Methodology change | Solactive Bond Methodology | Effective Date 24.09.2019
Today, on the 11th September 2019, Solactive announces the following changes to the Bond Methodology.
Rationale for methodology change
In some cases, a company is not able to pay its obligations on the regular coupon payment day. In most cases this is only announced after the payment should have taken place. Since our systems always automatically add the paid cash amount into our index calculation, we would show more cash than a holder of the bond would actually have. Therefore, we want to add a corporate action treatment to remove paid cash in cases a company did not actually pay the coupon for all cash collected in the index which was not reinvested yet.
The change would affect all the existing indices that have a reference to the Bond Index Methodology. This change, however, reflects our actual treatment to the indices in case when the cash was paid wrongly. So basically, it is a clarification of our calculation process.
Changes to the Bond Methodology
Addition to ‘2.4.2 Adjustment’ of the Bond Methodology:
“ (…) If the Issuer fails to meet its coupon payment obligation, the bond’s status will be changed to “Flat Trading”.
In case the coupon was added to the paid cash in an index and has not been reinvested at the time the information on the missed payment became available, the cash will be removed for the index going forward.
In the state of Flat Trading, a bond buyer is exempted from the responsibility of paying the interest that (…) ”