Markit IndicesOctober 2018

Markit indices

17,000+ $5trillion+ 500+ $120billion+ 150+Indices Derivative Trades Clients AUM in ETFs ETFs

Outstanding

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Markit’s main suite of tradable and benchmark indices allow investors to gain exposure to and track the performance of multiple asset classes.

Expertise and experience in global asset classes

Asset classes

Bonds Securitised Products Economic

Credit Equity FX

Offering the following services

Services

Custom Thematic iNav

Benchmarks Investment strategies PCF

Liquids Baskets Tradable

iBoxx Indices

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Introduction

Benchmark indices and tradable index products

> Markit’s iBoxx indices offer broad benchmarking and liquid indices which are used as underlying to tradable products.

> Each index utilizes multi-source pricing derived from real-time market color and Markit’s proprietary Evaluated Pricing Service.

> The prices are published for every constituent, together with a range of other analytical information.

> iBoxx rules-based methodologies are publicly disclosed and designed to be replicable.

> Customers have access to index solutions that also support the development of custom indices.

> Transparent constituent-level pricing.

> Users of these indices include: Asset Managers, Hedge Funds, Pensions, Endowments, Private Banks, Distributors, Retail, Credit Portfolio Managers, etc.

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Key strengths

Leading fixed income index provider

> Largest non bank-affiliated bond index provider.

> Global index franchise covering Europe, Asia, and North America.

> Largest bond index provider for ETFs in Asia and Europe with global AUM of $100bn.

Recognized innovator

> Track record for partnering closely with financial institutions to create next generation index products such as alternative weighted indices or the iBoxx standardized Total Return Swaps.

Independence and transparency

> Independent index pricing and design make iBoxx the perfect underlying for tradable products.

> Full transparency on index methodologies and data.

Unique content

> Markit’s evaluated pricing service covers 90k bonds globally and over 18k bonds in our indices.

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Types of indices

Broad indices

> High level representation of the investment opportunity set.

> Market cap weighted comprising a large number of underlying securities.

Liquid indices

> Contain the most liquid issued securities.

> Provide a significant reduction in transaction, tracking and hedging costs.

> Basis for financial products such as ETFs, OTC derivatives and structured products.

Custom indices

> Provide clients with the flexibility to customize Markit iBoxx indices to meet their unique requirements.

> Clients can customize the index composition, index calculation methodology and index distribution.

> Markit produces over 800 custom indices for 70+ clients.

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iBoxx Index Families Coverage

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> Global index franchise covering Europe, America, and Asia.

> Covering major currencies and segments of fixed income.

> Provides data to support performance evaluation, ETFs, tradable products, fixed income research and asset allocation.

Regulatory Overview

> All IHS Markit benchmarks are administered in accordance with IOSCO principles.

> The Principles represent a set of practices that should be implemented by Benchmark Administrators and Submitters, including benchmark governance, quality, and accountability mechanisms.

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> July 9, 2018 – IHS Markit approved by Financial Conduct Authority (FCA) as an authorized benchmark administrator.

> Continuity in referencing iBoxx indices and other IHS Markit indices under BMR.

> IHS Markit is an early adopter committed to apply BMR protocols ahead of the transition period ending in 2020.

> IHS Markit is recorded on the ESMA Register of Benchmark Administrators.

IOSCO compliant

EU Benchmark Regulation (BMR)

BMR

iBoxx Standardized Total Return Swaps

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Markit standardized iBoxx TRS overview

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> Markit iBoxx Standardized Total Return Swaps provide market participants with an effective way to get direct and standardised exposure to Markit’s global iBoxx indices.

> Utilizes standard trading documentation, including standard term supplement and short form confirmation.

> Trades referencing 2006 ISDA Credit Definitions.

> The instruments cover Euro, Sterling as well as USD investment grade and high yield bond, leveraged loan and CMBS markets.

Indexseller

Indexbuyer

final level – initial level

initial level

3 Month Libor

1. In the TRS format the index buyer receives the index performance at maturity vs 3 month Libor

2. Dealer will quote the index Initial Level (live bid/offer) and the Libor leg spread level

3. The Final Level is the official closing level on the maturity of the swap

iBoxx indices used in TRS contracts

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Index name RED ID BBG

Markit iBoxx EUR Contingent Convertible Liquid Developed Market AT1 4J624GAA3 IBXXC2D1

Markit iBoxx USD Contingent Convertible Liquid Developed Market AT1 4J624DAA0 IBXXC1D1

iBoxx EUR Corporates 4J623OAA7 QW5A

iBoxx EUR Liquid High Yield Index 4J623RAA0 IBOXXMJA

iBoxx GBP Corporates 4J623NAA9 IYDU

iBoxx USD Liquid High Yield Index 4J623JAA8 IBOXHY

iBoxx USD Liquid Investment Grade 4J622TAA7 ICPRDOV

iBoxx USD Liquid Leveraged Loans Index 4J623WAA9 IBXXLLTR

iBoxx USD Liquid High Yield Oil & Gas (5/25/50 Issuer Cap) 4J624NAA8 IBXXLOG1

iBoxx USD Liquid Investment Grade 10+ Index 4J624PAA3 IBXXLIG1

Markit iBoxx Total Return Swaps key benefits

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Standardised Total Return Swap (TRS) contracts enable investors to gain or hedge exposure to the corporate bond and leveraged loan markets easily and efficiently.

> Zero tracking error to cash.

> Efficient alternative to trading large quantities of individual bonds or loans.

> Each index is market weighted with coupon re-investment.

> TRS Contracts trade in 3 month standard intervals creating higher liquidity around expiration months.

> Leverage opportunity as swaps are unfunded.

> Daily and historical data is available via Bloomberg and Thomson Reuters, FTP, and Markit’s private website, and a variety of other third-party data provider platforms.

> Unlike CDS indices, the iBoxx indices factor in the interest rate component of cash bonds.

Standardised TRS $ notional volume* volume are risk transfer trades only

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Market participants trading iBoxx TRS

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Ten licensed iBoxx TRS market makers

Over 200 active market participants

> Bank of America Merrill Lynch

> Deutsche Bank

> Barclays (IG) > Goldman Sachs> BNP Paribas > J.P. Morgan> Citigroup > Morgan Stanley & Co.

International plc> Credit Suisse International > Société Générale

Appendix

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iBoxx HY index example as of Jul 2nd 2016

Index Buyer

Enters into a 02-Jul-16 Contract

Pays running 3m$LIBOR (Q, ACT/360)

Receives (02-Jul-14 + 3 BD) a final payment equal to (Final Level – 234.25) / 234.25

Upfront Fee

Receives accrued (3m$Libor)*((trade date –prior IMM date + 1 calendar day)/(day count convention))*(notional)

Index Seller

Receives running 3m$LIBOR (Q, ACT/360) Pays (02-Jul-16 + 3 BD)

Pays a final payment equal to (Final Level –233.20) / 233.20

Upfront Fee

Pays accrued (3m$Libor)*((trade date –prior IMM date + 1 calendar day)/(day count convention))*(notional)

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TRS expiry Entry levels Last NAV: 232.0920-Mar-14 232.40 / 233.35 Funding: 3m$LIBOR Flat20-Jun-14 233.20 / 234.2520-Sep-14 233.60 / 234.75 20-Dec-14 233.80 / 235.25

Markit iBoxx TRS vs. Other Market Instruments

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Instrument Funding

Interest

Rate Risk Liquidity

Diversified

Exposure

Establishing

Size position

Can Be

Shorted?

Tracking

Bond/Loan Market?

Cash Bonds Funded Yes Medium No unless in

a diversified

portfolio

Time

consuming

Difficult Yes, if representative

portfolio

ETFs Funded Yes Medium Yes Difficult Yes Yes

Markit

iBoxx TRS

Unfunded Yes Medium Yes Easy Yes Yes

Single-

name CDS

Unfunded No Medium No unless in

a diversified

portfolio

Time

consuming

Yes No (basis)

CDS Indices Unfunded No High* Yes Easy Yes No (basis)

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Disclaimer

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2016-08-04