Markit, a financial information services company, today announced that it will implement changes to the rules governing the consolidation of prices for the Markit iBoxx indices. These changes are designed to improve the pricing in illiquid and volatile markets.
The Markit iBoxx EUR and Sterling cash bond indices are used by asset managers as a benchmark for investment grade fixed income portfolios. The indices are calculated daily using price contributions from 10 banks that are consolidated by Markit using stringent filters and consolidation algorithms.
Recent volatility and a reduction in liquidity in the fixed income markets has resulted in diminished price contributions and greater variance among prices. This, in turn, has led to the rejection of a greater number of prices due to the Markit iBoxx consolidation rules.
In consultation with price contributors, investors, regulators and industry bodies, and with the approval of the Markit iBoxx Oversight Committee, Markit has updated the rules. As from 29 December, an additional step will be introduced in the calculation of the daily index price whereby a new Control Price [1] will serve as a proxy price for bonds affected by low liquidity or disparate pricing.
Stephan Flagel, managing director and head of Indices at Markit, said: “We have made absolutely sure that the independence, objectivity and transparency of the Markit iBoxx indices is not compromised by any changes made to the pricing processes we have in place today. We are confident we have achieved this with our new rules and believe that the changes will ensure the Markit iBoxx indices remain the benchmark of choice among asset managers, structured products providers and ETF issuers around the world.”
