Concept and characteristics of SDXGroup Indices

Official name of the index in English: Slovak Bond Indices Group

Official name of the index in Slovak: Skupina Slovenských Dlhopisových Indexov

Official abbreviation of the index: SDXGroup, SDXG

Basis value of the index: 100 percentage points (100%)

Referential date of the index: 1 January 2004

1 SDXGroup description

SDXGroup represents a group (family) of proportional indices. Each index from the group is a two-component index, with the first component being a price index and the second component being expressed by a performance index. SDXGroup belongs to weighted indices, where the weights of base components are proportional to the size of their issues according to Pasche’s method. The price index compares the market prices of a selected set of debt issues (base issues) with the market prices of the same set of base issues as of a referential day. Unlike the price index, the performance index follows - in addition to the changes of market prices - also capital yields flowing to the set of base issues, and compares them as of the referential day. It means that while the price index follows solely the price movements on the capital market, the value of the performance index is influenced by the changes of prices and by capital yields (accumulated interest, coupon rates), provided that they are reinvested back in the base of the index.

2 SDXGroup structure

2.1 SDXGroup classification by sectors

According to the classification by sectors, each pair of indices (the price SDXG and the performance SDXG) is divided into a public sector and a non-public sector. The public sector is represented solely by the SDXG for government bonds, whereas the non-public (private) sector is represented by 3 index pairs in the following order: SDXG for corporate bonds, SDXG for bank bonds and SDXG for mortgage bonds.

2.2 SDXGroup according to period to maturity (residual maturity)

Each pair of SDXGroup indices (the price SDXG and the performance SDXG) is further divided into sub-indices according to residual maturity of their base issues. The sub-index comprising issues with residual maturity of under 5 years, but not shorter than 1 year, is a short-term index from a perspective of the capital market. The sub-index comprising issues with residual maturity of over 5 years is a long-term index.

2.3 SDXGroup indicators

A list of the following seven indicators belongs to each pair of indices (the price SDXG and the performance SDXG): Average yield to maturity, average coupon rate, average duration, average period to maturity (residual maturity), average modified duration, average convexity and the number of base components.

3 Composition of SDXGroup base

The criteria for inclusion of a bond issue in the base of the SDXGroup indices are as follows:

· Type of bond;

· Market segment and price of bond;

· Residual (remainder) maturity of bond, and

· Volume of bond issue.

3.1 Type of bond

Only the issues registered in the Central Securities Depositary of the Slovak Republic (CSD) which are denominated and traded in the SKK currency can enter the base of the index. In addition to the criteria mentioned above, the issue must be registered on the Bratislava Stock Exchange (BSSE).

The base of the SDX Group indices can be comprised of the following types of bonds:

· Bonds with fixed coupon rates;

· Bonds with floating coupon rates;

· Zero-coupon issues (bonds with zero coupon rate);

· Bonds with option of premature redemption (bonds with call option), and

· Amortisation bonds.

Convertible bonds are excluded from the computation of the indices.

3.2 Market segment and price of bond

Included in the base of the SDXGroup indices can be all bond issues from the listed market

(the main and the parallel listed market) which have been at least once traded within the framework of electronic order book transactions during the one-year period preceding the day of revision of the SDXGroup indices.

3.3 Residual maturity of bond

On the day of coupon payment, every issue must show residual maturity of at least 1 year. Issues with residual maturity shorter than 1 year are excluded from the base of the SDXGroup indices. One-year issues cannot be admitted to the base of the indices.

3.4 Volume of bond issue

In order to be admitted to the base of the indices, each “nominated” issue must meet a certain minimum volume of issue. According to the given issue’s classification by sectors, the minimum volume of issue can be distinguished as follows:

· Public sector (government bonds) – SKK 0.5 billion;

· Private sector (corporate bonds, bank bonds and mortgage bonds) – SKK 0.25 billion.

4 Computation of SDXGroup indices

4.1 Price of base issues

4.1.1. Government bonds

The average daily prices of base issues enter the base of the SDXGroup indices, provided that an electronic order book transaction is closed with a given base issue on the day of computation. In the event that no electronic order book transaction is closed with the given issue and the issue is listed in the module of market makers (modul tvorcov trhu - MTT), the arithmetic average of the best final quotations of the given issue is used. If the issue is not included in MTT, the indicative (theoretical) prices of bonds enter the base.

4.1.2. Non-government bonds

The average daily prices of base issues enter the base of the SDXGroup indices, provided that an electronic order book transaction is closed with a given issue on the day of computation. In the event that no electronic order book transaction is closed with the given issue and the issue is listed in the module of market makers (MTT), the arithmetic average of the best final quotations of the given issue is used. If the issue is not included in MTT, the last known average price of the bond will enter the indices.

4.2 Minimum number of base issues

The computation of indices (sub-indices) starts at the moment of admission of the first issue to the index basket. The computation of indices (sub-indices) terminates upon exclusion of the last base issue from the basket. The computation of the total SDXG for individual sectors continues until at least one of the two sub-indices relevant to a given sector (sub-sector) is available.

5 SDXGroup indicators

For each pair of indices (the price SDXG and the performance SDXG), the following seven indicators are mentioned: average yield to maturity, average coupon rate, average duration, average period to maturity (residual maturity), average modified duration, average convexity and the number of base components.

6 Revision of SDXGroup indices

A regular revision of the indices is carried out two times a year, always on 31 January and 31 July of the current year. In addition to changing the composition of the index base, the Commission for the SDXGroup may decide to change the computation of the indices or the computation of their indicators, respectively. In the event of changes of the base, the voting in writing is allowed for members of the Commission for revision of the SDXGroup.

7 Disclosure and publication of indices

Bratislava Stock Exchange publishes the official daily value of the indices after the closing of trading on a given Stock Exchange day between 3:00 PM and 4:00 PM. In addition, the official daily value is provided to the media publishing Stock Exchange data on a contractual basis.