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26 July 2006 – New Zealand Exchange Limited (NZX) and Westpac Institutional Bank today announced the introduction of a new set of indices for debt market participants. The NZX Swap Indices, developed in partnership with Westpac, create benchmarks for the rapidly growing swap market. Broadcast of the new indices will commence on 31 August 2006.
The NZX Swap Indices will model the total returns that can be achieved by investing in interest rate swaps, which are known also as “plain vanilla” swaps. An interest rate swap is a derivative instrument which enables investors to “swap” between floating and fixed interest rate payments. Swaps are usually traded over-the-counter between banks and their institutional and corporate clients, and can be used to lock in fixed rates of return.
Westpac has played a key role in development of the indices, and after launch the indices will be maintained independently by NZX.
“With swaps trading taking off in New Zealand, this is the time to establish appropriate benchmarks,” said NZX Head of Products, Geoff Brown. “We are pleased that Westpac and NZX have been able to work together to create a set of indices that will serve the New Zealand debt market well in to the future.”
“Our clients have been telling us for some time about the need for greater transparency around the measurement of returns arising from activity in the credit and swap markets,” said Westpac's Head of Trading, Lloyd Cartwright.
“The time is therefore absolutely right for the launch of the index given the strong growth in swap market volumes and more widespread use of swaps as a portfolio management tool.”
In conjunction with the launch of the NZX Swap Indices, Westpac is launching a series of synthetic products based on the new indices. “We intend to offer our client base the ability to replicate any of the benchmark or aggregate indices via total return swaps,” Lloyd Cartwright said.
The NZX Swap Indices are the latest move by NZX to strengthen its contribution to the New Zealand debt market. NZX is working to make its FASTER Settlement System more accessible to debt market participants, with Westpac accredited as an NZX FASTER Participant in June, making it the first retail bank to adopt electronic settlement of the legal title to NZX securities.
And NZX's debt market - the NZDX - has seen strong trading and capital raising growth, with the total amount raised so far this year reaching $1.38 billion - $477 million or 53% higher than the total raised for the same period last year.
NZX and Westpac have released a brochure further explaining the composition and methodology of the new indices. This is available for download from the NZX website.
The NZX Debt Indices
The NZX Swap Indices will complement NZX's other Debt Indices, including the NZX Government Bond Indices, NZX Corporate Bond Indices and NZX Bank Bill Indices. The NZX Debt Indices are widely used by professional investors such as managed funds to benchmark the performance of fixed interest investments.
NZX's Debt Indices are different to NZX's Equity Indices (such as the NZX 50 Index) in that the Debt Indices include a variety of instruments not currently traded on NZX's markets, such as swaps and bank bills. The NZX Equity Indices are exclusively for securities quoted on the NZX's equity markets, the NZSX and NZAX.
Download the NZX Swap Index Brochure.
