JSE with FTSE Russell, transitions to new Fixed Income indices

Raising the bar

The JSE, in conjunction with FTSE Russell, is transitioning to a new set of Fixed Income indices – good news for both local and global investors

Raising the bar

The JSE has provided investors with a set of Fixed Income indices for about a decade now – at least since it acquired the Bond Exchange of South Africa in 2009. But as Mark Randall, the JSE’s Director of Information Services, points out, ‘in terms of upgrades or improvements, the index methodology and data products are largely unchanged from what we offered in 2009’.

That, however, will change in March this year when the JSE, in conjunction with its index partner FTSE Russell, transitions from the current JSE Bond indices to a new replacement set of FTSE/JSE Fixed Income (FI) indices.

Those new FI indices will include the All Bond and Composite Inflation-Linked indices, while the current JSE Credit indices will be discontinued. ‘It’s exciting because FTSE has been our Equity index partner since 2002, and the partnership has been incredibly successful for us,’ says Randall.

‘Through it, the JSE has been able to leverage off their global R&D and compliance capability, and the skills they bring from their global experiences in the index world.’ The JSE is aiming to replicate that success with the transitioned FI indices.

This transition gives the JSE access to an improved technology platform. ‘We will also have better compliance with global index regulation,’ says Randall, underlining an important aspect of the move. FI indices measure the total return of representative bond portfolios and provide a benchmark for historical performance, creating a standard against which investment performance in the bond market can be measured.

‘The calculation of indices is regulated in Europe, and will soon be in South Africa too,’ he says. ‘A lot of work goes into compliance with those regulations, but FTSE – as the global index powerhouse – will take care of that for us.’

In the long term, the transition will enable the JSE to develop its local index offering into something with a wider appeal. ‘Our Bond indices are unique in how they’re constructed,’ says Randall. ‘When they evolve into something that’s more globally understood, we hope they will attract more interest from global investors.’

From a regulation point of view, global regulatory compliance also provides protection and builds trust. As Randall puts it, ‘if you’ve invested in an index tracking fund, or your fund manager is benchmarked against an index, you want to know that the index is being calculated 100% accurately, without a conflict of interest to whoever is investing in or running the fund. You can’t have someone who’s running the fund marking their own homework’.

In the more immediate term, the transition to the FTSE/JSE FI indices allows the JSE to provide its clients with much better data for its indices. ‘We’re not immediately changing any of our index methodology but we are moving to the FTSE technology environment, which gives us better technology and better daily index data, delivered more reliably.’

When FTSE assumes the index calculation responsibility on 1 March 2020, the JSE will also go live with a set of new data products for its existing indices. Clients will have access to a single, consistent file format with a depth of new data attributes across all indices.

‘We’ve been seeing a lot of excitement from clients looking forward to getting their hands on the data,’ says Randall. ‘Particularly from those who are still having to either outsource collation or do it themselves.’

As more tracker and ESG funds come into the market, FI indices are becoming a growing part of SA’s investment ecosystem. Now, through this partnership with FTSE Russell, the JSE is evolving its range to provide world-class options in that space.

By Mark van Dijk
Image: Gallo/Getty Images