The licensed iTraxx Europe market makers approved a number of proposals for rule changes which will improve the transparency of the indices and also reflect changed market conditions. The changes will be implemented with the index roll into iTraxx Europe Series 10 Indices on 22
nd September 2008. The revised rule book incorporating these rule changes will be published by the end of August. The following is the brief summary of the rule changes:
- iTraxx Crossover Spread Cutoff Rule
Existing Rule
Entities are eligible that have spreads at least twice the EOD 5Y mid-spreads of constituents of iTraxx Non-Financial Index (effective on the roll date) on the last business day of the month prior to roll, with a maximum of 1250 bps or upfront of 35% (no running)
New Rule
Entities are eligible that have spreads at least twice the average EOD 5Y mid-spreads of constituents of iTraxx Non-Financial Index (effective on the roll date) calculated over the last 10 London trading days in the month prior to roll, with a maximum of 25% upfront + 500 bps running
- Rating Specification
�Entity Rating� for membership determination in the iTraxx Europe Indices will be defined as minimum of:
- Lowest of Issuer Rating, Senior unsecured Debt Rating, and Corporate Family Ratings for Moody�s
- Minimum of Long-term Issuer Credit Rating and Senior Unsecured Debt Rating for S&P
- Lower of Issuer Default Ratings and Senior Unsecured Debt Rating for Fitch
- Rating test earlier
Existing Rule
Rating changes for entities to be included in the index are to be notified by 17:00 hrs London Time on third business day preceding the roll date
New Rule
Rating changes for entities to be included in the index are to be notified by 17:00 hrs London Time on last business day of the month preceding the roll date
- �Incorporated in Europe� specification
�Incorporated in Europe� specification for inclusion in the liquidity poll clarified where �Europe� would be defined as EU and EFTA countries
- �EUR 100 million� cutoff rule for iTraxx Crossover
Existing Rule
Only entities with more than EUR 100 million of publicly traded securities at close of business on the fifth business day preceding the roll date will be eligible for the iTraxx Crossover Index
New Rule
Only entities with more than EUR 100 million of publicly traded debt securities (which shall be taken to exclude loans and equities) at close of business on the fifth business day preceding the roll date will be eligible for the iTraxx Crossover Index
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