Transcript
Markit iRxx.EM Index Markit Interest Rate Swap Emerging Market Index (iRxx.EM)
February 2016
The Science of Finance
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Markit Indices - Overview
The main suite of Markit Propriety indices comprise of:
Synthetic Indices
— CDS (iTraxx and CDX)
— Securitised Products Indices (ABX, CMBX and IOS/PO/MBX)
Bond indices (iBoxx)
Related Products:
— Markit Purchasing Managers‘ Indices (PMIs)
— Markit‘s Bespoke index calculation service
— Markit‘s Index and ETF Management services
— Extensive Pricing and Reference data powering research and development of new indices
$90 billion
AUM in ETFs
$5.5 trillion Derivative Trades
Outstanding
150+
ETFs
14,000+
Indices 500+
Clients
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Markit iRxx.EM Index
— Emerging market local currency debt has grown significantly in recent years
— Currently there are various instruments available for gaining and hedging global
emerging market exposure for other asset classes, but limited options for interest rates
— The Markit Interest Rate Swap Emerging Market Index (iRxx.EM) will offer market
participants with a tradable index solution for emerging market interest rates
— iRxx.EM is the first independent and transparent tradable index to capture a macro view
of interest rate risk in a single targeted index
— Markit will leverage expertise and a strong history of providing the market with tradable
index products such as CDX, iTraxx and TRS on iBoxx to launch iRxx.EM
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Index Overview
— iRxx.EM consists of 15 interest rate derivatives including interest rate swaps, cross
currency swaps and overnight index swaps (OIS)
— Initial launch will be based on the most liquid EM rates contracts
iRxx.EM
Region Country CCY CODE Product Deliverability Basket Weighting
Asia
India INR OIS Nondeliverable 6.66%
Malaysia MYR IRS Nondeliverable 6.66%
China CNY IRS Nondeliverable 6.66%
South Korea KRW IRS Nondeliverable 6.66%
Thailand THB IRS Nondeliverable 6.66%
EMEA
Russia RUB XCCY Deliverable 6.66%
South Africa ZAR IRS Deliverable 6.66%
Turkey TRY XCCY Deliverable 6.66%
Hungary HUF IRS Deliverable 6.66%
Israel ILS IRS Deliverable 6.66%
Poland PLN IRS Deliverable 6.66%
LATAM
Brazil BRL OIS Nondeliverable 6.66%
Columbia COP OIS Nondeliverable 6.66%
Mexico MXN IRS Deliverable 6.66%
Chile CLP OIS Nondeliverable 6.66%
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Index overview - continued
— Main tradable iRxx.EM index
— Theoretical Sub-indices composed of
low and high yield constituents
— Sub-indices could be made tradable
for future series
— High yield constituents trade at US five
year rate +200 bps
iRxx.EM index family
Main Index Theoretical Sub-indices
iRxx.EM. iRxx.EM.HY iRxx.EM.LY
India Brazil China
Malaysia Columbia Hungary
China India Israel
South Korea Malaysia Poland
Thailand Mexico South Korea
Russia Russia Thailand
South Africa South Africa
Turkey Turkey
Hungary Chile
Israel
Poland
Brazil
Columbia
Mexico
Chile
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Mechanics
— Index of six month forward-starting five year interest rate swaps contracts
— Physically settles into the underlying contracts on forward starting date
— New series launched every six months
— Positions can be rolled forward to new series or unwound prior to physical settlement
— Two week overlap between series
— Swap notional and fixed rates set at index inception
— Streamlined structure with no cash flows while series is ―on-the-run‖
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Timeline
Annex Date Inception date Roll date Forward starting date Final maturity date
Index Composition
published Trading of new series
begins
Last trading day
of previous
Series
Physical settlement date of
index constituent swaps Maturity date for
underlying swaps
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Key features
— Efficient structure offers investors the ability to gain or hedge global emerging market
rate exposure in a single trade
— Independent and transparent
— Trading documentation prepared by industry leading legal counsel
— Index annexes published showing constituency, weights and contract terms
— Intrinsic index price published daily
— Swap valuation methodology by Markit Portfolio Valuations
— Leveraging Markit‘s extensive experience in administering tradable derivative indices
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iRxx.EM quoting convention
— To be quoted in price or yield
— Yield format being a simplified ‗rates‘ format replicating the yield of a synthetic five year
forward starting bond
— Markit will publish a daily theoretical index price and yield derived from the underlying
interest rate swaps:
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Potential customers
Users – market participants looking to hedge or access EM Rates risk:
— Real money asset managers
— Pension funds
— Insurance companies
— EM and macro hedge funds
— Banks
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