Market Consultation

FTSE TMX Canada Client Consultation
Index Evolution Pathway

Important Information
The proposals set out in this consultation document are included in order to gather feedback and may or
may not result in changes to the FTSE TMX Canada Indexes.

FTSE TMX Canada Client Consultation
Index Evolution Pathway
Introduction
With the guidance and direction of FTSE Russell’s independent practitioner committees, FTSE Russell
regularly consults the market on changes to the methodology of its indexes to ensure that they continue tomeet investors’ requirements and define and lead global standards in indexing. As part of our commitment toprotecting and enhancing the strengths of the FTSE TMX Canada Index franchise, we are undertaking thismarket consultation to solicit stakeholder feedback on our proposed Index Evolution Pathway for the FTSE
TMX Canada Indexes.
The purpose of the Index Evolution Pathway, as set out in this document, is to formalize our approach tocapturing and tracking new and developing asset categories in the Fixed Income space, and incorporatingthese into the FTSE TMX Canada Benchmarks.
Accordingly we invite interested parties to respond to the consultation questions below. The feedback
received from this consultation will assist FTSE Russell in making any final decisions on the proposed
approach.

Responding to the Consultation

Please submit your response to the questions included in this consultation online athttps://www.surveymonkey.co.uk/r/9KT3ZMB
The consultation will close on February 28, 2017. All responses will be treated as confidential. FTSE Russell
may publish a summary of the consultation results, but no individual responses will be published and norespondents will be named.
If you have any questions about this survey, or if you encounter any technical issues, please contact
rpawson@FTSERussell.com.

FTSE Russell | FTSE TMX Canada Market Consultation – Index Evolution Pathway2

Background for Consideration
The debt market in Canada continues to evolve, introducing new structures and opportunities for investors. In
the past the desirability of including new asset classes into the FTSE TMX Canada index family wasconsidered on an ad hoc basis. Recent examples include Maple and NVCC bonds where, based largely on
feedback provided in client consultations, stand-alone indexes were created for these asset classes rather
than them being added immediately to the flagship FTSE TMX Canada Universe Bond Index.
As part of our ongoing commitment to ensure that the FTSE TMX Canada Bond Indexes remain
representative of the market and continue to meet client needs, we would like to formalize the treatment ofnew asset categories and provide a pathway for index evolution.

Asset Categories
Several asset categories have been introduced into the market in recent years. Some have been issued andare trading, and others are in different stages of development and growth. These include, but are not limited
to, Maples, NVCC, Bail-In, Syndicated NHA MBS, and Hybrid structures (various) where, for example,investors may be concerned at being exposed to risks associated with new and evolving asset classes. For
such reasons, these asset structures are not currently included in the flagship FTSE TMX Canada Universe
Bond Index, but may be tracked as stand-alone benchmark indexes.
The below table summarizes at a high level each market asset category:
Current
issuance

Approx.
MarketCapBonds issued in Canada in Cad$ by non-domestic issuers√$ 35 BN

NVCC

Non Viable Contingent Capital (as defined by OSFI) with a contractual
conversion trigger into common equity if deemed non viable by the regulator.
Applies to subordinated issuance from DSIB Banks.

√$ 15 BNBail-In

Expected regulatory conversion provision into common equity if deemed nonviable by the regulator – actual definition and terms due to be released byOSFI. Applies to senior deposit notes issued by DSIB banks.

Expectedmid 2017

Syndicated
NHA MBS

Following a June 2016 change in the CMHC issuance program, the street is
supporting development of the Syndicated NHA MBS, which typically cover:- “975” pool type – pre payable MBS backed by residential mortgages –with a 5 year maturity- Sold through a min 5 dealer syndicate- Large pool size, widely held

Asset
Category

Description

Maple
Bonds

HybridStructures-Subordinated Trust of a non-Financial (non-regulated) domestic issuer
Fixed–to–float with long dated or perpetual maturity
Interest deferral option (issue Deferral Preferred Shares)
Exchangeable into Preferred Shares (modelled after legacy Tier 1)

FTSE Russell | FTSE TMX Canada Market Consultation – Index Evolution Pathway√Potentialconsiderati
on only-$ 20 BN($30 BNissuedless paydown)-3

Proposed Approach
Creation of Canada Wide Bond Index
We propose to create a broad based Canadian dollar $ fixed rate benchmark, to be operated in parallel to theFTSE TMX Universe Bond Index, which would cover a wider spectrum of issuance into the Canadian Bond
Market. The Canada Wide benchmark would encompass issuance several asset categories in Canada in C$,
including, but not necessarily limited to bonds in the Universe bond index, Maple Bond Index, NVCC and Bail-Indebt, and other asset categories as they develop (given that individual bonds meet all other minimum eligibility
criteria). Additional consideration is being given to the development of the Syndicated NHA MBS market andpotential inclusion of this monthly pay instrument into the broad Canada Wide benchmark.
As part of this market consultation, we seek your feedback on the creation of the broad based Canada Wide index
and the asset categories that should be considered for inclusion.

Creation of Stand-Alone Indexes
To best capture developing market segments, as well as provide investors with choice and flexibility in tracking
new types of issuance, we propose to continue the practice of creating and maintaining stand-alone indexes for
asset categories with material issuance. The stand-alone index would be provided in addition to any potentialconsideration for qualification of these asset categories into a headline index, such as the Canada Wide orUniverse.
As part of this market consultation, we seek your feedback on whether this practice is desirable.

Index Evolution Pathway
We recognize the role FTSE TMX Canada indexes play as part of the Canadian bond market ecosystem andseek to provide transparency to investors and users of the various benchmarks. We propose a streamlined
approach to reviewing and incorporating new issue types and asset categories into respective indexes.
1. FTSE TMX Research and Analytics teams engage with market participants to review new issue types toassess parameters such as, but not limited to, access to underlying reference information, calculation andprovision of analytics, valuation support in line with the Multi Dealer Pricing Methodology, expected issuancelevels, investor interest, etc.;
2. If the issue type is part of an evolving asset category a Stand-Alone Index would be constructed to track andreview progress;
3. Issue types satisfying review and meeting all other qualification criteria relevant to the asset class would beincluded in the Canada Wide Bond Index;
4. In addition, issues can be reviewed by the external advisory committees, put out for broader comment via amarket consultation, and escalated to the internal FTSE Russell Governance Board for final decision.

Consideration with respect to Universe Bond Index
Consideration with respect to potential inclusion into the more narrowly defined FTSE TMX Canada Universe
Bond Index can be addressed as a separate stream as issuance grows or the asset category’s behavior seasonsand matures.

FTSE Russell

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Questions
Please submit your response to the questions included in this consultation online athttps://www.surveymonkey.co.uk/r/9KT3ZMB
The consultation will close on February 28, 2017. All responses will be treated as confidential. FTSE Russell may
publish a summary of the consultation results, but no individual responses will be published and no respondents
will be named.
If you have any questions about this survey, or if you encounter any technical issues, please contact
rpawson@FTSERussell.com.

Asset Categories
1. Does your current investment policy preclude you from holding any of the following issues?
NVCC
Bail-In
Maple
Hybrid Structures
Syndicated NHA MBS
2. Does your current investment policy permit investment in bonds outside the benchmark?
YesNoNot Applicable
3. Is there a policy limit placed on holdings in any of the following asset types (mark those to which
policy limits apply)?
NVCC
Bail-In
Maple
Hybrid Structures
Syndicated NHA MBS
Other (please specify) _____________________
4. In general, which of the following do you consider to be a “bond” / “fixed income instrument”?
NVCC
Bail-In
Maple
Hybrid Structures
Syndicated NHA MBS
Other (please specify) _____________________FTSE Russell

5Canada Wide Bond Index
5. Do you support the creation of a Canada Wide Bond Index?
YesNo
6. How interested would you be in the creation of a Canada Wide Bond Index?
Very interested, for potential benchmarking
Very interested, for research information purposes only
Somewhat Interested
Not at all Interested
7. What asset classes do you believe should be considered for inclusion into the Canada Wide BondIndex?
Universe Bond Index Constituents
Maple Bonds
NVCC securities
Bail-In securities
Securities with Hybrid features
Syndicated NHA MBS (monthly pay)
Other (please specify)Stand-Alone Indexes
8. Do you support the creation of a Stand-Alone Indexes for select asset type categories?
Yes
No
9. What asset categories do you believe should be considered for a Stand-Alone Index?
Bail-In securities
Securities with Hybrid features
Syndicated NHA MBS (monthly pay)
Other (please specify) _____________________

Index Evolution Pathway
10. Do you support the proposed approach for an Index Evolution Pathway? Please suggest any
modifications you feel we should consider.
Yes
NoFTSE Russell

6Universe Bond Index Consideration
11. Do you regard Bail-In debt as an asset class that should be treated in the same way as NVCC debt interms of following the Index Evolution Pathway?
Yes
No
Other (please specify) _____________________
12. Do you believe Bail-In debt (once issued) should be included immediately in the Universe BondIndex?
Yes
No
Other (please specify) _____________________

13. Please provide any additional feedback you may have

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8About FTSE Russell
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