iTraxx Series Rolls, Versions, and RED Codes
Summary
The document explains how European iTraxx index series are selected, when they roll from on-the-run to off-the-run status, and how constituent credit events affect index versions. A new series is determined every six months based on liquidity, and receives its own RED code. The roll moves the total return exposure from the old contract to the new one at the new contract’s start of trading. The described calculation uses mid prices at 17:00 New York time, so it excludes transaction costs.
The document distinguishes a series change from a version change. A credit event that removes constituents prompts a new version with fewer names and a reduced factor; this applies to off-the-run indexes through maturity as well. It provides a sample publication and trading calendar to illustrate the steps involved in establishing a new series. The details are presented as answers to a market data question, so the calendar is an example from a particular roll, not a universal schedule. The source does not explain the full index calculation or all contract conventions.
Key ideas
- European iTraxx series are selected every six months based on liquidity.
- A newly established series has its own RED code.
- At the roll, total return exposure switches from the old index contract to the new one.
- A credit event that removes constituents creates a new index version with a reduced factor.
- Index versions can continue changing after a series goes off the run.
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Full text
# Properties of an iTraxx index # Properties of an iTraxx index I am working on maintaining the market data of iTraxx indexes in our systems and I have the following questions: - What events prompt change in series and version of an iTraxx index ? Is it after one the constituent moves out of the index or would it happen periodically? - When does an index move from on-the-run to off-the-run? Will the redcode of an index change, when the index makes this transition? ## Answer by Lliane (score 5, accepted) https://quant.stackexchange.com/a/43146 - The European iTraxx indices trade 3, 5, 7 and 10-year maturities, and a new series is determined on the basis of liquidity every six months. For the total return index : The regular roll process from the off-the-run into the new on-the-run index is simple. At any one point only the most recently available index CDS return is included in any one index. The return of the index therefore reflects the value of exiting the long risk position in the old CDX contract and simultaneously entering the new contract at mid at 17:00 New York time on the first day of trading of the new contract. Note that transacting at mid means that transaction costs are not included. http://www.markit.com/Company/Files/DownloadFiles?CMSID=50c7eec5522a45f9bec2ac0248086378 - The new series has its own RED code Here is the calendar for the latest one Date Local Time Action Fri 31.Aug.2018 Cut-off date for CDS liquidity observation period in the DTCC TIW Tue 11.Sep.2018 EOD Markit distributes provisional membership list together with suggested Reference Obligations to iTraxx Market Participants & publishes it on website Wed 12.Sep.2018 EOD Market Participants submit feedback on reference entities and obligations to Markit Thu 13.Sep.2018 17.00 Conference call to agree reference entities, reference obligations, coupons & recovery rates Thu 13.Sep.2018 EOD Markit distributes final membership list and coupons to iTraxx Market Participants & publishes them on website Fri 14.Sep.2018 EOD Markit distributes membership lists to Market Participants which includes Reference Obligations. Mon 17.Sep.2018 EOD Index annexes published on www.markit.com Thu 20.Sep.2018 08.00 Trading - Not before ## Answer by Dimitri Vulis (score 0) https://quant.stackexchange.com/a/44082 To add to Lliane's answer: the index starts out with version 1 and factor 100%. New version is published whenever a credit event removes names from the index. The new version has fewer names and smaller factor. This is done to off the run indices as well, all the way until their maturity.
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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.