About the MAE Index


Introduction



MAE, the Electronic Bond and Forex Exchange of Argentina, has introduced a Fixed-Income Index composed of different goverment securities issued by the National Government and traded on national and international secondary markets.
MAE is Argentina's main fixed-income securites market with an annual trading volume over USD 400.000 million.

Objective

To gain a tool that would show the behaviour of national fixed-income securities in the domestic market. For such aim, efforts were undertaken to develop an index with a composition that accurately mirrors price variation and earned interest and amortization returns. The index was initially composed of a portofolio of medium and long term US dollar-denominated national government securities weighted by amount and market capitalization.

Compared background

The immediate predecessor of the MAE Index is the JP MORGAN EMBI used until the present time as an indicator of country risk.
For analytical comparison purposes, the chart attached shows the most relevant aspects of the indices mentioned:

EMBI

MAE Index

Instruments involved Brady Bonds Brady bonds, medium-term and long term government debt instruments and Global bonds
Countries included Emerging countries Argentina
Elegibility requirements Denominated in USD.

Remainder of the amount of the issue

Equal or higher than USD 500 million.

Denominated in USD.

Remaining capitalization not lower than USD 1.000 million

Maturity of one year or longer.

Liquidity criteria Based on bid/offer spread

Number of brokers that

enter prices.

Based on bid/offer spread

Number of days presenting closing price at MAE.

Liquidity categories 4 5
Prohibition to be included in the index after being excluded. 6 months 4 months
Prices used Bids Average of bids and offers
Time at which prices are taken 3.00 pm (NY) April to October: 3.30 pm (local)

October to April: 4.30 pm (local)

Screens from which the prices are taken Eurobrokers, Tradition, Intercapital medium-term and long-term government debt instruments : offers

Entered by market markets into MAE's screens

Rest: Reuters O#BRADY and O#GLOBAL screens.

In the event that there are no prices in the screens mentioned, 4 market makers chosen at random will be consulted for prices.

If the market makers do not have the prices, then the bond will be assigned the same variation as another bond with similar duration.


MAE Index basic features
  • Included securities:

    Instruments:

. Brady bonds (medium or long term) government debt instruments or Global bonds
. The currency of issue must be US dollars.

ELIGIBILITY:


    1) Basic requirements:
Bond market capitalization must be equal to or higher than USD 1.000 million. Maturity: one year or longer.
    2) Liquidity:
Only securities with a certain liquidity are included. 5 levels of secondary liquidity were defined:

Level

Status

Bid/Offer Spread

Closing price

L1

Very active

50 b

75%

L2

Active

100 b

75%

L3

Traded

200 b

50%

L4

scarcely traded

300 b

25%

L5

Iliquid

= 300 b


    3) Criterion for the inclusion or exclusion of instruments:

Inclusion:

    a) Be eligible.
    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).


  • . 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.

    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.


    (Agentes / Emisores pueden enviar desde aquí las Solicitudes Membresía- Negociación – Avisos – Información General)


    Registro de Contratos OTC
    (Registro de Contratos OTC – art. 10 Capítulo V, Título VI Normas de la Comisión Nacional de Valores (TO 2013))



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