Markit Announces Result of the 2013 Annual Index Review

Transcription

1 Annual Index Review 12 December 2013 Markit Announces Result of the 2013 Annual Index Review Changes affect the Markit iboxx EUR, Markit iboxx EUR Liquid, Markit iboxx GBP and Markit iboxx GBP Liquid index families As part of the 2013 Annual Index Review, Markit would like to announce the following changes and additions to its indices. All proposed changes have been discussed with the Markit iboxx European Oversight Committee. The feedback from the Oversight Committee has been considered as an input in our decision making process. 1. Introduction of a cost factor applied to clean price indices Cost factors are calculated for the Markit iboxx EUR Liquid and Markit iboxx GBP Liquid indices. The methodology of the iboxx Liquid indices accounts for transaction costs that occur when the index portfolio is rebalanced. Bonds that are already index members but have their weight increased due to re-composition are bought at their ask price but are being valued in the index with their bid price. Until now, cost factors were applied to liquid total return indices only. Markit has now introduced an analogous calculation for the cost factor of clean price liquid indices. The new cost factor was introduced for the Markit iboxx Liquid Diversified indices on 31st October The cost factor will be introduced for other indices as required. 2. Introduction of Real Estate Classification Currently Real Estate bonds are classified as Corporates -> Financials -> Financials -> Financial Services -> Real Estate. In order to more accurately reflect the nature of Real Estate bonds in the Markit iboxx indices, Markit will introduce additional classifications across all Markit iboxx Benchmark indices. Markit will also introduce indices based on the new classification levels. As a result of these changes, Markit will amend the classification schema as follows:

2 Economic Sector Market Sector Market Sub-Sector Financials Financials Banks Banks Insurance Life Insurance Nonlife Insurance Financial Services General Financial Real Estate (Discontinued) Insurance-wrapped Real Estate Insurance-wrapped Real Estate Investment & Services Real Estate Investment Trusts The timeframe for the implementation of the new classification will be announced separately. 3. Clarification of rule regarding inclusion of EUR Covered Tranches below EUR 1bn irrespective of the number of Lead Managers for the Markit iboxx EUR indices Covered tranche bonds with an issue size between EUR 500m and EUR 1bn will qualify for inclusion in the indices even if they have less than three lead managers (not counting the issuer) provided the parent bond is eligible for the index. This rule clarification is effective immediately. 4. Tier classification of insurance debt Insurance company subordinated debt classification does not currently follow the same market convention that is typically applied to bank issued debt. Tier-2 debt issued by banks can generally be classified as upper-tier-2 (UT2) and lower-tier-2 debt (LT2). The same distinction does not generally apply for Tier-2 debt issued by insurance companies. While recognising these current market conventions, Markit has nonetheless decided against merging the two debt levels (ilt2 and iut2) at the moment. In addition, Markit will take under advisement the recommendation to distinguish between dated and undated debt. Any decisions on this topic will be made and communicated at some point in the future. 2 \

3 5. Insurance-wrapped corporate debt classification Securities with the insurance-wrapped feature in Markit s benchmark indices are now valued in the markets like other corporate securities from the same issuer indicating that this feature provides no increased value to the bond. As a result, Markit considered reclassifying these securities as standard corporate bonds using the sector classification. Markit decided not to remove the Insurance Wrapped classification (Level 4) from the 11 remaining bonds as there are diverging views on this topic on the effectiveness of such a change. 6. FTP File format changes Additional analytics: Publication of Z-spreads calculated using the LIBOR curve and calculation of Bid-Ask spread The current Z-Spread is calculated over the Government curve. Markit will introduce an additional Z-spread column (calculated using the LIBOR curve) and an additional Bid / Ask spread column in the following daily and end-of-month files: iboxx_eur_eom_components.csv iboxx_eur_eod_underlyings.csv iboxx_eur_eod_indices.csv iboxx_eur_lq_eom_components.csv iboxx_gb00b8gb2y00_eod_underlyings.csv iboxx_eur_lq_eod_underlyings.csv iboxx_eur_lq_sov_mm_eod_underlyings.csv iboxx_gb00b8gb2y00_eod_indices.csv iboxx_eur_lq_eod_indices.csv iboxx_eur_lq_sov_mm_eod_indices.csv iboxx_gbp_eom_components.csv iboxx_gbp_eod_underlyings.csv iboxx_gbp_eod_indices.csv iboxx_gbp_lq_100_eom_components.csv iboxx_gbp_lq_eom_components.csv iboxx_gbp_lq_100_eod_indices.csv iboxx_gbp_lq_eod_indices.csv iboxx_gbp_lq_100_eod_underlyings.csv iboxx_gbp_lq_eod_underlyings.csv The timeline and details for the introduction of the new analytics will be made available in a separate announcement. 3 \

4 Additional columns in ftp files: Publication of Index weight and Base Market Value columns in the Markit iboxx EUR Liquid and GBP Liquid components file Currently, constituent-level base market value and index weights and for the Markit iboxx EUR Liquid and GBP Liquid indices are only available in the XREF files. Markit will add these columns to the Markit iboxx EUR Liquid and GBP Liquid components files. The additional columns will be implemented in the following files: iboxx_eur_lq_sov_mm_eom_components.csv iboxx_eur_lq_eom_components.csv iboxx_gbp_lq_eom_components.csv The timeline and details for the introduction of the new columns will be announced separately. Format changes for EUR Liquid and GBP Liquid underlying files Markit will convert the format of the liquid underlying files into an XREF-type file. More specifically, this translates into providing a bond-to-index mapping. This has become essential as the same bond can be a member of multiple indices and bond analytics for a bond may vary from index to index due to differing index methodologies. This change requires the introduction of three additional columns: ISIN_Tri, Name and Notional Amount. The following files will be affected by the change: iboxx_eur_lq_eod_underlyings.csv iboxx_gbp_lq_eod_underlyings.csv The exact format of the new files will be made available in a separate announcement. Parallel Run Period for New File Formats To accommodate clients needs to adjust their internal processes to handle the new file formats, Markit will institute a parallel-run period for all files listed above. This period will last for six weeks during which the respective files will be made available in both the old and the new formats. At the conclusion of that period, Markit will no longer provide or support files in the legacy format. 4 \

5 For More Information For more information on Markit indices please contact us at visit our website at or call one of our regional offices: London New York Dallas Sydney Tokyo Singapore Frankfurt Amsterdam About Markit iboxx Markit iboxx cash bond indices are designed to replicate investible investment grade and high yield fixed income markets. These indices are an essential tool for structured products and provide data for fixed income research, asset allocation and performance evaluation in the global fixed income markets. Markit iboxx indices cover Euro, Sterling, Asian, US Dollar and European High Yield bond markets. About Markit Markit is a leading, global financial information services company with over 2,300 employees. The company provides independent data, valuations and trade processing across all asset classes in order to enhance transparency, reduce risk and improve operational efficiency. Its client base includes the most significant institutional participants in the financial marketplace. 5 \