Markit has indicated that it is implementing changes to the rules governing the consolidation of prices for its iBoxx indices. According to the vendor, these changes are aimed at improving the pricing in illiquid and volatile markets.
The Markit iBoxx EUR and Sterling cash bond indices are used by asset managers as a benchmark for investment grade fixed income portfolios. The indices are calculated daily using price contributions from 10 banks that are consolidated by Markit using filters and consolidation algorithms, according to the vendor.
Markit says that recent volatility and a reduction in liquidity in the fixed income markets have resulted in diminished price contributions and greater variance among prices. This, in turn, has led to the rejection of a greater number of prices due to the Markit iBoxx consolidation rules.
In order to tackle this issue and in consultation with price contributors, investors, regulators and industry bodies, Markit has updated these rules. It has introduced an additional step in the calculation of the daily index price whereby a new control price will serve as a proxy price for bonds affected by low liquidity or disparate pricing.