Ground Rules

FTSE China Onshore Bond Index Series v1.3

ftserussell.com

November 2016

Contents 1.0

Introduction ..........................................................................3

2.0

Management Responsibilities ............................................5

3.0

Eligibility of Securities ........................................................6

4.0

Index Calculation .................................................................8

5.0

Periodic Review of Constituents ...................................... 10

Appendix A: List of Sub-Indexes ...............................................11 Appendix B: Further Information ...............................................12

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Section 1

Introduction 1.0

Introduction

1.1

FTSE China Onshore Bond Index Series

1.1.1

This document sets out the Ground Rules for the construction and management of the FTSE China Onshore Bond Index Series.

1.1.2

The FTSE China Onshore Bond Index Series consists of the following indexes: • • •

1.1.3

FTSE China Onshore Sovereign and Policy Bank Bond Index FTSE China Onshore Sovereign Bond Index FTSE China Onshore Policy Bank Bond Index

Each of the indexes in 1.1.2 has the following maturity breakdowns. • • • • •

0 1 4 7 1

-

10 Year Index 4 Year Index 7 Year Index 10 Year Index 10 Year Index

Using the 1-4 Year Index as an example, the Index will include bonds that have a remaining maturity greater than 1 year, but less than or equal to 4 years. 1.1.4

A comprehensive list of indexes in the series is available in Appendix A.

1.2

Index Series Objective

1.2.1

The objective is to provide a series of indexes that track the performance of RMB-denominated bonds issued and settled in the People’s Republic of China.

1.3

Index Calculation

1.3.1

The FTSE China Onshore Bond Index Series is calculated on an end-of-day basis and published at the end of each Chinese business day.

1.3.2

The base currency of the index series is Chinese Yuan (CNY). Indexes in this series are also calculated in US dollars (USD) and HK dollars (HKD).

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1.4

Index Methodology

1.4.1

The FTSE China Onshore Bond Index Series aims to measure the performance of RMB-denominated bonds issued and settled in the People’s Republic of China. The indexes are reviewed on a monthly basis. Bonds can be removed or added to the indexes at the review.

1.5

FTSE Russell FTSE Russell is a trading name of FTSE International Limited (FTSE), Frank Russell Company (Russell), FTSE TMX Global Debt Capital Markets Inc. and FTSE TMX Global Debt Capital Markets Limited (together, “FTSE TMX”) and MTSNext Limited. FTSE, Russell and FTSE TMX are each benchmark administrators of indexes. References to FTSE Russell should be interpreted as a reference to the relevant benchmark administrator for the relevant index.

1.6

FTSE TMX hereby notifies users of the benchmark that it is possible that circumstances, including external events beyond the control of FTSE TMX, may necessitate changes to, or the cessation of, the benchmark and therefore, any financial contracts or other financial instruments that reference the benchmark should be able to withstand, or otherwise address the possibility of changes to, or cessation of, the benchmark.

1.7

Index users who choose to follow this index series or to buy products that claim to follow this index series should assess the merits of the index series 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 TMX 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: • • • •

1.8

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 series or any constituent data.

Statement of Principles for FTSE Russell Market Capitalisation Weighted Equity Indexes (the Statement of Principles) Indexes need to keep abreast of changing markets and the Ground Rules cannot anticipate every eventuality. Where the Ground Rules do not fully cover a specific event or development, FTSE Russell will determine the appropriate treatment by reference to the Statement of Principles 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 FTSE Russell’s Governance Board. The Statement of Principles can be accessed using the following link: Statement_of_Principles.pdf

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Section 2

Management Responsibilities 2.0

Management Responsibilities

2.1

FTSE TMX Global Debt Capital Markets

2.1.1

FTSE TMX Global Debt Capital Markets (FTSE TMX) is responsible for the operation of the FTSE China Onshore Bond Index Series, including the daily calculation of the index series values in accordance with these Ground Rules. FTSE TMX maintains records of all the constituents and is responsible for the addition and deletion of bonds and changes of nominal amounts in accordance with these Ground Rules.

2.1.2

These Ground Rules set out the methodology and provide information about the publication of the FTSE China Onshore Bond Index Series.

2.2

FTSE Asia Pacific Bond Indexes Advisory Committee

2.2.1

The FTSE Asia Pacific Bond Indexes Advisory Committee was established by FTSE Russell.

2.2.2

The purpose of the Committee is to provide a forum for FTSE Russell to interact with index users and other stakeholders with a view to enhancing the underlying methodologies of FTSE Russell indexes.

2.2.3

The Terms of Reference of the FTSE Asia Pacific Bond Indexes Advisory Committee are set out on the FTSE Russell website and can be accessed using the following link: FTSE_Asia_Pacific_Bond_Indices_Advisory_Committee.pdf

2.3

Amendments to these Ground Rules

2.3.1

These Ground Rules shall be subject to regular review 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 Governance Board before approval is granted.

2.3.2

As provided for in Rule 1.8, where FTSE Russell determines that the Ground Rules are silent or do not specifically and unambiguously apply to the subject matter of any decision, any decision shall be based as far as practical on the Statement of Principles. After making any such determination, FTSE Russell shall advise the market of its decision at the earliest opportunity. Any such treatment will not be considered as an exception or change to the Ground Rules, or to set a precedent for future action, but FTSE Russell will consider whether the Ground Rules should subsequently be updated to provide greater clarity.

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Section 3

Eligibility of Securities 3.0

Eligibility of Securities

3.1

Security Type

3.1.1

All RMB-denominated bonds that are issued and settled within the People’s Republic of China will be included as the starting universe.

3.1.2

Fixed rate bonds and zeros are included. The following bonds are excluded from the indexes: • • • • • • • • •

Bonds with equity-type features (e.g. warrants, convertibles and contingent capital securities) Bonds with option-type features (e.g. callable and putable). For the avoidance of doubt, this does not include bonds with make-whole call provisions or poison puts which are eligible. Certificates of deposit Floating rate notes Inflation-linked bonds Securitised bonds (e.g. MBS, ABS and covered) Private placements or bonds without a reliable daily pricing source Default bonds Special Government Bond

3.2

Issuer

3.2.1

The eligible issuers of each index are shown in the table below: Index

Eligible Issuers

FTSE China Onshore Sovereign and Policy Bank Bond Index

China’s Central Government, China Development Bank, the Agricultural Development Bank of China, and the ExportImport Bank of China China’s Central Government

FTSE China Onshore Sovereign Bond Index FTSE China Onshore Policy Bank Bond Index

China Development Bank, the Agricultural Development Bank of China, and the Export-Import Bank of China

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3.3

Minimum Size

3.3.1

Bonds issued by China’s Central Government must have an amount outstanding of at least RMB 20 billion in order to be eligible for inclusion.

3.3.2

Bonds issued by policy banks must have an amount outstanding of at least RMB 10 billion in order to be eligible for inclusion.

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Section 4

Index Calculation 4.0

Index Calculation

4.1

Price Sources

4.1.1

The following table lists the price sources for the index series. Index Subsector

Primary Price Source

Additional Price Source(s)

Onshore RMB – Government and Policy Banks

China Foreign Exchange Trade System (CFETS) – Mid Quote

Shenzhen Securities Information Co., Ltd (SSI) – evaluated Mid * Price

*SSI Evaluated pricing methodology is available at: http://www.cnindex.com.cn/en/information/bondvaluation/ 4.1.2

The Primary Price Source will provide the initial valuation of the index constituents. If there is no Primary Price for a bond on any day, or the Primary Price is determined to be stale or off-market, the Additional Price Source (if applicable) will be used for that day.

4.1.3

Potentially stale prices will be identified as prices which do not have any change between one day and the next, for three consecutive days. Off-market prices will be identified as moving beyond a preset threshold away from the Additional Price Source (if applicable). The thresholds will vary depending on the bond maturity, issuer and sector.

4.2

Calculation Schedule

4.2.1

All FTSE China Onshore Bond Indexes are calculated at the end of each Chinese business day.

4.2.2

The index will be calculated and disseminated at 23.30 local China time on every Chinese business day.

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4.3

Bond and Index Level Calculations Price and total return indexes are calculated for each Index Series. Additionally, the following analytics will be calculated at the index or individual constituent level: • • • • • • • • • •

Coupon Semi and Annual Yield Time to Maturity Macaulay Duration Modified Duration Modified Convexity Notional/Market Value Accrued Interest Cash Payments The number of bonds in each Index

For details of the calculation methodology 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 4.4

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.

4.5

Index Weighting The indexes will be market value weighted, meaning that the weight of each bond in the indexes will be dependent on the notional amount outstanding, its price and any accrued interest.

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Section 5

Periodic Review of Constituents 5.0

Periodic Review of Constituents

5.1

Review Dates

5.1.1

All indexes in the FTSE China Onshore Bond Index Series are rebalanced after the close of last business day of every month (rebalancing date). The cut-off date for the selection of the index constituents is the close of business five 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

5.2.1

New issues are included in the indexes once a month after the close of the last business day of the month, provided that the terms are known by the selection cut-off date, as defined above.

5.3

Removal of Constituents

5.3.1

Bonds are removed from the indexes at the end of the month after the close of last business day (implementation date), if they no longer meet the eligibility criteria.

5.4

Alterations to Constituents

5.4.1

The following events are implemented on their effective date: •

Unscheduled redemptions or repurchases

•

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, are implemented after the close of the last business day of the month. 5.4.2

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.

5.5

Announcement of the Review Results

5.5.1

The review results will be announced five business days prior to the implementation date. In the event of extended public holidays such as the Chinese New Year, a minimum of three business days will be provided.

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Appendix A: List of Sub-Indexes Below is a list of the indexes that are calculated as a part of the FTSE China Onshore Bond Index Series.

FTSE China Onshore Sovereign and Policy Bank Bond Indexes: FTSE China Onshore Sovereign and Policy Bank Bond 0 – 10 Year Index FTSE China Onshore Sovereign and Policy Bank Bond 1 – 4 Year Index FTSE China Onshore Sovereign and Policy Bank Bond 4 – 7 Year Index FTSE China Onshore Sovereign and Policy Bank Bond 7 – 10 Year Index FTSE China Onshore Sovereign and Policy Bank Bond 1 – 10 Year Index FTSE China Onshore Sovereign Bond Indexes: FTSE China Onshore Sovereign Bond 0 – 10 Year Index FTSE China Onshore Sovereign Bond 1 – 4 Year Index FTSE China Onshore Sovereign Bond 4 – 7 Year Index FTSE China Onshore Sovereign Bond 7 – 10 Year Index FTSE China Onshore Sovereign Bond 1 – 10 Year Index FTSE China Onshore Policy Bank Bond Indexes: FTSE China Onshore Policy Bank Bond 0 – 10 Year Index FTSE China Onshore Policy Bank Bond 1 – 4 Year Index FTSE China Onshore Policy Bank Bond 4 – 7 Year Index FTSE China Onshore Policy Bank Bond 7 – 10 Year Index FTSE China Onshore Policy Bank Bond 1 – 10 Year Index

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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 China Onshore Bond Index Series please visit www.ftserussell.com or email [email protected]. Contact details can also be found on this website.

© 2016 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 TMX Global Debt Capital Markets Inc. and FTSE TMX Global Debt Capital Markets Limited (together, “FTSE TMX”) and (4) MTSNext Limited (“MTSNext”). All rights reserved. The FTSE China Onshore Bond Index Series is calculated by FTSE or its agent. All rights in the Index Series vest in FTSE. FTSE Russell® is a trading name of FTSE, Russell, FTSE TMX and MTS Next Limited. “FTSE®”, “Russell®”, “FTSE Russell®” “MTS®”, “FTSE TMX®”, “FTSE4Good®” and “ICB®” 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, or FTSE TMX. 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 China Onshore 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 TMX, MTSNext and/or their respective licensors.

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