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Included securities:
Instruments:
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Brady bonds (medium or long term) government debt instruments or Global bonds
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The currency of issue must be US dollars.
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ELIGIBILITY:
Bond market capitalization must be equal to or higher than USD 1.000 million.
Maturity: one year or longer.
Only securities with a certain liquidity are included.
5 levels of secondary liquidity were defined:
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Level
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Status
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Bid/Offer Spread
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Closing price
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L1
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Very active
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50 b
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75%
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L2
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Active
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100 b
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75%
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L3
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Traded
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200 b
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50%
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L4
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scarcely traded
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300 b
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25%
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L5
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Iliquid
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= 300 b
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3) Criterion for the inclusion or exclusion of instruments:
Inclusion:
b) Be liquid; with L1, L2 (first month of attaining the level) or L3 (third consecutive month of attaining the level) levels
Exclusion:
a) First month in attaining level L5 or third consecutive month in attaining level L4.
In order to enhance the stability of the index composition, an bond that was excluded can only be included again after 4 months of exclusion
4) Weighting:
Double:
By amount: traded during the previous month (70% weight).
By market capitalization (30% weight).
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. Return measures daily quote variations plus run interest.
. Index variation is calculated applying the result of double weighting to price variation plus run interest for each bond.
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5) Rebalance
Cash payments are reinvested for index calculation purposes in the exact payment date.
Rebalancing (which is performed on the last business day of each month) is necessary in the following cases:
. When it is decided to remove a bond from the index
. When the government increases the issue of a bond included in the index, thus varing the bond's weight.
. To recalculate weight by traded volume.
In all three cases, the rebalance has an impact on each bond's weight, but does not produce changes in the value of the porfolio.
6) Index daily calculation
Procedure:
1. Selection of clean prices
. For bontes: use the average of all bids and offers placed by market markers and displayed on MAE's trade screen in Buenos Aires (time 15.30)
. For the rest of the bonds: use the average of the bid and the offer displayed on Reuters' BBO screen at 15.30 local time. (0#brady and 0# global screens).
2. Calculation of dirty prices
Clean prices plus accrued interest according to issue clause and following calendar conventions for the calculation of accrued interest.
3. Calculation of prices variations
The price variation of each bond results from calculating the pecentage variation between the dirty prices at the current day and the previous business day for each bond included in the index. (For this purpose, business day shall mean day with trading activity on US and MAE bond markets.
4. Fixing of the Index daily variation
Application of each bond's price variation obtained as indicated above plus the weight percentage (resulting from double weighting as explained in section 4) corresponding to each bond for the month, plus weighted variations.
5. Determination of the index value
The Index value results from applying the index daily variation to the the index value at the previous business day.
7) Contingencies
In the event that a given bond has no prices, 4 market makers chosen at random will be consulted for the relevant price . If the market makers do not have the prices, then the bond will be assigned the same variation as another bond with similar duration.
During US Daylight Saving Time (form October to April), prices and speards will be taken at 4.30 pm.
Procedure for holidays: the index shall not be calculated on Argentine or US holidays.
Calculation of run interests: Since the prices used to determine index variation correspond to trades with a T+3 settlement period, the settlement date and the intereses to be added to the clean price will be calculated using the US calendar.
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