MSCI Fixed Income
Index PoliciesaJune 2022

June 2022

MSCI FIXED INCOME INDEX POLICIES | JUNE 2022

Contents

Overview

3

Index Design Guidelines

5

Index and Methodology Review Process

6

Consultation Policy

7

Methodology and Index Consultation Process

7

Index Termination Policy

10

Corrections Policy

11

Index Calculation and Discretion

12

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MSCI FIXED INCOME INDEX POLICIES | JUNE 2022

Overview
MSCI provides a wide variety of indexes1 all of which are governed by rules-based
methodologies.
MSCI’s standard fixed income index methodologies are •MSCI Corporate Bond Index Methodology•

MSCI Government Bond Index Methodology.

Other fixed income indexes, including custom indexes created at clients’ requests,
are in general derived and maintained based on the universe of securities included inthese index methodologies. Exceptions to this are highlighted in the respective index
methodology documentation or custom index specification documents.
The indexes based on the standard fixed income index methodologies serve as the“parent” indexes for other MSCI Fixed Income Indexes created according tomethodologies that address specific investment themes and strategies such as
MSCI Fixed Income Factor Indexes.
Importantly, while different indexes address specific investment themes andstrategies, they are all managed by a single set of governance committees,
procedures and policies.
MSCI publishes the methodologies governing its indexes. MSCI methodology
documents outline index objectives and detail the rules and guidelines followed by
MSCI to create and maintain MSCI indexes in the widest set of possible
circumstances, including situations of market stress. MSCI’s rules-based index
methodologies are designed to ensure that indexes are determined with integrity andthat discretion is not used in the production of the indexes except in unusual cases
not effectively addressed by the methodology.
A particular index will be governed by a number of methodology documents,
including the specific index methodology book (or a parameter sheet if required), the
MSCI Fixed Income Index Policies, the MSCI Corporate Bond Index Methodology, the
MSCI Government Bond Index Methodology (or any other standard fixed income
index methodologies) and the MSCI Fixed Income Index Calculation Methodology, allof which are available on the MSCI’s website www.msci.com.
MSCI also calculates custom indexes at clients’ requests. These are constructed andmaintained based on parent MSCI indexes and methodologies to which, for example,
a client-defined screen, exclusion list or weighting is applied. These modifications
are documented in specification forms and/or parameter sheets which are used inconjunction with the index methodology documents that govern the relevant parent
1

Within this document, “MSCI indexes” or “indexes” refer to MSCI’s fixed income indexes.

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MSCI FIXED INCOME INDEX POLICIES | JUNE 2022

MSCI Index to construct and maintain the custom index. In cases where a custom
index methodology is more complex and would benefit from more detailed
explanation, a separate methodology document is prepared. Custom index
methodologies and/or parameter sheets are published on MSCI’s website at theclient’s request.

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MSCI FIXED INCOME INDEX POLICIES | JUNE 2022

Index Design Guidelines
These guidelines are followed in the development and maintenance of all MSCI
indexes. MSCI indexes aim to accurately and objectively measure performance of amarket or economic reality as represented by the investment opportunity set basedon a market, market segment, theme, or investment strategy. This objective should
be clearly stated in the specific index methodology document.
Unless explicitly stated otherwise, new indexes should be constructed from therelevant indexes based on the standard fixed income index methodologies. This
index starts with the broadest set of eligible securities and typically screens for
rating, size and maturity. A broader or different universe used for an index
methodology should consider these investability factors as well and should be
described in the relevant methodology book.
MSCI indexes should be constructed and maintained with the following prime
objectives in mind:•

Representativeness•

Replicability•

Efficiency

Index methodologies should aim to find the right balance between
representativeness of the underlying market or strategy and replicability of the index
in an actual portfolio in a cost-efficient manner.
The rationale for adopting each specific methodology should be based on a thoroughreview against the market and economic reality the indexes are intended torepresent. For new index methodologies, this review should include back-testing
whenever appropriate.
For custom indexes, the objective of the index is determined in conjunction with theclient and the client-defined screen, exclusion list, weighting constraints or
combination of methodologies, and is documented in the custom index specification
and/or parameter sheet or a specific methodology document as agreed with theclient. Clients may request that the specific custom index parameters andmethodologies be posted on www.msci.com.

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MSCI FIXED INCOME INDEX POLICIES | JUNE 2022

Index and Methodology Review Process
All MSCI indexes are rebalanced regularly and methodologies governing indexes arereviewed at least annually, usually contemporaneously with the index rebalancing
process.
As part of the regular index rebalancing process, MSCI Indexes are reviewed relative
to the market or strategy they are designed to reflect. This assists in the evaluationof methodologies for both consistency and effectiveness and may highlightsituations where changes in the methodology are warranted to reflect changes in theunderlying market opportunity. Proposed changes are presented to the Fixed Income
Index Committee (“FIIC”) and will trigger a consultation if they are material.
The index rebalancing frequency is typically monthly, quarterly or semi-annually, but
can be daily, or triggered by conditions specified in the relevant methodology. Timely
and consistent treatment of corporate events also occurs outside regularrebalancing.
Methodologies are formally reviewed at least annually, by analysing a representative
set of indexes, to ensure the methodology continues to reflect its stated objective
and complies with the current MSCI Fixed Income Index Policies document. In
addition, all new methodologies are reviewed and approved by the FIIC and allrebalancing tools are thoroughly tested.
MSCI may trigger out-of-cycle methodology reviews based on, but not limited to, oneof the following:•

Market participant feedback•

Underlying market review and rebalancing•

Unusual corporate events and other constituent data changes•

Current events and news

Index changes resulting from index rebalancing or methodology reviews areannounced simultaneously to all market participants in advance of implementation.
In cases of significant index changes resulting from methodology changes,
methodology transitions or market reclassifications, MSCI may consider potential
overall market turnover while assessing replicability of the proposed changes. In
such cases MSCI may consider implementation of changes in multiple phases toreduce potential market impact and enhance replicability of a change.

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MSCI FIXED INCOME INDEX POLICIES | JUNE 2022

Consultation Policy
Markets are complex and market participants are diverse. When faced with asituation that may result in a material2 change to an MSCI index methodology or its
implementation, in order to inform its decision process, MSCI seeks to understandthe differing perspectives in the investment community through its broad
consultation process. Public consultations provide essential feedback for increasingtransparency, providing access to information, fuelling innovation and improvement,
and ensuring the on-going relevance of the indexes. After considering the feedback
from the consultation process, the decision making remains the responsibility of
MSCI solely, through the FIIC and, if necessary, the Index Policy Committee (“IPC”).
Consultation papers and discussions with market participants are an ideal channel toshare the reasoning and the motivation behind MSCI proposals. Structured
dialogues enable institutional investors to share their views on existing benchmarks
and benchmark practices as well as on potential innovations and required changes.
In addition, public consultations give institutional investors the lead time they need to
fully evaluate potential benchmark changes and their implications.

Methodology and Index Consultation Process
MSCI commences a public consultation when FIIC approves a proposal to make amaterial change to a methodology. This change is recommended by internal groups
such as Index Research or Data Management. The analysis is triggered by an internal
review or feedback from market participants.
Once the decision to open a consultation has been taken by the FIIC, a consultation
document, which describes the topic and proposal, is created. This document isapproved by the FIIC before public dissemination. The document also includes thedate by which investors must provide feedback to MSCI.
A consultation begins in general with an announcement giving the highlights of the
MSCI proposal(s) and indicating the location of the consultation document on
MSCI’s website. The announcement is widely distributed through multiple channels,
including the MSCI website, Bloomberg, Reuters and directly to MSCI’s clients. MSCI
collects feedback from market participants in a variety of formats including but notlimited to in person meetings, calls, mails, surveys, etc. as deemed appropriate.
MSCI welcomes feedback from any market participants but will also actively source
views from its clients or other specific stakeholders (e.g., market regulators and
2The FIIC determines if a methodology change is material. This determination is made based on the analysis of

the currently estimated or potential future impact of the methodology change on the index composition,measured by the changes in the selection and/or weights of the index constituents. Fundamental changes in
the index construction principles would be generally considered as material.

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MSCI FIXED INCOME INDEX POLICIES | JUNE 2022

other regulatory agencies). It is important to MSCI that that feedback is obtained
from the most appropriate market participants for any consultation topic. Exhibit 1
shows the types of index users that MSCI may specifically seek feedback fromduring a consultation. All regions are also important in this case as investors fromdifferent regions may face different challenges in investing in the assets of thecountry index in question. A short list of mandatory client feedback will be defined by
the team leading the consultation and discussed with the relevant MSCI client
coverage teams.
Exhibit 1: Sample Consultation Matrix

Title

Asia

EuropeAmericas

Asset Owners

✓

✓

✓

Consultants

✓

✓

✓

Active AssetManagers✓✓✓

Passive AssetManagers✓✓✓

Broker/Dealers

✓

✓

✓

Once MSCI has gathered all required feedback, the group in charge of theconsultation will analyze the views and formulate an informed recommendation thatwill be presented to, discussed and debated at the FIIC. The FIIC will take the final
decision on the proposal or escalate to the Index Policy Committee if required. The
final decision, while considering all the feedbacks received, may weigh the feedbackof some market participants, e.g., Asset Owners, Asset Managers (passive or active),
Broker/Dealers, etc., more heavily, depending on the subject of the consultation.
The final decision, including the rationale that has led to it, including those situations
where the decision does not fully reflect the view of the majority of participants, iscommunicated publicly to all market participants at the same time. Most
consultation participants request that their feedback remain confidential. MSCI may
nevertheless publicly disclose feedback if specifically requested by respective
market participants. In that case, the relevant feedback would be published together
with the final results of the consultation.
If the final decision is to change the methodology, MSCI will announce the changes
and timeframe of the implementation and will subsequently update the relevant
methodology books.

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MSCI FIXED INCOME INDEX POLICIES | JUNE 2022

The length of a consultation and lead time provided for implementation varies
depending on the complexity of the topic, breadth of client impact as well as impact
on the index composition. The length of the consultation is clearly communicated aspart of the consultation process and needs to be sufficient for market participants tomeaningfully review what is proposed and respond. Methodology changes are
generally announced at least one month prior to their implementation, unlessspecific circumstances require a faster implementation timeline as determined by
the FIIC.
In case of methodology changes that are not deemed as material, MSCI may makesuch changes without launching a public consultation. In such cases, once themethodology changes are approved by the FIIC, they are announced by MSCI to all
the market participants at the same time. MSCI takes into account prior feedback
that may have been received on such topics, as part of its ongoing engagement withmarket participants. MSCI may also solicit views from its clients or other specificstakeholders on the consultation topic prior to making the changes.
For custom indexes, changes to any client specifications are discussed directly withthe relevant client.
Note that MSCI contacts clients on a regular basis to discuss general market
practices.

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MSCI FIXED INCOME INDEX POLICIES | JUNE 2022

Index Termination Policy
The MSCI indexes generally evolve over time in an effort to continue to appropriatelyreflect the investable opportunity set of fixed income securities while addressing thechanging and expanding investment interests of cross-border institutional investors.
Nonetheless, there may be certain circumstances where the methodology cannot be
adapted in which case terminating the index may be required. These circumstances
are generally not within MSCI’s control and may include significant changes to thestructure of underlying market, drastic changes to the market infrastructure, lack ofaccess to necessary data, geo-political events, and regulatory changes. Additionally,factors such as methodology convergence or low usage may result in MSCI’s
proposal to terminate an index.
In all these cases if an index termination is proposed or required, MSCI would
proceed as follows:•

The FIIC would review the impact and approve appropriateness of a potential
termination.

•

MSCI may perform a consultation including a discussion of possible alternatives,
if any.

•MSCI would announce any termination of the index in advance.

•

If practicable, MSCI would continue to calculate the index for an announced
period to give users the opportunity to transition to another index or otherwise
prepare for the termination of the MSCI index.

•

In the event that an appropriate alternative index is established, the details of themethodology governing this index as well as the timing of the transition would be
publicly communicated in advance of implementation.

MSCI will generally announce index terminations with at least three months’ notice,with the following exceptions:•

In the case of index terminations due to circumstances not within MSCI’s
control, such as significant changes to the structure of underlying market,
drastic changes to the market infrastructure, lack of access to necessarydata, geo-political events, and regulatory changes, the FIIC will determine theappropriate termination timeframe depending on the specific situation.

•

In certain cases, provisional indexes may be created and maintained toreflect future methodology changes in advance of their implementation. The
termination of such provisional indexes will be announced at least one weekprior to the termination date.

The termination of a custom index is handled in consultation with the relevant client.

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Corrections Policy
In the case of errors that occur in the determination or calculation of an index, if the
impact of the error is ”not important”, no historical index restatement is made.
If the impact of the error on performance is “important”3 at the index level, indexes
are restated historically.
In certain circumstances, such as errors in the list of index constituents (e.g., asecurity is unintentionally omitted), or the error affects a large number of securities(e.g., a third of the prices in a particular market are in error) MSCI may also correct
and restate history, even if the aggregate performance impact is not material.
MSCI applies a 12-month correction period for index errors. Errors discovered thatare older than 12 months are generally not corrected.
Corrections related to regular index rebalancings, or corporate events are assessedon a case-by-case basis.
At times there may be a need to take an action that is not prescribed in the policy asstated above. When this is the case senior members across the MSCI Index
Research and Production teams will develop a proposed approach keeping in mind
the following factors in determining the most appropriate corrective action: index
investability and replicability as well as potential reverse turnover.
All such proposals are reviewed and approved by the FIIC.
All corrections are announced simultaneously to all market participants.

3 Currently the threshold for corrections is 50 basis points.

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Index Calculation and Discretion
The MSCI indexes are calculated using fixed income security prices from vendor.
The MSCI fixed income indexes rely on the continued availability of the security
prices from the vendors. To the extent that any such data is temporarily or
permanently unavailable (whether as a result of a market disruption event,permission for MSCI to use such data in determining its indexes or otherwise), the
MSCI index methodologies apply the fall-back measures described in the MSCI Fixed
Income Index Calculation Methodology.
MSCI’s rules-based index methodologies, which cover index construction,
maintenance and calculation, provide that discretion is not used in the production of
the indexes except in unusual cases not effectively addressed by the methodology.
These include, but may not be limited to:•

Corporate events not previously encountered or usually complex in nature,•

Structural changes to the underlying markets,•

Operational issues at data vendors,•

Geo-political events,•

Events beyond human control

Where there may be a need to take an action that is not prescribed in themethodology, senior members across the MSCI Index Research and Index
Production will develop a proposed approach with the goal of remaining consistent
with the spirit of the methodology and ensuring timely calculation and distribution.
These proposals are reviewed by the FIIC. In cases when time permits, and the cases
are deemed material, MSCI may consult with clients on the proposed approach.
MSCI will then announce the decided action to all market participants at the sametime.
Typically, MSCI does not perform explicit ex-post analysis of decisions but always
welcomes feedback from market participants on decisions made.
The framework described above eliminates the exercise of discretion by an individualand ensures any required exercise of discretion is managed through escalation tocommittees of experts. All committees are governed according to terms of reference
and all decisions are appropriately documented and archived.

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Notice on Index UsageMSCI indexes may be used for a variety of purposes, including for research or use as
the basis for index-linked investment products. They may be used by a variety ofmarket participants, including but not limited to asset owners, portfolio managers,
broker-dealers, researchers. Not all uses are appropriate for all users. Market
participants should use their judgment when selecting an index for a particularpurpose.
Indexes and the effectiveness of index methodologies can be affected by a numberof factors, most of which are beyond MSCI’s control. These may include structuralchanges to the underlying market, including decreases in the size and liquidity of therelevant market segment, infrastructure changes, geo-political events, and regulatorychanges. These circumstances may result in a material change to the index and
MSCI may elect to change the methodology as a result. In rare cases, thesecircumstances may result in the termination of an index. Index users should consider
this possibility, including the potential need to terminate or modify the terms of afinancial product or fund as the result of the termination of the calculation of thebenchmark index.
MSCI assumes no responsibility for any potential use of its indexes by its clients fora particular purpose, including as the basis for an index-linked financial product orinvestment fund. The effective representation of a market or strategy is the primary
aim for MSCI.

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Following sections have been modified in the May 2020 update:
Clarifications to the Corrections Policy

Following sections have been modified in the April 2022 update:
Changes made to Overview & Index Design Guidelines section

Following sections have been modified in the June 2022 update:
Changes made to Methodology and Index Consultation Policy & Index Termination
Policy sections© 2022 MSCI Inc. All rights reserved. Please refer to the disclaimer at the end of this document.

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Notice and disclaimer
This document and all of the information contained in it, including without limitation all text, data, graphs, charts (collectively, the “Information”) is the property of MSCI Inc. or its subsidiaries(collectively, “MSCI”), or MSCI’s licensors, direct or indirect suppliers or any third party involved in making or compiling any Information (collectively, with MSCI, the “Information Providers”)
and is provided for informational purposes only. The Information may not be modified, reverse-engineered, reproduced or redisseminated in whole or in part without prior written permission
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The Information may not be used to create derivative works or to verify or correct other data or information. For example (but without limitation), the Information may not be used to create
indexes, databases, risk models, analytics, software, or in connection with the issuing, offering, sponsoring, managing or marketing of any securities, portfolios, financial products or otherinvestment vehicles utilizing or based on, linked to, tracking or otherwise derived from the Information or any other MSCI data, information, products or services.
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