NZX NEW ZEALAND SWAP INDEX

<strong>NZX</strong> <strong>NEW</strong> <strong>ZEALAND</strong> <strong>SWAP</strong> <strong>INDEX</strong><br />

Launch Date<br />

31 August 2006<br />

The Indices<br />

Benchmark Indices<br />

<strong>NZX</strong> 1 Year Swap Index<br />

<strong>NZX</strong> 2 Year Swap Index<br />

<strong>NZX</strong> 3 Year Swap Index<br />

<strong>NZX</strong> 4 Year Swap Index<br />

<strong>NZX</strong> 5 Year Swap Index<br />

<strong>NZX</strong> 7 Year Swap Index<br />

<strong>NZX</strong> 10 Year Swap Index<br />

Aggregate Indices<br />

<strong>NZX</strong> All Swaps Index (1Y – 10Y incl.)<br />

<strong>NZX</strong> Short End Swap Index (1Y, 2Y & 3Y)<br />

<strong>NZX</strong> Short-Mid Curve Swap Index (1Y – 5Y incl.)<br />

<strong>NZX</strong> Mid Curve Swap Index (3Y, 5Y & 7Y)<br />

<strong>NZX</strong> Mid-Long End Swap Index (5Y, 7Y & 10Y)<br />

<strong>NZX</strong> Long End Swap Index (7Y & 10Y)<br />

Publication Frequency<br />

Daily<br />

Data Available<br />

For each index:<br />

• Index level<br />

• Yield<br />

• Duration<br />

• Modified Duration<br />

Overview<br />

<strong>NZX</strong> and Westpac have worked together to provide a series of<br />

swap indices for the NZD market, to be branded the “<strong>NZX</strong> New<br />

Zealand Swap Indices”.<br />

Each index represents the return of one or more NZD swaps.<br />

Westpac have supplied a model for the calculation of index<br />

returns, which is based as closely as practicable on standard<br />

market conventions. <strong>NZX</strong> will make the calculation methodology<br />

available to interested users.<br />

The Westpac calculations have been checked and validated<br />

by an independent team of academics from Victory University.<br />

Their validation report will be made available to interested<br />

users.<br />

The Indices<br />

There are seven ‘Benchmark Swap Indices’ and six ‘Aggregate<br />

Indices’<br />

Each Benchmark Index represents the return of an individual<br />

swap maturity:<br />

• <strong>NZX</strong> 1 Year Swap Index<br />

• <strong>NZX</strong> 2 Year Swap Index<br />

• <strong>NZX</strong> 3 Year Swap Index<br />

• <strong>NZX</strong> 4 Year Swap Index<br />

• <strong>NZX</strong> 5 Year Swap Index<br />

• <strong>NZX</strong> 7 Year Swap Index<br />

• <strong>NZX</strong> 10 Year Swap Index<br />

Each Aggregate Index represents the average return of two or<br />

more of the Benchmark Indices:<br />

• <strong>NZX</strong> All Swaps Index (1Y – 10Y incl.)<br />

• <strong>NZX</strong> Short End Swap Index (1Y, 2Y & 3Y)<br />

• <strong>NZX</strong> Short-Mid Curve Swap Index (1Y – 5Y incl.)<br />

• <strong>NZX</strong> Mid Curve Swap Index (3Y, 5Y & 7Y)<br />

• <strong>NZX</strong> Mid-Long End Swap Index (5Y, 7Y & 10Y)<br />

• <strong>NZX</strong> Long End Swap Index (7Y & 10Y)<br />

The Aggregate Indices will be equally weighted averages of the<br />

underlying Benchmark Indices.<br />

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Index Construction<br />

For each maturity in each index, the index replicates the return<br />

of a position in a receiver swap, plus a cash deposit at 3 month<br />

BKBM.<br />

Index Return = Receiver Swap + 3 Month BKBM deposit<br />

As the floating payments on the cash deposit would cancel out<br />

the floating leg of the swap, the return of each index replicates<br />

the semi-annual payments from the fixed leg, plus a principal<br />

repayment at maturity, i.e. the index replicates a semi-annual<br />

bond, with coupon equal to the market swap rate for that<br />

maturity.<br />

Rebalancing<br />

Rebalancing occurs at the end of the day on the last New<br />

Zealand trading day of each month (observing Wellington and<br />

Auckland holidays).<br />

Rebalancing replicates terminating the underlying positions<br />

at market value and replacing them with new par swaps and<br />

cash deposits. On the rebalance date, immediately prior<br />

to rebalancing, each swap is one month shorter than at<br />

inception.<br />

For example, for the 2 Year Swap Index, rebalancing replicates<br />

terminating the original 2 year swap and deposit (both now<br />

having 1 year 11 month maturity) and investing the proceeds<br />

in a new 2 year par swap and 2 year deposit.<br />

Return Calculation<br />

Each day, the value of each index equals the value of the index<br />

at last rebalance plus the percentage change in present value<br />

of the replicated swap(s) and deposit(s).<br />

The present value calculations use a curve built from the OCR;<br />

1 month to 6 month bank bills; and 1 year to 5 year, 7 year and<br />

10 year swaps.<br />

The curve uses linear interpolation on semi-annual zero coupon<br />

rates.<br />

Yield, Duration and Modified Duration are also calculated for<br />

each index.<br />

<strong>NZX</strong> Debt Indices<br />

The <strong>NZX</strong> New Zealand Swap Indices are a subset of the debt<br />

indices provided by <strong>NZX</strong> to measure performance of debt<br />

securities in the New Zealand market. <strong>NZX</strong> also calculates<br />

the <strong>NZX</strong> New Zealand Government Bond Indices, the <strong>NZX</strong> New<br />

Zealand Corporate Bond Indices, and the <strong>NZX</strong> New Zealand<br />

Bank Bill Indices.<br />

<strong>NZX</strong> also calculates a range of Equity Indices to measure<br />

the performance of securities traded on the New Zealand<br />

sharemarket.<br />

Further information about the <strong>NZX</strong> Debt Indices and Equity Indices is available from<br />

www.nzx.com.