SBC/ICB Proposal:
Fixed Income Sector
ICB Fixed Income
The Next Generation
Mike Bruno
Business Unit Head – Fixed Income
The FTSE Group
Problem: Many ways to categorize equity
portfolio holdings
• Market Capitalization
• Industry Exposure (ICB, GICS)
• Fundamental Measures (P/E ratio, EPS, dividend
yield, etc.)
• Capital Structure
• Country Exposure
• SRI/ESG Criteria
Slide 3
Problem: Many ways to categorize fixed
income portfolio holdings
Credit Ratings
Industry Exposure
Cash Flow Analytics (yield, duration, OAS)
Collateral Type
Debt Type (bond, note, ABS, index-linked, etc.)
SRI/ESG Criteria
Slide 4
Problem: How to categorize fixed income
holdings, or combined equity and
fixed income holdings?
Slide 5
Proposal: ICB Fixed Income
Slide 6
Historical Context of ICB Fixed Income
1Q 2007: SIX Swiss Exchange approached FTSE with
requirement for a fixed income categorization product for CHF
bond market
FTSE used ICB as a basis and developed conceptual
framework for ICB Fixed Income model
2007: Model refined through collaboration with Dow Jones,
SIX Swiss Exchange and valued input from SBC (OKS)
FTSE and Dow Jones officially launched ICB Fixed Income in
May 2008
SIX Swiss Exchange is pilot client of ICB Fixed Income
Slide 7
What is ICB Fixed Income?
• A framework for grouping bonds into issuer sectors
according to economic activity, a consolidated view of the
corporate hierarchy and the majority of revenue principal
• A categorization of bond issuers based on the successful ICB
(equity) model from Dow Jones and FTSE
• Modification of current ICB model to include non-corporate
bond issuers (governments, agencies and intergovernmental
• Inclusion of corporations that only issue debt
Slide 8
The ICB Fixed Income Model
Issuer Type
Industry Code
Current ICB Product
(0533 - 9578)
Current ICB Product
(0533 - 9578)
Current ICB Product
(0533 - 9578)
Reserved for Future Use
Reserved for Future Use
Reserved for Future Use
0001 - Oil & Gas
1000 - Basic Materials
2000 - Industrials
3000 - Consumer Goods
4000 - Health Care
5000 - Consumer Services
Corporate (C)
6000 - Telecommunications
7000 - Utilities
8000 - Financials
9000 - Technology
10000 - Special Purpose Vehicles
11000 to 14000 - Reserved for
Future Use
15100 - Nation/Treasury
Sovereign (S)
15000 - Government
15300 Canton/Region/Province/State
15500 - City/Municipality/Town
16000 - Agency/SemiGovernment
17000 Intergovernmental/Supranational
17100 - UN Organization
17200 - Supranational
Slide 9
Logic & Design of the ICB Fixed Income Model
• Based on ICB (equity) for corporations
• Vast majority of bond issuers may be classified as
corporation or government or some form of either
• The issuers of structured finance (ABS, CMOs, CDOs) and
cash flow conduits are still a type of corporate entity, with a
specific objective to isolate financial risk from the sponsor –
the Special Purpose Vehicle (or, Special Purpose Entity)
• Flexible structure, to allow additional categories and subcategories over time
Slide 10
Meanings of New ICB FI Categories
Corporate (C)
• Special Purpose Vehicles:
Corporate entities which
collect cash flows from a pool of underlying receivables
and re-distribute those cash flows via tranches of an ABS,
CMO or CDO (BA Master Credit Card Trust II, Holmes
Financing No 6 Plc, Citibank Credit Card Issuance Trust)
Slide 11
Meanings of New ICB FI Categories (cont.)
Sovereign (S)
• Government…Nation/Treasury:
Bonds issued by Central Bank or
Treasury of a sovereign government (Republic of Italy, Confederation
of Switzerland, United States Treasury).
• Government…Canton, Region, Province, State: Bonds issued by
governments of regions which, collectively, make up a sovereign
country. These are semi-autonomous provinces, unified under a
central government (Canton of Basel-Stadt, Province of Quebec,
Federal State of Saxony-Anhalt, State of California, Emirate of Dubai).
• Government…City, Municipality, Town:
Bonds issued by local
governments (Bern Stadt, New York City, Ville de Paris).
Slide 12
Meanings of New ICB FI Categories (cont.)
Sub-Sovereign (B)
• Agency/Semi Government: Bonds issued by an entity that is
an official agency of a central government (not a GSE). If no
public companies exist that serve a similar function, these
bond issuers are true agencies. If a government lists the
entity as an official agency, that listing is definitive (Kexim
Asia Ltd., KFW Bankengruppe, Eksportfinans ASA).
• Note: if a bond issuer is a GSE (Government-Sponsored Enterprise), it
will be categorized under the Corporate sectors.
Slide 13
Meanings of New ICB FI Categories (cont.)
Supranational (P)
• Intergovernmental/Supranational Organizations…UN
Organization: Bonds issued by any organization listed under
the United Nations System of Organizations (World Bank,
International Finance Corp, UN Development Program).
• Intergovernmental/Supranational Organizations…Supranational
Organization: Bonds issued by multilateral organizations,
established for the advancement of regional economic and
social development (Eurofima, Inter American Development
Bank, African Development Bank, Asian Development Bank).
Slide 14
Benefits of ICB Fixed Income
• Enables categorization of the economic exposure of equity and fixed
income holdings
• One internationally-recognized classification standard (ICB) from
one neutral financial solutions provider with proven expertise
• Full coverage of CHF bonds listed on SIX Swiss Exchange
• Flexibility for adding future categories to the model
• Multi-level data granularity
• Primary focus on economic sector classification of issuers
• Allows efficient data processing by IT systems, database and
Slide 15
Future Development of ICB Fixed Income
• Categorization of issuers for bonds listed on other regional
• Categorization of non-CHF bonds
• Research into sub-categories of instrument-specific risk
(seniority, collateral, liquidity, covenants, etc.). Additional
dimension describing guarantee incorporated in individual
• ICB Fixed Income pan-European coverage planned for 2009
Slide 16
Current ICB Fixed Income
by Issuer Type (over 600 Issuers)
Oil & Gas
Basic Materials
Consumer Goods
Health Care
Consumer Svcs
Slide 17
ICB Fixed Income and the Credit Crisis
• Icelandic government (Financial Supervisory Authority)
takes control of Landsbanki and nationalizes Glitnir
(acquiring 75% stake)
• FNMA and FHLMC put under conservatorship of the US
• UK nationalizes Northern Rock Plc and Bradford & Bingley
Slide 18
ICB Fixed Income and the Credit Crisis (cont.)
• Fortis partially nationalized with Belgium, the Netherlands
and Luxembourg investing a total of €11.2 billion
• Hypo Real Estate (second largest commercial property
lender in Germany) bailed out by a consortium of German
banks and the Bundesbank
Regardless of ownership, ICB Fixed Income will continue to
assign the same code to each of these companies until
their business lines change significantly
Slide 19
Interest in ICB Fixed Income continues to
grow, as financial firms and exchanges in
Europe, North America and
Asia are made aware of its existence.
2009 looks promising in terms of
expansion in product coverage and
Slide 20
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