Financial institutions and index providers demand reliable data for index criteria selection. These indices must be built using constituent risk measures that remain consistent and unbiased over time. Providers often choose a derived composite of credit ratings to achieve appropriate thresholds for a given index. Feed solutions from S&P Global Market Intelligence ("Market Intelligence") offer reliable and flexible delivery of one of the industry's largest databases of current and historical credit ratings from S&P Global Ratings across corporate, sovereign, U.S. public finance and structured asset classes.
This bank requested the use of credit ratings from S&P Global Ratings to create a composite rating to be used at a constituent level as part of selection criteria for a series of new fixed income indices. This composite would also be utilized on a go-forward basis for index rebalancing. It was important that the selection criteria have a consistent methodology and be easily understood by the markets being served. The bank chose an outsourced service provider as the calculation agent to reduce the in-house workload. Once created, the composite ratings at the aggregate index level would be displayed publicly for all users.
Financial institutions and index providers are looking to apply a consistent calculation methodology at the constituent level when constructing indices. These risk thresholds must be consistent, transparent and widely accepted by existing and prospective clients.
Pain Points
Clients receiving indices or investing based on indices provided by a financial institution must trust the given index methodology. Without a consistent risk measure used in the index calculation, it can be difficult to fully understand if the index meets required mandates and will continue to do so after rebalancing. Given this, the index solutions group at this bank decided that including credit ratings from S&P Global Ratings in their index methodology would enable them to:
- Leverage credit ratings from an industry-leading provider in their derived calculation for criteria selection.
- Have direct feed integration at the constituent level.
- Share the derived level aggregate rating for each index publicly with their end clients.
The team reached out to Market Intelligence to see what was possible.
The Solution
Specialists from Market Intelligence discussed RatingsXpress delivered via XpressfeedTM, a powerful data feed management solution. This would provide the index solutions group with:
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Access to trusted credit ratings | RatingsXpress offers one of the industry's largest databases of current and historical credit ratings from S&P Global Ratings with entity- and security-level data in one schema. The credit ratings cover nearly one million securities: - 9,000 global issuers, including corporates, financial institutions, utility and insurance companies/80,000 securities. - 550 sovereign, international public finance and government entities/13,000 securities. - 700 U.S. public finance entities/690,000 securities. - 10,000 structured finance transactions, including asset-backed, commercial mortgage-backed and residential mortgage-backed securities and collateralized debt obligations/45,000 securities. |
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A reliable and flexible delivery mechanism | Xpressfeed offers streamlined delivery of credit ratings from S&P Global Ratings. The solution enables wealth managers to ensure accurate, timely delivery of critical information while helping to automate client statement reporting processes. |
Figure 1: Sample S&P 500 Bond Index
Source: S&P Global For illustrative purposes only.
Key Benefits
This client is now able to license one of the industry's largest databases of current and historical credit ratings in a way that:
- Satisfies demand for accurate and reliable risk measures for index criteria selection.
- Creates a derived rating that can be shared at the aggregate index level with clients.
- Is helping the firm offer both indices and funds to their clients.
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