Technical supplement for the Investment Banking Services Price Index

Release date: July 8, 2019

Overview

The annual Investment Banking Services Price Index (IBSPI) measures the change in prices for a portion of the activity of the Investment Banking Industry. Specifically, the index focuses on the underwriting of new issues of debt and equity which account for the bulk of industry output.Note 1 The primary purpose of the IBSPI is to deflate output in the Canadian System of Macroeconomic Accounts for underwriting activities by investment banks. The release of the 2018 IBSPI marks the implementation of methodological changes in the calculation of the index. This document describes the updated methodology.

Data

The IBSPI is derived by combining data from two sources:

Methodology

Transactions are placed into seven different groups (products) in order to maintain a certain level of homogeneity while still having enough observations to calculate unit prices for each product.Note 4 These seven products are: corporate ownership non-resource sector, corporate ownership resource sector, corporate income trusts, corporate structured funds, corporate debt, corporate preferred shares, and government debt. Government debt data is only available beginning in 2017, within which federal government debt securities (auctioned) and non-syndicated deals (based on reverse inquiries with very low commission) are excluded.

Furthermore, for the securities issued by corporate structured funds, only transactions of limited partnership units, trust units and capital shares are retained in this group. All other transactions (such as common shares and preferred shares) are placed into one of the other six securities groups as these transactions align better with these concepts. 

The price for each product is defined as the following:

P r o d u c t   p r i c e = c o m m i s s i o n s ( p r o c e e d s C a p E x   I P I ) MathType@MTEF@5@5@+= feaagKart1ev2aqatCvAUfeBSjuyZL2yd9gzLbvyNv2CaerbuLwBLn hiov2DGi1BTfMBaeXatLxBI9gBaerbd9wDYLwzYbItLDharqqtubsr 4rNCHbGeaGqiVu0Je9sqqrpepC0xbbL8F4rqqrFfpeea0xe9Lq=Jc9 vqaqpepm0xbba9pwe9Q8fs0=yqaqpepae9pg0FirpepeKkFr0xfr=x fr=xb9adbiqaaeGaciGaaiaabeqaamaabaabaaGcbaGaaeiuaiaabk hacaWGVbGaamizaiaadwhacaWGJbGaamiDaiaabccacaWGWbGaamOC aiaadMgacaWGJbGaamyzaiabg2da9maalaaabaWaaabqaeaacaWGJb Gaam4Baiaad2gacaWGTbGaamyAaiaadohacaWGZbGaamyAaiaad+ga caWGUbGaam4CaaWcbeqab0GaeyyeIuoaaOqaamaabmaabaWaaSGaae aadaaeabqaaiaadchacaWGYbGaam4BaiaadogacaWGLbGaamyzaiaa dsgacaWGZbaaleqabeqdcqGHris5aaGcbaGaam4qaiaadggacaWGWb GaamyraiaadIhacaqGGaGaamysaiaadcfacaWGjbaaaaGaayjkaiaa wMcaaaaaaaa@621B@

Where:

c o m m i s s i o n s MathType@MTEF@5@5@+= feaagKart1ev2aqatCvAUfeBSjuyZL2yd9gzLbvyNv2CaerbuLwBLn hiov2DGi1BTfMBaeXatLxBI9gBaerbd9wDYLwzYbItLDharqqtubsr 4rNCHbGeaGqiVu0Je9sqqrpepC0xbbL8F4rqqrFfpeea0xe9Lq=Jc9 vqaqpepm0xbba9pwe9Q8fs0=yqaqpepae9pg0FirpepeKkFr0xfr=x fr=xb9adbiqaaeGaciGaaiaabeqaamaabaabaaGcbaWaaabqaeaaca WGJbGaam4Baiaad2gacaWGTbGaamyAaiaadohacaWGZbGaamyAaiaa d+gacaWGUbGaam4CaaWcbeqab0GaeyyeIuoaaaa@4278@  is the sum of all commissions for the transactions in the sample within a given year,

p r o c e e d s MathType@MTEF@5@5@+= feaagKart1ev2aqatCvAUfeBSjuyZL2yd9gzLbvyNv2CaerbuLwBLn hiov2DGi1BTfMBaeXatLxBI9gBaerbd9wDYLwzYbItLDharqqtubsr 4rNCHbGeaGqiVu0Je9sqqrpepC0xbbL8F4rqqrFfpeea0xe9Lq=Jc9 vqaqpepm0xbba9pwe9Q8fs0=yqaqpepae9pg0FirpepeKkFr0xfr=x fr=xb9adbiqaaeGaciGaaiaabeqaamaabaabaaGcbaWaaabqaeaaca WGWbGaamOCaiaad+gacaWGJbGaamyzaiaadwgacaWGKbGaam4CaaWc beqab0GaeyyeIuoaaaa@3F8A@ Note 5 is the sum of all  proceeds for the transactions in the sample within a given year,

C a p E x   I P I MathType@MTEF@5@5@+= feaagKart1ev2aqatCvAUfeBSjuyZL2yd9gzLbvyNv2CaerbuLwBLn hiov2DGi1BTfMBaeXatLxBI9gBaerbd9wDYLwzYbItLDharqqtubsr 4rNCHbGeaGqiVu0Je9sqqrpepC0xbbL8F4rqqrFfpeea0xe9Lq=Jc9 vqaqpepm0xbba9pwe9Q8fs0=yqaqpepae9pg0FirpepeKkFr0xfr=x fr=xb9adbiqaaeGaciGaaiaabeqaamaabaabaaGcbaGaam4qaiaadg gacaWGWbGaamyraiaadIhacaqGGaGaamysaiaadcfacaWGjbaaaa@3D77@ is the implicit price index for Gross Fixed Capital Formation for the same year (currently 2012 = 100).

Dividing the nominal proceeds by the C a p E x   I P I MathType@MTEF@5@5@+= feaagKart1ev2aqatCvAUfeBSjuyZL2yd9gzLbvyNv2CaerbuLwBLn hiov2DGi1BTfMBaeXatLxBI9gBaerbd9wDYLwzYbItLDharqqtubsr 4rNCHbGeaGqiVu0Je9sqqrpepC0xbbL8F4rqqrFfpeea0xe9Lq=Jc9 vqaqpepm0xbba9pwe9Q8fs0=yqaqpepae9pg0FirpepeKkFr0xfr=x fr=xb9adbiqaaeGaciGaaiaabeqaamaabaabaaGcbaGaam4qaiaadg gacaWGWbGaamyraiaadIhacaqGGaGaamysaiaadcfacaWGjbaaaa@3D77@ in the same period holds the purchasing power of proceeds constant over time. Each product's commission revenue is used as weights to aggregate prices into an index. With the 2018 release, the index is calculated and published using three different index number formulas:

Basic formula for Laspeyres price index:

I L a s p e y r e s = i = 0 n p t i q 0 i i = 0 n p 0 i q 0 i MathType@MTEF@5@5@+= feaagKart1ev2aqatCvAUfeBSjuyZL2yd9gzLbvyNv2CaerbuLwBLn hiov2DGi1BTfMBaeXatLxBI9gBaerbd9wDYLwzYbItLDharqqtubsr 4rNCHbGeaGqiVu0Je9sqqrpepC0xbbL8F4rqqrFfpeea0xe9Lq=Jc9 vqaqpepm0xbba9pwe9Q8fs0=yqaqpepae9pg0FirpepeKkFr0xfr=x fr=xb9adbaqaaeGaciGaaiaabeqaamaabaabaaGcbaGaamysamaaDa aaleaacaWGmbGaamyyaiaadohacaWGWbGaamyzaiaadMhacaWGYbGa amyzaiaadohaaeaaaaGccqGH9aqpdaWcaaqaamaaqadabaGaamiCam aaDaaaleaacaWG0baabaGaamyAaaaakiabgEHiQiaadghadaqhaaWc baGaaGimaaqaaiaadMgaaaaabaGaamyAaiabg2da9iaaicdaaeaaca WGUbaaniabggHiLdaakeaadaaeWaqaaiaadchadaqhaaWcbaGaaGim aaqaaiaadMgaaaGccqGHxiIkcaWGXbWaa0baaSqaaiaaicdaaeaaca WGPbaaaaqaaiaadMgacqGH9aqpcaaIWaaabaGaamOBaaqdcqGHris5 aaaaaaa@590C@

Basic formula for Paasche price index:

I P a a s c h e = i = 0 n p t i q t i i = 0 n p 0 i q t i MathType@MTEF@5@5@+= feaagKart1ev2aqatCvAUfeBSjuyZL2yd9gzLbvyNv2CaerbuLwBLn hiov2DGi1BTfMBaeXatLxBI9gBaerbd9wDYLwzYbItLDharqqtubsr 4rNCHbGeaGqiVu0Je9sqqrpepC0xbbL8F4rqqrFfpeea0xe9Lq=Jc9 vqaqpepm0xbba9pwe9Q8fs0=yqaqpepae9pg0FirpepeKkFr0xfr=x fr=xb9adbaqaaeGaciGaaiaabeqaamaabaabaaGcbaGaamysamaaDa aaleaacaWGqbGaamyyaiaadggacaWGZbGaam4yaiaadIgacaWGLbaa baaaaOGaeyypa0ZaaSaaaeaadaaeWaqaaiaadchadaqhaaWcbaGaam iDaaqaaiaadMgaaaGccqGHxiIkcaWGXbWaa0baaSqaaiaadshaaeaa caWGPbaaaaqaaiaadMgacqGH9aqpcaaIWaaabaGaamOBaaqdcqGHri s5aaGcbaWaaabmaeaacaWGWbWaa0baaSqaaiaaicdaaeaacaWGPbaa aOGaey4fIOIaamyCamaaDaaaleaacaWG0baabaGaamyAaaaaaeaaca WGPbGaeyypa0JaaGimaaqaaiaad6gaa0GaeyyeIuoaaaaaaa@577D@

Basic formula for Fisher price index (Geometric average of Laspeyres and Paasche):

I F i s h e r = i = 0 n p t i q 0 i i = 0 n p 0 i q 0 i i = 0 n p t i q t i i = 0 n p 0 i q t i MathType@MTEF@5@5@+= feaagKart1ev2aqatCvAUfeBSjuyZL2yd9gzLbvyNv2CaerbuLwBLn hiov2DGi1BTfMBaeXatLxBI9gBaerbd9wDYLwzYbItLDharqqtubsr 4rNCHbGeaGqiVu0Je9sqqrpepC0xbbL8F4rqqrFfpeea0xe9Lq=Jc9 vqaqpepm0xbba9pwe9Q8fs0=yqaqpepae9pg0FirpepeKkFr0xfr=x fr=xb9adbaqaaeGaciGaaiaabeqaamaabaabaaGcbaGaamysamaaDa aaleaacaWGgbGaamyAaiaadohacaWGObGaamyzaiaadkhaaeaaaaGc cqGH9aqpdaGcaaqaamaalaaabaWaaabmaeaacaWGWbWaa0baaSqaai aadshaaeaacaWGPbaaaOGaey4fIOIaamyCamaaDaaaleaacaaIWaaa baGaamyAaaaaaeaacaWGPbGaeyypa0JaaGimaaqaaiaad6gaa0Gaey yeIuoaaOqaamaaqadabaGaamiCamaaDaaaleaacaaIWaaabaGaamyA aaaakiabgEHiQiaadghadaqhaaWcbaGaaGimaaqaaiaadMgaaaaaba GaamyAaiabg2da9iaaicdaaeaacaWGUbaaniabggHiLdaaaOGaey4f IOYaaSaaaeaadaaeWaqaaiaadchadaqhaaWcbaGaamiDaaqaaiaadM gaaaGccqGHxiIkcaWGXbWaa0baaSqaaiaadshaaeaacaWGPbaaaaqa aiaadMgacqGH9aqpcaaIWaaabaGaamOBaaqdcqGHris5aaGcbaWaaa bmaeaacaWGWbWaa0baaSqaaiaaicdaaeaacaWGPbaaaOGaey4fIOIa amyCamaaDaaaleaacaWG0baabaGaamyAaaaaaeaacaWGPbGaeyypa0 JaaGimaaqaaiaad6gaa0GaeyyeIuoaaaaaleqaaaaa@705D@

where: p t i MathType@MTEF@5@5@+= feaagKart1ev2aqatCvAUfeBSjuyZL2yd9gzLbvyNv2CaerbuLwBLn hiov2DGi1BTfMBaeXatLxBI9gBaerbd9wDYLwzYbItLDharqqtubsr 4rNCHbGeaGqiVu0Je9sqqrpepC0xbbL8F4rqqrFfpeea0xe9Lq=Jc9 vqaqpepm0xbba9pwe9Q8fs0=yqaqpepae9pg0FirpepeKkFr0xfr=x fr=xb9adbiqaaeGaciGaaiaabeqaamaabaabaaGcbaGaamiCamaaDa aaleaacaWG0baabaGaamyAaaaaaaa@3902@ is the price for product i MathType@MTEF@5@5@+= feaagKart1ev2aqatCvAUfeBSjuyZL2yd9gzLbvyNv2CaerbuLwBLn hiov2DGi1BTfMBaeXatLxBI9gBaerbd9wDYLwzYbItLDharqqtubsr 4rNCHbGeaGqiVu0Je9sqqrpepC0xbbL8F4rqqrFfpeea0xe9Lq=Jc9 vqaqpepm0xbba9pwe9Q8fs0=yqaqpepae9pg0FirpepeKkFr0xfr=x fr=xb9adbiqaaeGaciGaaiaabeqaamaabaabaaGcbaGaamyAaaaa@36E7@ in period t , MathType@MTEF@5@5@+= feaagKart1ev2aqatCvAUfeBSjuyZL2yd9gzLbvyNv2CaerbuLwBLn hiov2DGi1BTfMBaeXatLxBI9gBaerbd9wDYLwzYbItLDharqqtubsr 4rNCHbGeaGqiVu0Je9sqqrpepC0xbbL8F4rqqrFfpeea0xe9Lq=Jc9 vqaqpepm0xbba9pwe9Q8fs0=yqaqpepae9pg0FirpepeKkFr0xfr=x fr=xb9adbiqaaeGaciGaaiaabeqaamaabaabaaGcbaGaamiDaaaa@36F2@ and q t i MathType@MTEF@5@5@+= feaagKart1ev2aqatCvAUfeBSjuyZL2yd9gzLbvyNv2CaerbuLwBLn hiov2DGi1BTfMBaeXatLxBI9gBaerbd9wDYLwzYbItLDharqqtubsr 4rNCHbGeaGqiVu0Je9sqqrpepC0xbbL8F4rqqrFfpeea0xe9Lq=Jc9 vqaqpepm0xbba9pwe9Q8fs0=yqaqpepae9pg0FirpepeKkFr0xfr=x fr=xb9adbiqaaeGaciGaaiaabeqaamaabaabaaGcbaGaamyCamaaDa aaleaacaWG0baabaGaamyAaaaaaaa@3903@ is the quantity (proceeds adjusted by C a p E x   I P I MathType@MTEF@5@5@+= feaagKart1ev2aqatCvAUfeBSjuyZL2yd9gzLbvyNv2CaerbuLwBLn hiov2DGi1BTfMBaeXatLxBI9gBaerbd9wDYLwzYbItLDharqqtubsr 4rNCHbGeaGqiVu0Je9sqqrpepC0xbbL8F4rqqrFfpeea0xe9Lq=Jc9 vqaqpepm0xbba9pwe9Q8fs0=yqaqpepae9pg0FirpepeKkFr0xfr=x fr=xb9adbiqaaeGaciGaaiaabeqaamaabaabaaGcbaGaam4qaiaadg gacaWGWbGaamyraiaadIhacaqGGaGaamysaiaadcfacaWGjbaaaa@3D77@ in period t ) MathType@MTEF@5@5@+= feaagKart1ev2aqatCvAUfeBSjuyZL2yd9gzLbvyNv2CaerbuLwBLn hiov2DGi1BTfMBaeXatLxBI9gBaerbd9wDYLwzYbItLDharqqtubsr 4rNCHbGeaGqiVu0Je9sqqrpepC0xbbL8F4rqqrFfpeea0xe9Lq=Jc9 vqaqpepm0xbba9pwe9Q8fs0=yqaqpepae9pg0FirpepeKkFr0xfr=x fr=xb9adbiqaaeGaciGaaiaabeqaamaabaabaaGcbaGaamiDaaaa@36F2@ for product i MathType@MTEF@5@5@+= feaagKart1ev2aqatCvAUfeBSjuyZL2yd9gzLbvyNv2CaerbuLwBLn hiov2DGi1BTfMBaeXatLxBI9gBaerbd9wDYLwzYbItLDharqqtubsr 4rNCHbGeaGqiVu0Je9sqqrpepC0xbbL8F4rqqrFfpeea0xe9Lq=Jc9 vqaqpepm0xbba9pwe9Q8fs0=yqaqpepae9pg0FirpepeKkFr0xfr=x fr=xb9adbiqaaeGaciGaaiaabeqaamaabaabaaGcbaGaamyAaaaa@36E7@ in period t . MathType@MTEF@5@5@+= feaagKart1ev2aqatCvAUfeBSjuyZL2yd9gzLbvyNv2CaerbuLwBLn hiov2DGi1BTfMBaeXatLxBI9gBaerbd9wDYLwzYbItLDharqqtubsr 4rNCHbGeaGqiVu0Je9sqqrpepC0xbbL8F4rqqrFfpeea0xe9Lq=Jc9 vqaqpepm0xbba9pwe9Q8fs0=yqaqpepae9pg0FirpepeKkFr0xfr=x fr=xb9adbiqaaeGaciGaaiaabeqaamaabaabaaGcbaGaamiDaaaa@36F2@

The Fisher index is an example of a superlative index and it is the preferred measure of price change when weights are volatile, as is the case with the IBSPI.

Limitations of the IBSPI

One limitation of the Investment Banking Services Price Index is that it does not include corporate advisory services (mainly mergers and acquisitions, which is about one third of total output) since it is not required by regulation to disclose commission information for these types of transactions. If warranted, data from investment banks would need to be obtained, either by survey or other means in order to measure these activities in the future. One of the biggest challenges faced in the measurement of this sector, comes in the ability to distribute the underwriting deals into their correct product groupings. Deals for the same type of securities can vary period to period in terms of characteristics, and in the case where “sweeteners”Note 6 are added to attract underwriters and investors, it can be difficult to measure real prices and maintain a level of comparability over time. Therefore, research into the industry and analysis on the different types of transactions will continue and the methodology will be updated to reflect the evolution of investment banking sector.

Notes


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