Operation of the Eurobond platform (secondary market)

A. Operation of the Eurobond platform (secondary market)

1. Search engine

Using the search engine allows you to apply different filters.

• You can run a search based on the issuer's name or a part of their name
• The type of coupon – the majority will be fixed. More information is given under point 4
• The ISIN code: this is a unique international code
• Currency
• The Moody's rating; you will find a general summary of this rating below
• The group maturity date

If your choice of bond is not included on the list, you can contact our bond desk on 02/679 90 99

2. Description of the bond and bond issuer

When you click on a bond from the results listed by the search function, you will see a detailed description of that bond:

• the full name of the issuer
• the ISIN code

You will find some information about the price:

• Bid (sale) and ask (purchase). Please note: should the bid or ask be unavailable, we advise you to check the last price and to work with a limit order. The market maker will be alerted to this and will potentially be able to execute your limit order.
• The bid and ask quantities: these are the maximum nominal values that you can buy or sell online for a particular bond which is worth the price indicated.
• Yield on the sale price (ask yield) and on the purchase price (bid yield). This is an indication of the actuarial yield if you buy (ask yield) or sell (bid yield).
• Last price and amount: this price can serve as a reference in order to register a limit order.
• Closing price and yield on closing price: this price can also serve as a reference in order to register a limit order.
• Last update: displays the last updated price

In the second part, you will be given the following information:

• Coupon: shows the coupon you will obtain once the bond is part of your portfolio
• Currency: shows the currency of the bond
• Denomination: shows the minimum denomination for purchase
• Issue size: shows the total amount issued
• Number of days accrued
• Coupon frequency: in the majority of cases, the coupon is paid annually (frequency of 1), but in the case of certain other bonds, the coupon is paid twice annually (frequency of 2) or even quarterly (frequency of 4)
• Type of coupon: several types are possible, the most common being the fixed. The different types of coupons will be detailed later in this document
• Day Count: the method used to calculate interest
• Guarantor: the company that guarantees the bond
• Maturity date: the bond's maturity date

3. Rating

It is possible to obtain a rating for the bonds available through our site. The rating given is that attributed by Moody's. You must first sign a contract, and this can be done using your confirmation code.

Naturally, every investor is always looking for that impossible combination of "high level of security" and "high yield" for all of their investments. But unfortunately, security rarely equates with a high return. A high return is more often than not coupled with a high level of risk. This universal rule applies throughout the financial world, and this includes on the bond market.

The quality of an issuer is often expressed through its rating, which gives an indication of its level of solvency. The following question then arises: "How can the bondholder (the investor) be sure that the issuer will honour all of his commitments?" In addition to making regular interest payments, the issuer must be in a position to repay the nominal value of the bond upon maturity.

There are several rating agencies all pursuing the same objective, which is to assess the solvency of issuers on the bond market. The most well known of these are Standard & Poors (S&P) and Moody's.

Following an in-depth analysis of the issuers, these agencies award them a credit rating, which is an indication of the issuers' level of solvency. An AAA rating awarded to an issuer by Standard & Poors is an indication that this issuer is very solvent indeed. The equivalent of the S&P AAA rating is the Aaa rating from Moody's.

Bonds with a rating of lower than BBB (S&P classification) or Baa3 (Moody's classification) are generally considered to be speculative grade bonds.

Moody's

• Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues.
• Aa1 - Aa3 Bonds which are rated Aas are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risk appear somewhat larger than the Aaa securities.
• A1 - A3 Bonds which are rated A possess many favorable investment attributes and are to be considered as upper-medium-grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment some time in the future.
• Baa1 - Baa3 Bonds which are rated Baa are considered as medium-grade obligations (i.e., they are neither highly protected nor poorly secured). Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well.
• Ba1 - Ba3 Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class.
• B1 - B3 Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.
• Caa1 - Caa3 Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest.
• Ca Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings.
• C Bonds which are rated C are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.
• NR Not rated.

Of course, a bond issued by a very good debtor (with a high rating such as AA or A2) will produce a lower yield than a bond with the same characteristics but whose issuer is in financial difficulty and consequently has a rating of B or B2, for example.

4. Diagrams

At the end, you will find two diagrams. the first of these shows the bond's price history during a particular period of time. By pressing the YTM button, you can see the bond's yield during that same period.

The second diagram shows the difference in yield compared to the swap rate. The swap rate is a deal to exchange two interest rate flows (one at a fixed rate, and the other a variable rate).

B. Information relating to bond negotiation

If you press the "trade" button, you will arrive on the orders screen. Here, you will find the following information :

• The seller (bid) and buyer (ask) yield: this shows the yield at sale or purchase.
• Bid/Ask: shows the bond's sale or purchase price.

Important note: Occasionally, the market maker is not present on the market. If this is the case, you will not receive a bid or ask. You are therefore recommended to work with a limited order, the limit being close to the last price you find on the order screen.

• Coupon frequency: shows the number of coupons per year.
• Bond maturity date.
• Denomination: the minimum investment in the bond.
• Guarantor: the party guaranteeing the bond

Keytrade Bank has opted to send orders to LuxNext and Euronext. These are regulated stock exchanges with several market makers. You can find out more by going to :

• www.bourse.lu/obligations-en-continu

1. Accrued interest

The accrued interest is calculated on 100% of the nominal value. If you buy a bond, you must pay the accrued interest to the seller. If you sell a bond, you receive the accrued interest.

Here we display the accrued interest on an order executed today. As soon as you place an order, we calculate the accrued interest as of today's date. You can also place a GTD (Good Till Date) order with a maximum validity period of one month. If you choose this option, you will need to have more cash in your securities account, since for every day the order is not executed, an extra day's interest accrues. The amount debited/credited will be broken down on the order note.

2. Settlement date

As is the case on the Euronext equity market, bond transactions are in principle liquidated 3 days after the transaction date. Your cash assets will therefore be credited using this settlement date (sale date) or debited (purchase date).

We will try to provide the most precise answers possible on this topic and those that follow. We would like to give you an overview of the basic principles of investing in bonds. However, for more information, we advise you to undertake further reading.

• the issuer's country of domicile
• the sector and sectoral group to which the issuer belongs
• the rating and solvency stated by Moody's

3. Information about the bond issue

• The bond ISIN code and symbol. The ISIN code is the international standard for designating a financial instrument.
• Bond currency
• Collateral – type (guarantee and hierarchy)
  • Senior: means this is a conventional type of bond which is not subordinated.
  • Unsecured: the bond is not secured by any specific guarantee. Debt secured by collateral is the most widespread type of senior debt.
  • Subordinated: this is a bond which is subordinated. In the event of a credit incident such as bankruptcy, these bonds will be repaid after the senior debt. These bonds are therefore very risky in cases where the issuer is experiencing credit difficulties.
  • Asset backed: these obligations are guaranteed by particular assets
  • Company guaranteed: the bond loan is guaranteed by another company (often the parent company of a multinational).
  • Bank guaranteed: the bond is guaranteed by a bank (often in the case of a bank belonging to a bank holding company).
  • (Foreign) government guaranteed: the bond is guaranteed by a (foreign) government.

4. Coupon

• The coupon is annual. If payments are made quarterly, the quarterly coupon will be equal to a quarter of the designated annual coupon.
• Frequency of coupon payments.
• In the majority of cases, the coupon is paid annually (frequency of 1), but for certain other bonds, the coupon is paid twice annually (frequency of 2) or even quarterly (frequency of 4).
• Coupon type:
  • Fixed: the coupon is fixed for the entire life of the bond
  • Floating: the coupon is floating, and is in principle adjusted at every coupon payment date. This coupon is often linked to a benchmark interest rate such as the Euribor or Libor. This benchmark will be explained in the box entitled "secondary description".
  • Zero: the coupon amount is zero, and so the bond is a zero-rate bond.
  • Step-up: the coupon increases after each coupon payment. Details of this type of coupon will be given in the box entitled "secondary description".
  • Variable: the coupon is variable and can depend on a large number of factors, e.g. a stock market index. The coupon may also fluctuate within a pre-determined range. Details of this type of coupon will be given in the box entitled "secondary description".

Warning: Step-up and variable bonds are complex instruments and we do not recommend them to inexperienced investors!

• Existence of a put option: if the bond has a put option attached, this means that the bondholder can, in certain circumstances before maturity, ask the issuer to repay the bond loan early (more details on this subject will be provided later).
• Existence of a call option: if the bond has a call option attached, this means the issuer can, in certain circumstances before maturity, repay the bond early (more details will be given on this subject in the box entitled "secondary description".
• Secondary description: all further information of use is provided here (in English, and with abbreviations)!

5. Information about bond negotiation.

• Minimum transaction quantity
  • This is the minimum quantity accepted by Keytrade Bank for a trade in this bond. This figure is always expressed in the currency of the bond. A minimum transaction amount of 1,000 therefore means that the bonds can only be negotiated in multiples of a nominal value of EUR 1,000 (with a minimum stake of EUR 1,000).
• Trade settlement date
  • As is the case on the Euronext equity market, bond transactions are in principle liquidated 3 business days after the transaction date. On this settlement date, your liquid assets will either be credited (if you are selling) or debited (purchasing).
• Date of next coupon
• Accrued interest on a nominal value of 100
  • If you buy a bond, you will have to pay the accrued interest to the seller. If you sell a bond, you will receive the accrued interest. Here we will indicate the total amount of accrued interest if you execute the transaction today. The indication is always based on a nominal value of 100: for example, you have EUR 10,000 of a particular bond and the accrued interest for 100 amounts to 3.4551. This means that if you sell this bond today, you will receive EUR 345.51 in accrued interest. This amount must be paid by the buyer.
• Method used to calculate accrued interest
  • This figure is given purely for the purposes of information
  • Please refer to the "basic principles"

6. Information on price

• The seller (bid) and buyer (ask) price
  • Prices are always expressed in the form of a percentage of the nominal value that you wish to buy. Accrued interest is never included in the price!
  • The ask price is the price at which you can sell the bond
  • The bid price is the price at which you can buy the bond
• 2. The maximum quantity for which these bid and ask prices are valid.
  • These are the maximum nominal values that you can buy or sell online for a particular bond which is worth the price indicated.
  • If you would like to negotiate a larger amount, two options are available:
    • You can call our trading desk +32(0)2/679.90.99
    • Or you can split your trade into several parts. However, there is no guarantee that this method will enable you to reach the desired quantity; everything depends on the market situation at that precise point in time.
• 3. Yield on the sale price (ask yield) and on the purchase price (bid yield).

7. The trading window

During the trading window, you enter the transaction which you subscribe to using your electronic signature.

8. Executing a trade

Your order to trade must be transmitted via the trading window, allowing you to specify:

• Buy or sell
• The nominal value you wish to negotiate (in the currency of the bond issue)
• The currency in which you wish to be debited or credited If you wish, therefore, you can pay for a bond in US Dollars in euros.

Once you have entered your trade, you will receive a summary and breakdown showing the total amount of the transaction. It is important to bear in mind that the value of the trade can be very different to the nominal value.

For example: A bond is listed at 107.15 - 107.35 The accrued interest is 2.455 You buy EUR 5,000 of this bond The transaction value will be calculated as follows:

9. Opening times

Opening times are from 9am to 5pm.