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FTSE/JSE Africa Series Ground Rule Change - Index Series
FTSE/JSE Africa Series Ground Rule Change
FTSE/JSE Africa Index Series
20 December 2006
Following approval by the FTSE/JSE Advisory Committee and meeting the
market requirement to re-visit the treatment of unbundlings in the indices,
it has become necessary to update the Ground Rules with immediate effect.
Background
Under the current rules, when a constituent of an index with a fixed number
of companies, such as the FTSE/JSE Top 40 splits into two or more separate
companies by way of demerging, the resulting demerged companies are placed
in the appropriate indices according to market size. FTSE/JSE have always
applied them on the effective date of the demerger.
In order to apply changes on the effective date of the demerger, estimated
market values are used. While FTSE/JSE ensures that the sum of the demerged
companies are equal to the value of the original company immediately prior
to becoming effective, it is unlikely the values will match opening share
prices on the effective date.
Consequently, if any of the resulting demerged companies are placed in a
different index to that of the original company, a tracking error is likely
to result.
Rule Change
In order to minimise the risk of tracking error for indices with a fixed
number of companies, FTSE/JSE will apply any resulting index constituent
changes on the second day following the demerger becoming effective. By
retaining demerged companies in the same index for two days, index
membership changes can be decided at close on day one and processed at
close on day two, using market prices.
Current Rule :
6.2.3 If a constituent company is split so as to form two or more
companies, then the resulting companies will be eligible for inclusion as
index constituents in the appropriate FTSE/JSE African Indices based on
their respective full market capitalisations i.e. before the application of
any investibility weightings and if they qualify in all other respects,
e.g. a FTSE/JSE Top 40 Index constituent split into two companies may
result in one or both of these companies remaining in the FTSE/JSE Top 40
Index. Where both of these companies remain in the FTSE/JSE Top 40 Index,
the smallest FTSE/JSE Top 40 Index constituent will become a constituent of
the FTSE/JSE Mid Capitalisation Index and the lowest ranking constituent in
the FTSE/JSE Mid Capitalisation Index will, in turn, become a constituent
of the FTSE/JSE Small Capitalisation Index. Companies resulting from a
split that are smaller than the lowest ranking FTSE/JSE Mid Capitalisation
Index constituent, will become a constituent of the FTSE/JSE Small
Capitalisation Index if their respective full market capitalisations are
equal or greater than 0.1% of the full market value of the FTSE/JSE Small
Cap index i.e. before the application of any investibility weightings. If
smaller than 0.1% they will be added to the FTSE/JSE Fledgling index.
New Rule :
6.2.4 Index constituent changes resulting from the split will be determined
based on market values at close on day one of trading and applied using
market values at close on day two of trading, following the split becoming
effective. Consequently the Top 40 and any other index with a fixed number
of constituents may have an extra company for 2 days.
For an updated copy of the Ground Rules please see http://ftse.jse.co.za
/Education/Ground_Rules or
http://www.ftse.com/indices_marketdata/JSE/rulebook.jsp
For FTSE / JSE index enquiries or further information about FTSE / JSE
please contact:
Client Services in UK: Tel: +44 (0) 20 7866 1810
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JSE Limited: Tel: (27 11) 520 7137 or +520 7777
Or, email your enquiries to info@ftse.com, indices@jse.co.za or visit our
website at www.ftse.com or www.ftsejse.co.za
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Date: 21/12/2006 07:30:01 Produced by the JSE SENS Department.
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