Solactive Canadian Fixed Income Indices | Partial adjustment of selection criteria in the April 2020 Rebalance

Solactive announced an extraordinary dis-application of one selection criteria for Canadian Bond Indices (“Effective time to maturity of not less than 12 months”) for existing index components after we have been approached by clients and have conducted a market consultation (https://www.solactive.com/solactive-canadian-fixed-income-indices-partial-non-application-of-selection-criteria-in-the-april-2020-rebalance/). The reason for the extraordinary was that the Canadian bond markets seemed to be still impacted by the coronavirus crisis effects (constraints on liquidity, wide spreads, high transaction costs etc.).

In addition to the partial non-application of the selection criteria, Solactive is announcing for the April Rebalance the ranking per bucked buffer is increased. This increase is necessary to limit the turnover in the index to a level that can be traded without impact on the process or the respective instruments (taking into account the current market conditions) and at the same time accommodate the objective of the index (please not that the index applies a complex matrix structure to achieve a risk/duration profile comparable to a wider benchmark that aims at replicate  the performance of the Canadian bond market denominated in CAD –  but with a lesser number of constituents).“

For section 2.1.1

                Old version: “ …. Assuming a bond had the highest rank in the last selection and only has the second rank in the current selection, it will be chosen as an index component. Respectively the bond with the first rank will not be included in such a case.”

                New version: “….Assuming a bond had the highest rank in the last selection and only has the second or third rank in the current selection, it will be chosen as an index component. Respectively the bond with the first rank will not be included in such a case.”

For section 2.1.2.

                Old version: “ … If a bond was ranked first in the last selection it will continue to be an index component as long as it’s rank is not reduced by more than one position…”

                New version: “…If a bond was ranked first in the last selection it will continue to be an index component as long as it’s rank is not reduced by more than two positions…”