Presentation on theme: "Markit TRX.NA June 30 th, 2009 Strictly Confidential."— Presentation transcript:
Markit TRX.NA June 30 th, 2009 Strictly Confidential
2 Markit TRX.NA index Total Return Swap Index referencing Markit CMBX.NA.AAA cash constituents from all series Markit is the calculation, marketing, and administrative agent Exposure to cash CMBS via TRS contracts Markit published composites determine daily values & monthly settlement Markit as administrator provides independent 3 rd party oversight and consensus pricing for settlement
3 Benchmark of TRS on CMBS Transparency – Objective, rules-based approach to portfolio construction – Daily prices available on Markit website Standardization – Each index will reference a standardized basket of CMBS reference obligations from the Markit CMBX indices – Standardized documentation for contracts – Monthly payment amounts calculated and posted by Markit – DTCC will offer trade confirmation and settlement
4 Operational Efficiency Trades will confirm over DTCC Standardized settlement calculation Valuation analytics publicly available on Licensed dealers will provide daily closes using streamlined process via Markit website. Standard ISDA trade documentation for TRS as basis for TRX.NA trade agreements.
5 Markit TRX.NA: Indicative terms and conditions Indices: Index Reset Date: The Beginning Index Close Date; Thereafter, the last business day of each month (using a modified following business day convention) Payment Dates: Monthly on the 3 th business day following the Period End Date, adjusted (in accordance with the modified following business day convention) Day Count Basis: 30/360 Interest Amount Upfront:(Spread on TRX.NA.AAA at Index Reset Date) * (Notional Amount) * Index Factor * (Day Count Basis [From Index Reset Date to Transacted Date]) Spread Change Upfront:(The Nominal Spread as of the last Reset Date) – (The Transacted Spread) Interest Amount Period:(Spread on TRX.NA.AAA at Index Reset Date) * (Notional Amount) * Index Factor * (Day Count Basis [From Index Reset Date to Period End Date]) Spread Change Period:(The Nominal Spread as of the last Index Reset Date) – (Nominal Spread as of the close of the current calculation period) Index Spread Return Amount:(Spread Change) * (Duration) * (NotionalAmount) * Index Factor Duration:Average Dollar Duration since prior Index Reset Date Upfront ExchangeUpfront exchange accounts for Interest Amount and Index Spread Return Amount as of the Trade Date
6 Licensed Dealer Contributions Dealers will contribute spreads every business day for each index constituent Markit will publish aggregate composites daily and constituent composites monthly Markit calculates price and duration at index and constituent level Month end spreads are used for fixing & settlement Upfronts are calculated using month end fixings and intraday spreads on the effective date
7 Markit TRX.NA Analytic Markit will provide a tool for market participants to calculate price, duration, and spread sensitivity for TRX.NA contracts Analytic utilizes Trepp cashflows with 0% CPR 0% CDR assumptions Provide 3pm yield curve yield curve to establish market standard and provide consistent outputs via analytic.
8 Trading: XYZ Buys $100MM of TRX.NA.AAA.1.Jun09 Firm XYZ – Long Position Floating Rate Payer If traded spread is less than Reset Date spread (Commencing Index Spread), XYZ pays upfront amount calculated from spread differential and average dollar duration during that period XYZ pays accrued interest from the last Reset Date to the Trade Date based on 30/360 daycount and Commencing Index spread If Ending Index Spread is greater than Commencing Index Spread, XYZ pays product of spread differential and average dollar duration for the calculation period Firm ABC – Short Position Fixed Rate Payer If traded spread is greater than Reset Date spread (Commencing Index Spread), ABC pays upfront amount calculated from spread differential and average dollar duration during the period ABC receives accrued interest from prior Reset Date up until Trade Date based on 30/360 daycount and Commencing Index spread If Ending Index Spread is less than Commencing Index Spread, ABC pays product of spread differential and average dollar duration for the calculation period ABC pays full months accrued interest based on prior Commencing Index Spread and 30/360 daycount
9 TRX.NA.AAA.1.Jun09 Trade Payments Notional Amount: $100,000,000 Trade Date: March 19th, 2009 Effective Date: March 1st, 2009 Termination Date: June 30 th, 2009 First Reset Date:February 28th, 2009 Period End Date: April 1st, 2009 (T+3 swap payment) Commencing Index Spread:+1000 bps Transacted Index Spread:+950 bps Ending Index Spread+800 bps Duration Last Reset Date:3.575 = (Modified Duration) * ($px) / 100 = (5.5) * (65) / 100 Average Duration on Trade Date:3.695 = (Avg Modified Duration 2/28 – 3/19) * (Avg $px 2/28 – 3-19) / 100 Average Duration on Payment Date:3.710 = (Avg Modified Duration 2/28 – 3/31) * (Avg $px 2/28 – 3/31) / 100 Firm XYZ Payments 3/19/09 Upfront Value =(Commencing Date Spread – Traded Spread) * (Avg $Duration) * Notional * Index Factor =(1000 – 950) * (3.695) * 100,000,000 * 1 = $1,847,500 Interest Amount =Commencing Index Spread * Notional * Index Factor * Daycount =1000 bps * 100,000,000 * 1 * (19/360) = $527,778 4/1/2009 Index Spread Return Amount Because the Ending Index Spread is less than the Commencing Index Spread, XYZ does not owe anything Firm ABC Payments 3/19/09 Receives Upfront & Accrued Interest 4/1/2009 Interest Amount =Commencing Index Spread * Daycount * Notional * Index Factor =1000 bps * (30/360) * 100,000,000 * 1 =$833,333 Index Spread Return Amount =(Commencing Index Spread – Ending Index Spread) * Avg $Duration * Notional * Index Factor =(1000 – 800 bps) * * 100,000,000 * 1 =$7,420,000 ABC pays XYZ Interest + Spread Return (Carry Amount): $8,253,333