Maintenance of adjusted Bloomberg-generated Peso benchmarks
Background:
With HSBC’s decision to pull out HSLI benchmarks on April 29, 2016, asset managers across various industries were forced to find replacement benchmarks for their investment funds. Bloomberg’s Philippine Peso Bond Indices are among available alternatives. Bloomberg Peso Bond Indices include sovereign (overall), 1-3y, 1-5y and 5+y indices. The description and characteristics of said benchmarks are readily available in the relevant Bloomberg pages for transparency.
As with some of the other benchmark providers, Bloomberg standard benchmarks (BMs)require adjustments to better fit regulatory requirements and conventions of our local financial market. Such adjustments include:
- Pricing source for marking-to-market (from BVAL to R2-net); and
- Application of withholding taxes on coupons.
Bloomberg representatives have kindly installed a worksheet in the portfolio administration page of our Bloomberg terminals to enable concerned institutions to make required adjustments on their own. Comprehensive procedure guides and training were likewise provided.
Nevertheless, the FMAP and TOAP Boards would like to make the process more robust by formalizing a process through which individual members can validate their calculated adjustments.
Proposal:
To institutionalize a process by which asset managers can compare their Bloomberg benchmark adjustments, FMAP and TOAP shall independently calculate the adjusted Bloomberg indices, compare results, and publish validated index calculations in their respective websites. FMAP will act as the “maker” and TOAP as the “checker”. Within FMAP and TOAP, two institutional members from each association will take on maker and checker functions.
During the initial period, Bloomberg will run parallel calculations.
Specific procedures are as follows:
1) Internal
On a daily basis before 9:30am, the two FMAP representatives (as makers) will generate the previous day’s data in Bloomberg for the various indices in their respective Bloomberg terminals and check against each other. On the other hand, the two TOAP reps (as checkers) will likewise generate the indices and compare against each other.
During the initial generation of the adjustments, the following institutions shall be the designated Makers/Checkers:
*FMAP Representatives:
- Metrobank Trust (MBTC TBG) –Stan Lee (rep), Elaine Buday (backup)
- ATRKE Asset Management (ATRAM) – Timothy Reyes (rep), Miguel Liboro (backup)
*TOAP Representatives:
- Unionbank Trust (UBP Trust) – Tiffanie Cheung
- Eastwest Bank Trust (EWB Trust) –Ian Billones
Specifically, MBTC TBG will run the indices and call ATRKE Asset Management for comparison. Then, the ATRAM rep will call the TOAP reps for checking. There will be the same maker-checker arrangement between UBP Trust and EWB Trust as TOAP reps.
Within FMAP/TOAP, we will encourage other institutions to participate as maker/checker and have rotating assignments every 3 months, or such period which may be agreed upon between FMAP and TOAP until possible turnover to an independent 3rd party index provider.
2) External
For a daily publishing of the benchmarks in both the FMAP and TOAP websites, the FMAP representative (ATRAM) willsend the indices to TOAP by 10am for checking. TOAP will coordinate with the FMAP rep in case of any discrepancies within the morning. Once confirmed, FMAP/TOAP may publish the previous day’s indices by 12nn.
3) Data to be published
The following data shall be published in the respective FMAP/TOAP websites for the specified indices:
- YTD (since inception 03/31/16) Return
- Monthly return (archived for each month)
- MTD return
- Week-on-week (WoW) Return. Posted on Monday for last Friday vs previous Friday (i.e. post on 10/17 for 10/14 vs 10/07 return)
- Index levels
FMAP and TOAP may agree on any changes on the data to be published as they may deem fit.
4) Errors and Potential Liability
FMAP and TOAP recognize the possibility of errors in the generation of the adjusted indices. As such, certain measures shall be adopted to prevent such errors and avoid any potential liabilities which may arise:
a) The presence of a maker/checker setup between 4 different associations with validation from Bloomberg minimizes the probability of error.
b) Conflict of interest is addressed by rotating between the current makers/checkers as well as assignment to other member-institutions of the index adjustment roles.
c) The institutions may from time to time agree on periodic sense checks against the performance of other Philippine Bond indices – which include BPI, MarkIt and Citibank indices – as may be practicable
d) Inclusion of a disclaimer in the published data on the FMAP/TOAP websites (see Annex A)
e) Publication of the methodology used for the adjustment process in the FMAP/TOAP websites.
5) Resolution of Queries and Complaints
In cases where an FMAP or TOAP institution has queries regarding the benchmarks, it can contact the representatives of the assigned institutions.
Any other complaints or disputes not resolved by the assignedinstitutions shall be referred to the FMAP and TOAP boards for resolution.
What makes it different?
To see a comparison of the Bloomberg benchmark indices against other existing indices, click here to access the presentation.
Annex A (Disclaimer)
While the information contained in this site has been presented with all due care, FMAP/TOAP does not warrant or represent that such information is free from errors or omission.
Such information is made available on the understanding that the FMAP/TOAP and its employees, agents, member-institutions (including its representatives and employees) and Board members shall have no liability (including liability by reason of negligence) to the users for any loss, damage, cost or expense incurred or arising by reason of any person using or relying on such information and whether caused by reason of any error, negligent act, omission or misrepresentation of such information or otherwise.