Markit iBoxx Total Return

Swaps
Full First Coupon Trading Convention / Thursday, April 28, 2016

Copyright © 2016 Markit Ltd

Full First Coupon iBoxx TRS

Introduction 3

iBoxx Standardised TRS 3

Introduction of the Full First Coupon 4

Floating Rate Determination 4

Initial Payment Amount and Accrual 5

TRS Trade and Accrued Example 7

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Full First Coupon iBoxx TRS

Introduction

The intention of this document is to provide an outline of how Standardised iBoxx Total Return Swaps (TRS)
trade under the Full First Coupon methodology.

The purpose of the document is purely explanatory and in no way should statements made or examples
provided within the document impact or govern trading documentation published by Markit.

iBoxx Standardised TRS

Standardised iBoxx TRS offer the possibility to take a synthetic long or short position on iBoxx indices. The
Index Buyer receives the total return of the index referenced in the trade, which is paid out at maturity. In
return the Index Buyer pays the Index Seller the funding cost of 3m Libor flat. The Floating Rate amount is
paid on each International Monetary Market Date (IMM), following the IMM credit market convention. For
trades exceeding one IMM quarter in duration multiple Floating Rate payments are due.

Standardised iBoxx TRS trade with set maturity dates which are the business day adjusted IMM dates –
th
Mar/Jun/Sep/ Dec 20 . Contracts are traded with set 3 month maturity intervals. The shortest dated 3 month
contract references the next IMM date, which means the 3 month contract always has 3 months or less in
maturity. Common maturities that are quoted are 3, 6, 9 and 12 months.

Example:

On 12 Apr 2016 a market maker sends quotes for the 4 different contracts in the following format:

Maturity Date BID/ASK

Jun-16 228.8750/229.3750

Sep-16 228.9375/229.4375

Dec-16 228.8750/229.5000

Mar-17 228.8750/229.6250

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Full First Coupon iBoxx TRS

Introduction of the Full First Coupon

Standardised iBoxx TRS were launched in 2012, and have since grown rapidly, with 7 dealers quoting, and
$5.5BN of average monthly notional being traded. To accommodate the needs of this growing market, on
the March 21, 2016 the Full First Coupon trading convention was introduced to allow for increased trade
fungibility and simplified coupon processing.

The following updated trading documents have been published on the iBoxx TRS Website:

- Standard Terms Supplement February 2015

- Confirmation February 2015

Under the Full First Coupon convention all Floating Rate payments made by Index Buyers are for the entire
IMM quarter, regardless of when the trade is executed within the initial IMM quarter. In the Initial Calculation
Period, meaning the IMM quarter in which the trade is struck, an Initial Payment is made by the Index Seller
to the Index Buyer to compensate for the Floating Rate overpayment that the Index Buyer will make at the
end of the Initial Period. This initial payment is equal to the accrued from the starting IMM date of the initial
quarter through to the Effective Date. As a result, all trades within a given period reference the same Libor
rate and pay the same coupon, simplifying the trade process.

Floating Rate Determination

The Floating Rate for all trades is set at the IMM date that precedes the Trade Date. For long dated trades,
meaning trades that exceed one IMM quarter, the Floating Rate resets at each IMM date.

The applicable rate for the Floating Leg in each IMM quarter is determined by the index currency on which
the TRS is traded. For example, a TRS on iBoxx USD Liquid High Yield would be funded with 3 month
$Libor. The selection of the applicable rate follows the fixing convention outlined in the 2006 ISDA Definitions
for the relevant Floating Rate.

Examples:

Index
IMM Date Libor Fix Date Currency Libor Publication Used as per 2006 Definitions
22-Jun-15 18-Jun-15 USD IMM Date minus 2 Business Days
22-Jun-15 22-Jun-15 GBP IMM Date
21-Sep-15 17-Sep-15 EUR IMM Date minus 2 Business Days

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Full First Coupon iBoxx TRS

Initial Payment Amount and Accrual

All Coupon amounts and payment dates are determined by set parameters:

Trade Date Date on which trade is agreed

Effective Date Trade Date +1 Calendar Day

th
Quarterly IMM Dates Dec/Mar/Jun/Sep 20 or the following Business Day

Day Count Convention ACT/360 for EUR and USD, ACT/365 for GBP

Floating Rate Relevant Libor Rate for IMM Quarter (Confirmation is only
populated with the Floating Rate for Initial Calculation Period)

Initial Payment Date The date on which the Initial Payment Amount is paid 3
Business Days after the Trade Date

Final Fixing Date Specified in the trade confirmation, IMM date on which the
trade pay-out is determined

Index Return Amount Payment Date 3 Business after the Final Fixing Date

Floating rate accrued for any IMM period IMM date (inclusively) to next IMM date (exclusively)
that is not Final period of swap

Floating rate accrued for any IMM period IMM date (inclusively) to next IMM date (inclusively)
that is Final period of swap

Floating Rate Payer Payment Date for any IMM Date that brings the relevant IMM Quarter to an end
IMM period that is not Final period of swap

Floating Rate Payer Payment Date for any The Index Return Payment Date which is 3 Business Days
IMM period that is Final period of swap
after the Final Fixing Date

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Full First Coupon iBoxx TRS

Initial Payment Amount

Index Accrued

Where the Floating Rate Payer Payment Date for any IMM period is not the Final period of swap

Where the Floating Rate Payer Payment Date for any IMM period is the Final period of swap

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Full First Coupon iBoxx TRS

TRS Trade and Accrued Example

Trade date: 10-Feb-16

Effective date: 11-Feb-16
Index: Markit iBoxx USD Liquid HY
Currency: USD
Notional: $10mm
Initial Fixing Amount (Strike): 210.10
Initial Payment Amount: $8567
Floating rate: 3mLibor USD
Scheduled Final Fixing Date: 21-Mar-16
Libor for period: 0.5931% (17-Dec-15)
End of day index level on 21-Mar-16: 228.4587

Cost paid by Index Buyer:

Total Return Leg:

( )

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Full First Coupon iBoxx TRS

Accrual and Initial Payment Amount Examples:

Short dated iBoxx TRS trade 3 month contract:

Index Currency
USD
Trade Date Effective Date
01-Apr-16 02-Apr-16
Final fixing Date Initial Payment Date
20-Jun-16 06-Apr-16
3mUSDLibor(17-Mar-2016) Initial IMM Date
0.6234% 21-Mar-16
Notional Index Return Amount Payment Date
$10000000 23-Jun-16
Initial Payment Amount Initial Payment Day Count
$2078 12
Floating Rate Payment Floating Rate Day Count
$15931.33 92

Long dated iBoxx TRS trade 6 month contract:

Index Currency
USD
Trade Date Effective Date
17-Dec-15 18-Dec-15
Final fixing Date Initial Payment Date
21-Mar-16 22-Dec-15
1st 3mUSDLibor(17-Sep-15) Initial IMM Date
0.3451% 21-Sep-15
2nd 3mUSDLibor(17-Dec-15) 2nd IMM Date
0.5931% 21-Dec-15
Notional Index Return Amount Payment Date
10000000 24-Mar-16
Initial Payment Amount Initial Payment Day Count
8435.78 88
1st Floating Rate Payment 1st Floating Rate Day Count
8723.36 91
2nd Floating Rate Payment 2nd Floating Rate Day Count
15157 92

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Full First Coupon iBoxx TRS

Short dated iBoxx TRS trade 3 month contract executed on expiry date:

Index Currency
USD
Trade Date Effective Date
21-Mar-16 22-Mar-16
Final fixing Date Initial Payment Date
21-Mar-16 24-Mar-16
3mUSDLibor(17-DEC-15) IMM Date
0.5931% 21-Dec-15
Notional Index Return Amount Payment Date
10000000 24-Mar-16
Initial Payment Amount Initial Payment Day Count
15157 92
Floating Rate Payment Floating Rate Day Count
15157 92

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Full First Coupon iBoxx TRS

Contact Details

U.S. Shahzeb Rao

+1 646 257 2719

shahzeb.rao@markit.com

Nicholas Godec

+1 646 679 3181

nicholas.godec@markit.com

Europe Frans Scheepers, CFA

+44 (0)20 7260 2429

frans.scheepers@markit.com

Max Ruscher

+44 (0)20 7260 2063

max.ruscher@markit.com

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Full First Coupon iBoxx TRS

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