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FTSE Ground Rules – Capping Methodology 09 November 2011 |
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In order to provide further clarity on the change to the timing of constituent weighting factor calculations, please note the following amendments to Appendix B of the FTSE/JSE Index Series Ground Rules effective at the December 2011 Quarterly Review. Currently new constituent weightings are calculated at each quarterly review, using the closing prices on the third Friday of review month. The FTSE/JSE Advisory Committee agreed that, going forward; prices as on the second Friday of review month will be used to calculate constituent weighting factors. Existing Rule Appendix B – Methodology for Capping Indices Capping Methodology at Quarterly Reviews FTSE/JSE Capped All-Share Indices The construction of the FTSE/JSE Capped All-Share Indices follows the FTSE/JSE All-Share Index construction methodology and only differs with regards to the Capping Level of 10%. For clarity, the following characteristics of the FTSE/JSE Capped Indices will remain identical to that of the current FTSE/JSE All-Share Index: • number of constituents and also the list of constituents • application of liquidity screening • free float bands • index calculation method (shares in issue * free float * price) • eligibility criteria • underlying data such as shares in issue, share prices and so on • application of corporate actions. FTSE/JSE Equally Weighted Top 40 Index The construction of the FTSE/JSE Equally Weighted Top 40 Index follows the FTSE/JSE Top 40 Index construction methodology and only differs with regards to the Capping Level of 2.5% for each constituent. FTSE/JSE Equally Weighted Industrial 25 Index The construction of the FTSE/JSE Equally Weighted Industrial 25 Index follows the FTSE/JSE Industrial 25 Index construction methodology and only differs with regards to the Capping Level of 4% for each constituent. FTSE/JSE Equally Weighted Resource 10 Index The construction of the FTSE/JSE Equally Weighted Resource 10 Index follows the FTSE/JSE Resources 10 Index construction methodology and only differs with regards to the Capping Level of 10% for each constituent. FTSE/JSE Equally Weighted Financial 15 Index The construction of the FTSE/JSE Equally Weighted Financial 15 Index follows the FTSE/JSE Financial 15 Index construction methodology and only differs with regards to the Capping Level of 6.66…% for each constituent. FTSE/JSE Capped Property Index (J254) The Capping Level of the FTSE/JSE Capped Property Index (J254) is fixed at 15%. Capping will only be applied at the quarterly review stage and therefore the percentage weight of any constituent in the index may move above/below the capped level during the quarter due to price changes and corporate actions. 1. The capping procedure is applied to the indices after the close of business on the third Friday of March, June, September and December. 2. Any changes in constituents or corporate actions/events which take place on the following business day will be taken into account before the capping procedure is applied. 3. The free float and investability weighting changes for all constituents will only happen on the Friday evening and are thus not taken into account before the capping procedure is applied. The reason for this is that a number of JSE companies also form part of the FTSE All World Series. 4. Upon completion of the above steps the capping procedure is applied using the following algorithm:- NB. The algorithm is applied to each constituent which requires capping, i.e. any constituent whose uncapped weight is greater than the capping level. Constituent Capping Factor = X = the latest trade price of each uncapped component security W = the weighting for each uncapped component security (equal to the amount of ordinary share capital issued by the company to the nearest thousand) I = the investability weight of the component security P = percentage of the index represented by all uncapped constituents z = percentage capping level capa = uncapped market capitalisation of the constituent to be capped The constituent capping factor is calculated for all constituents whose uncapped weight after the application of investability weightings is greater than the Capping Level. The weights of the capped and uncapped constituents in the index are then calculated. If following the application of this capping procedure other constituents have moved above the Capping Level in weight then the process is repeated including the new constituent(s) which require capping. New Rule Appendix B – Methodology for Capping Indices Capping Methodology at Quarterly Reviews Capping will only be applied at the quarterly review and therefore the percentage weight of any constituent in the index may move above/below the capped level during the quarter due to price changes and corporate actions. 1. The capping procedure is applied to the indices after the close of business on the third Friday of March, June, September and December and will be effective at start of business on the following business day. 2. Any changes in constituents or corporate actions/events which take place on the following business day will be taken into account before the capping procedure is applied. 3. The calculation of the constituent weighting factors will be based on instrument prices taken on the second Friday of March, June, September and December. 4. Upon completion of the above steps the capping procedure is applied using the following algorithm:- NB. The algorithm is applied to each constituent which requires capping, i.e. any constituent whose uncapped weight is greater than the capping level. Constituent Capping Factor = X = the latest trade price of each uncapped component security W = the weighting for each uncapped component security (equal to the amount of ordinary share capital issued by the company to the nearest thousand) I = the investability weight of the component security P = percentage of the index represented by all uncapped constituents z = percentage capping level capa = uncapped market capitalisation of the constituent to be capped The constituent capping factor is calculated for all constituents whose uncapped weight after the application of investability weightings is greater than the Capping Level. The weights of the capped and uncapped constituents in the index are then calculated. If following the application of this capping procedure other constituents have moved above the Capping Level in weight then the process is repeated including the new constituent(s) which require capping. FTSE/JSE Capped and Equally Weighted Indices The construction of the FTSE/JSE Capped and Equally Weighted Indices follows the construction of existing FTSE/JSE Indices and only differ with regards to the maximum weight of each constituent. For clarity, the following characteristics of the FTSE/JSE Capped and Equally Weighted Indices will remain identical to that of the index on which they are based: • number of constituents and also the list of constituents • application of liquidity screening • free float bands • eligibility criteria • underlying data such as shares in issue, share prices and so on List of capped and equally weighted indices in the FTSE/JSE Africa Index Series:
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