How ranges are set.
The rules are fixed. Each index's history sets its numbers. Anyone can check a range by rerunning the rules.
What an index needs.
- An independent publisher, licensed for settlement.
- At least ten years of daily history, including a crisis.
- A related market makers can hedge in.
- A written plan for late or wrong prints.
The rules.
- Measure the change from a five day average at the start to a five day average at the end.
- Set the range wide enough that 99% of past windows ended inside it.
- Cut it into about ten equal slices.
- Put a slice edge at 0%, the starting level.
- Build every product from whole slices, and freeze everything when the window opens.
- Recheck once a year, with any change applying to new windows only.
Example: US high yield credit.
| Rule | Result |
|---|---|
| Index | ERINSDHY, S&P Dow Jones Indices |
| Window | 12 months, opening March and September |
| Range | −30% to +20% |
| Windows inside | 4,599 of 4,620 since 2007 (99.5%) |
| Slices | Ten, 5 points wide |
If the print is late or wrong.
- If the print is late, settlement waits a set number of days, and a correction from the publisher is used once.
- If the index is replaced or stops, the successor or fallback named before trading is used.
- If none of these work, escrow returns to holders.
Never.
Nobody can type in a market, list two grids on the same index and window, change a window once it opens, or decide the result by vote.