds in the index Index cash For further details on the index and bond level calculations, please see the Guide to Calculation Methods of the FTSE Fixed Income Indexes which can be accessed using the following link: FTSE_Fixed_Income_Index_Guide_to_Calculation.pdf The base currency of the benchmark is AUD. FTSE Russell Ground Rules for the FTSE ASFA Australia Bond Index Series, v1.8, March of 14

5 1.8 Index Family Overview The FTSE ASFA Australia Overall Bond Index, which covers fixed coupon bonds, is broken down into three main borrower categories: Corporates, Sovereigns and SSAs (Sub-sovereigns, Supranationals and Agencies). Each category is then split into further sub-sectors, as shown in the diagram below. The full sector schema is available in the Appendix A All indexes/sub-indexes have the following maturity and rating breakdowns provided that a sufficient number of index constituents is available: Maturity sub-indexes Rating sub-indexes AAA AA A BBB FTSE Russell Ground Rules for the FTSE ASFA Australia Bond Index Series, v1.8, March of 14

6 Section 2 Management Responsibilities 2.0 Management Responsibilities 2.1 FTSE International Limited (FTSE) FTSE is the benchmark administrator of the index series FTSE is responsible for the daily calculation, production and operation of the FTSE ASFA Australia Bond Index Series and will: maintain records of all the constituents; be responsible for the addition and deletion of bonds and changes of nominal amounts, in accordance with the Ground Rules. 2.2 These Ground Rules This document sets out the Ground Rules for the construction and management of the FTSE ASFA Australia Bond Index Series. 2.3 Amendments to these Ground Rules These Ground Rules shall be subject to regular review by FTSE Russell to ensure that they continue to meet the current and future requirements of investors and other index users. Any proposals for significant amendments to these Ground Rules will be subject to consultation with FTSE Russell advisory committees and other stakeholders if appropriate. The feedback from these consultations will be considered by the FTSE Russell Product Governance Board before approval is granted In the event that FTSE Russell considers that an exception should be made to any of the Ground Rules, market participants will be provided with clear and significant notice. FTSE Russell Ground Rules for the FTSE ASFA Australia Bond Index Series, v1.8, March of 14

7 Section 3 FTSE Russell Index Policies 3.0 FTSE Russell Index Policies These Ground Rules should be read in conjunction with the following policy documents which can be accessed using the links below: 3.1 Guide to the Calculation Methods for the FTSE Fixed Income Indexes For a description of the methodology used to calculate the index and bond level analytics, please consult the Guide to Calculation Methods for FTSE Fixed Income indexes, which can be found using the following link: FTSE_Fixed_Income_Index_Guide_to_Calculation.pdf 3.2 Queries and Complaints FTSE Russell s complaints procedure can be accessed using the following link: Benchmark_Determination_Complaints_Handling_Policy.pdf 3.3 Recalculation Policy and Guidelines The Recalculation Policy and Guidelines for Fixed Income Indexes document is available from the FTSE Russell website using the link below or by contacting info@ftserussell.com. Fixed_Income_Recalculation_Policy_and_Guidelines.pdf 3.4 Policy for Benchmark Methodology Changes Details of FTSE Russell s policy for making benchmark methodology changes can be accessed using the following link: Policy_for_Benchmark_Methodology_Changes.pdf FTSE Russell Ground Rules for the FTSE ASFA Australia Bond Index Series, v1.8, March of 14

8 Section 4 Index Eligibility Criteria 4.0 Index Eligibility Criteria All bonds that are issued in Australia and are denominated in Australian Dollars (AUD) will be considered for inclusion into the FTSE ASFA Australia Bond Index series, subject to meeting the following index eligibility criteria. 4.1 Issuer type Bonds issued by central and regional governments, corporations (either direct or through a SPV), government agencies and supranationals are eligible for inclusion into the FTSE Australia Bond Index series. There are no restrictions on the issuer country. 4.2 Eligibility of bonds The following bond types are eligible: Fixed and zero-coupon bonds Bonds with call or put features Multiple coupon bonds, including step-up and rating driven bonds Fixed-to-floating bonds, which are in the fixed coupon period Extendible bonds Perpetual bonds that are callable Covered bonds Transferrable Certificates of Deposit Inflation-Linked Bonds NVCC bonds The following security types are not eligible: Asset backed securities Private placements or retail bonds Sinkable bonds Strips Index linked annuities Floating Rate Notes Convertible bonds or bonds with contingent conversion features excluding NVCC Perpetual bonds that are not callable FTSE Russell Ground Rules for the FTSE ASFA Australia Bond Index Series, v1.8, March of 14

9 4.3 Minimum nominal amount Sovereign bonds are subject to a minimum nominal outstanding of AUD 2 billion All other eligible bonds are subject to a minimum nominal outstanding of AUD 100 million. 4.4 Minimum maturity The minimum initial time to maturity, as determined by the number of years from the settlement date until the maturity of the bond is 1 year. The minimum remaining time to maturity is 1 year, with the exception of the 0+ index series, which will include bonds with a remaining time to maturity of less than 1 year. 4.5 Minimum rating Issue-level ratings from each of the major rating agencies, where available, will be used to derive a FTSE composite rating for each bond. The FTSE composite rating is calculated with rating notches removed and will determine eligibility for the investment grade index. FTSE Composite Rating Moody's Agency Equivalent Ratings S&P AAA Aaa AAA AA Aa3 to Aa1 AA- to AA+ A A3 to A1 A- to A+ BBB Baa3 to Baa1 BBB- to BBB+ If a bond is rated by at least one rating agency, the following procedure will be used to determine the FTSE composite rating: If only one rating is available, use that rating as the composite rating. If two ratings are available, and they are different, use the lower rating of the two. Ratings at or above BBB/Baa are considered investment grade. If the lowest rating is below investment grade the bond will not be eligible for the index. If no bond rating is available, but the issuer is rated, the bond will carry the issuer rating if applicable. Bonds that are in default are not eligible for the Indexes. FTSE Russell Ground Rules for the FTSE ASFA Australia Bond Index Series, v1.8, March of 14

10 Section 5 Index Rebalancing 5.0 Index Rebalancing 5.1 Rebalancing the Indexes All FTSE Australia Bond Indexes are rebalanced after the close of the last business day of every month (rebalancing date). The cut-off date for the selection of the index constituents is the close of business four days before the rebalancing date. This means that the first settlement date for any new bonds must be on or before the cut-off date. 5.2 Addition of constituents New issues are included in the indexes once a month at rebalance, provided that the terms are known by the selection cut-off date, as defined above. 5.3 Removal of constituents Bonds are removed from the indexes once a month at rebalance, if they no longer meet the eligibility criteria of the index. 5.4 Alterations to constituents The following events are implemented on their effective date: Unscheduled mandatory redemptions or repurchases, including calls, whereupon the proceeds are held as cash within the index until the next rebalance Coupons that step up or down, for example rating driven bonds Fungible bonds that funge into an existing bond All other changes, including rating migrations and defaults are implemented after the close of the last business day of the month Any cash payments received will be held as cash in the index, until the next rebalancing date, on which date the cash is re-invested into the index. FTSE Russell Ground Rules for the FTSE ASFA Australia Bond Index Series, v1.8, March of 14

11 Section 6 Index Calculation 6.0 Index Calculation 6.1 Data sources The index constituents will be priced using evaluated prices as supplied by the Interactive Data Corporation (IDC). There will be two parallel index series, one using bid prices, and the other using mid prices Terms and conditions for constituents will be provided by Thomson Reuters In circumstances such as severe market disruption where pricing is not available FTSE Russell reserves the right to carry over the price from the last business day. 6.2 Calculation schedule All FTSE ASFA Australia Bond Indexes are calculated at the end of each business day. A business day is, by definition of the Australian Financial Markets Association (AFMA), when the banks in New South Wales are open for business. The index will be calculated and disseminated at Sydney time on each calculation day. 6.3 Bond and Index Level calculations The total and price return will be available for each index. Additionally, the following analytics will be calculated at the index or at individual constituent level: Coupon Semi and Annual Yield Time to Maturity Macaulay Duration Modified Duration Convexity Notional/Market Value Accrued Interest Cash Payments The number of bonds in each Index FTSE Russell Ground Rules for the FTSE ASFA Australia Bond Index Series, v1.8, March of 14

12 For further details on the index and bond level calculations, please see the Guide to Calculation Methods of the FTSE Fixed Income Indexes, which is available on the FTSE Russell website and can be accessed using the following link: FTSE_Fixed_Income_Index_Guide_to_Calculation.pdf 6.4 Index settlement The index series will assume the T+0 settlement convention for the valuation of the index constituents, and the calculation of index analytics 6.5 Index weighting The Indexes will be market value weighted, meaning that the weight of each bond in the index will be dependent on the notional amount outstanding, its price and any accrued interest. 6.6 Index start date and history The base date of the indexes is 30 September The simulated index and constituent level history is available from January FTSE Russell Ground Rules for the FTSE ASFA Australia Bond Index Series, v1.8, March of 14

13 Appendix A: Index Sector Schema The index sector schema for the purposes of bond classification and sub-index assignment is as follows: Level 1 Level 2 Level 3 ICB Industry ICB SuperSector Overall Corporate Financial Corporate (8000) Financials (8300) Banks (8500) Insurance (8600) Real Estate (8700) Financial Services Non-Financial Corporate (1) Oil & Gas (500) Oil & Gas (1000) Basic Materials (1300) Chemicals (1700) Basic Resources (2000) Industrials (2300) Construction & Materials (2700) Industrial Goods & Services (3000) Consumer Goods (3300) Automobiles & Parts (3500) Food & Beverage (3700) Personal & Household Goods (4000) Health Care (4500) Health Care (5000) Consumer Services (5300) Retail (5500) Media (5700) Travel & Leisure (6000) Telecommunications (6500) Telecommunications (7000) Utilities (7500) Utilities (9000) Technology (9500) Technology Sovereign Domestic Sovereign (15000) Government (15100) Nation/Treasury Sub-sovereign, Supranational and Agency Foreign Government (15000) Government (15100) Nation/Treasury Regional (15000) Government (15300) Canton, Region, Province, Srare Supranational Government Guaranteed Agencies (17000) Intergovernmental/Supranati onal Organizations (8000) Financials (15000) Government (16000) Agency/Semi Government (17100) UN Organization (17200) Supranational Organization (15300) Canton, Region, Province, Srare FTSE Russell Ground Rules for the FTSE ASFA Australia Bond Index Series, v1.8, March of 14

14 Appendix B: Further Information A Glossary of Terms used in FTSE Russell s Ground Rule documents can be found using the following link: Fixed_Income_Glossary_of_Terms.pdf For further information on the FTSE ASFA Australia Bond Index Series Ground Rules please visit or info@ftserussell.com. Contact details can also be found on this website London Stock Exchange Group plc and its applicable group undertakings (the LSE Group ). The LSE Group includes (1) FTSE International Limited ( FTSE ), (2) Frank Russell Company ( Russell ), (3) FTSE Global Debt Capital Markets Inc. and FTSE Global Debt Capital Markets Limited (together, FTSE Canada ), (4) MTSNext Limited ( MTSNext ), (5) Mergent, Inc. ( Mergent ), (6) FTSE Fixed Income LLC ( FTSE FI ) and (7) The Yield Book Inc ( YB ). All rights reserved. The FTSE ASFA Australia Bond Index Series is calculated by or on behalf of FTSE or its affiliate, agent or partner. FTSE International Limited is authorised and regulated by the Financial Conduct Authority as a benchmark administrator. FTSE Russell is a trading name of FTSE, Russell, FTSE Canada and MTS Next Limited. FTSE, Russell, FTSE Russell MTS, FTSE4Good, ICB, Mergent, WorldBIG, USBIG, EuroBIG, AusBIG, The Yield Book and all other trademarks and service marks used herein (whether registered or unregistered) are trade marks and/or service marks owned or licensed by the applicable member of the LSE Group or their respective licensors and are owned, or used under licence, by FTSE, Russell, MTSNext, FTSE Canada, Mergent, FTSE FI or YB. TMX is a registered trade mark of TSX Inc. All information is provided for information purposes only. Every effort is made to ensure that all information given in this publication is accurate, but no responsibility or liability can be accepted by any member of the LSE Group nor their respective directors, officers, employees, partners or licensors for any errors or for any loss from use of this publication or any of the information or data contained herein. No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any claim, prediction, warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the FTSE ASFA Australia Bond Index Series or the fitness or suitability of the Index Series for any particular purpose to which it might be put. No member of the LSE Group nor their respective directors, officers, employees, partners or licensors provide investment advice and nothing in this document should be taken as constituting financial or investment advice. No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any representation regarding the advisability of investing in any asset. A decision to invest in any such asset should not be made in reliance on any information herein. Indexes cannot be invested in directly. Inclusion of an asset in an index is not a recommendation to buy, sell or hold that asset. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional. No part of this information may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission of the applicable member of the LSE Group. Use and distribution of the LSE Group index data and the use of their data to create financial products require a licence with FTSE, Russell, FTSE Canada, MTSNext, Mergent, FTSE FI, YB and/or their respective licensors. FTSE Russell Ground Rules for the FTSE ASFA Australia Bond Index Series, v1.8, March of 14