Introduction of a Transition Index

Transcription

1 Introduction of a Transition Index Regarding the Solactive Global Uranium Total Return Index Solactive Global Uranium & Nuclear Components Total Return Index Solactive Global Uranium & Nuclear Components Transition TR Index Version th January 2018

2 Content Introduction 1 Difference between the Existing Index and the New Index 2 Process of Introducing the Transition Index 2.1 Description and Overview 2.2 Example 2.3 Timing 2.3 Vendor Information 3 Contact details

3 Introduction Due to significant changes in the economic reality of the uranium industry, Solactive has decided to introduce an index that offers broader exposure to the uranium market than the Solactive Global Uranium Total Return Index. This new index will be called the Solactive Global Uranium & Nuclear Components Total Return Index. In addition to increasing liquidity and diversification relative to the Solactive Global Uranium Total Return Index, the new index will also expand the index universe by changing the way the universe is determined. Supported by the Uranium Suppliers Annual report published by the Ux Consulting Company (UxC), one of the nuclear industry s leading consulting companies, Solactive determines the new index universe. Additionally, Solactive will add a list of nuclear component producers to the universe to further broaden the selection pool and increase liquidity of the index. In recent years, the price of uranium has experienced a gradual decline which has put pressure on companies in the uranium industry. Most notably, the April 2011 earthquake in Fukushima, Japan, and the subsequent issues at the Fukushima Daiichi nuclear plant, have caused many countries to reevaluate their nuclear energy programs and has reduced demand for uranium as a source for nuclear power. This downward price trend has contributed to substantial decreases in the market capitalization of these companies, making them increasingly illiquid. Since the market environment is considerably different than the one the Solactive Global Uranium Total Return Index was initially supposed to measure, a new index, the Solactive Global Uranium and Nuclear Components Total Return Index, will be introduced. Keeping in mind the products linked to the existing index, especially with regard to the Global X Uranium ETF counting approximately USD million AUM (as of 26 th January 2018) and the possibility that the aforementioned products will switch from the existing Index to the new Solactive Global Uranium & Nuclear Components Total Return Index, Solactive will introduce a Transition Index called Solactive Global Uranium & Nuclear Components Transition TR Index. This will ensure a smooth transition phase with less market impact to take place. This paper describes and discusses the exact procedure.

4 1 Difference between the Existing Index and New Index In the following sections, the Solactive Global Uranium Total Return Index is referred to as the Existing Index. The Solactive Global Uranium & Nuclear Components Total Return Index is referred to as the New Index. The Solactive Global Uranium & Nuclear Components Transition TR Index is referred to as the Transition Index. The Existing Index conditions for inclusion in the Selection Pool are as follows: (a) Listing on a regulated stock exchange in the form of shares tradable for foreign investors without restrictions (b) A significant part of the business operations is or is expected to be related to the uranium industry (in particular uranium mining, exploration for uranium, physical uranium investments and technologies related to the uranium industry) OR Non Pure Play which are companies that conduct business operations that are related to the uranium industry (in particular uranium mining, exploration for uranium, physical uranium investments and technologies related to the uranium industry) in which they generate large absolute revenues (c) Free Float Market Capitalization of at least 50 million USD for companies which are not Index Components on the respective Selection Day, at least 10 million USD for companies which are Index Components on the respective Selection Day (d) Average daily trading volume in the last three months of at least 100,000 USD for companies which are not Index Components on the respective Selection Day, at least 10,000 USD for companies which are Index Components on the respective Selection Day (e) Average monthly trading volume of at least 75,000 shares in each of the last six months ( Liquidity Criterion ) The criteria above should be replaced with the following conditions for the composition of the New Index: (a) Listing on a regulated stock exchange in the form of shares tradable for foreign investors without restrictions (b) The universe will be constructed and defined by Solactive and supported with the Uranium Suppliers Annual as provided on a yearly basis by Ux Consulting (UxC). The report will also be considered to classify companies as pure play companies or non-pure play companies. Pure Play companies in the Uranium Suppliers Annual are generally those with significant business operations in the uranium industry (particularly in uranium mining and exploration for uranium). Non-pure Play companies are generally those that conduct business operations that are related to the uranium industry (in particular uranium mining, exploration for uranium, physical uranium investments and technologies related to the uranium industry), and in which they generate large absolute

5 revenues. Additionally, a list of nuclear component producers will be added to the index universe. (c) Free Float Market Capitalization of at least USD 75 million for companies which are not Index Components on the respective Selection Day, and at least USD 50 million for companies which are Index Components on the respective Selection Day (d) Average daily trading volume in the last three months of at least USD 100,000 for companies which are not Index Components on the respective Selection Day, at least USD 50,000 for companies which are Index Components on the respective Selection Day The newly defined criteria contain both qualitative and quantitative screening rules. The required free float market capitalization increases from USD 50 million (USD 10 million) to USD 75 million (USD 50 million) when passing from the Existing Index to the New Index. Additionally, the minimum average daily value for companies that are Index Components on the respective Selection Day increases from USD 10,000 to USD 50,000. The weighting of the Existing Index is as follows: On each Selection Day each Index Component of the Solactive Global Uranium Index is weighted proportionally according to its Free Float Market Capitalization. The maximum weight of any company is 23%. All companies with a weight of 5% or more are capped as a group to ensure appropriate index representation and index compliance with financial product regulations in the United States. All other companies are capped at 4.5%. Companies that are considered non-pure play and might be added in case the number of eligible index components falls below 20 are always capped at 4.5% as of the Selection Day. The rules above should be replaced with the following new weighting rules for the New Index: On each Selection Day a calculation model is applied to determine the weights of the Index Components of the Solactive Global Uranium & Nuclear Components Total Return Index. The objective of the calculation model is to minimize the sum of squared differences between the final weights and the free float market capitalization weighted Selection pool subject to the following set of constraints. (a) The maximum weight of a pure play company is 20% (b) The maximum weight of a non-pure play company is 4.50% (c) The maximum weight of a nuclear component producer company is 4.50% (d) The minimum weight is 0.25% (e) The sum of weights of all components that have a weight larger than 5% must not exceed 45% (f) The sum of weights of all components that have a market capitalization smaller than USD 100 million must not exceed 5% (g) The maximum allowed weight of a company that has an average daily trading volume over the previous 3 months below USD 200,000 is 0.50% (h) The sum of weights of all nuclear component producer companies must not exceed 30%

6 Beside the above changes, the Index Adjustment day will be changed from the last business day of July to the last business day of January. Additionally, there will be a Reweighting Selection Day 10 business days prior to the last business day of July on which the calculation model will be applied again on the universe used at the annual Adjustment day. To ensure that none of the Continuous Listing Standards are violated there will be two Monitoring Selection Days on which it will be checked whether any of the Continuous Listing Standards is breached. If this is the case, following procedure will be applied: The maximum weight of the top index constituent must not be larger than 25% If this criterion is breached, the stock is capped at 22% and the excess weight is redistributed to other non-capped stocks. The maximum aggregate weight of top 5 index constituents must not exceed 60% If this criterion is breached, the stocks will be proportionally capped at 55% and the excess weight is redistributed to other non-capped stocks. The maximum weight of constituents with a market liquidity below 250,000 shares traded (monthly average of the previous 6 months) and USD 25m monthly average daily traded value (monthly average of the previous 6 months) must not exceed 30% If this criterion is breached, the stocks with a market liquidity below 250,000 shares traded (monthly average of the previous 6 months) and USD 25m monthly average daily traded value (monthly average of the previous 6 months) will be proportionally capped at 25% and the excess weight is redistributed to other non-capped stocks. The maximum weight of constituents with a full-market capitalization below USD 100m must not account for more than 10% If this criterion is breached, stocks with market capitalization below 100m will be proportionally capped at 9% and the excess weight is redistributed to other noncapped stocks. This reweighting process will be repeated until no Continuous Listing Standards are breached. The Monitoring Selection Days will be 10 business days before the last business day in April and October. 2 Process of Introducing the Transition Index 2.1 Description and Overview Over a period of 6 months, starting on the 1 st February 2018, the Transition Index will be introduced. During the transition phase, on the 10 th business day before (= Selection Day) the last business day of each month (= Adjustment Day), the Number of Shares (NOSH) of each component constituting the Existing Index and the New Index will be compared. The difference in NOSH between these two Indices is then divided by 6, corresponding to the number of months in which the Transition Index will be in place. The resulting Number of Shares will then be added/deducted from the previous Number of Shares of the component in the Transition Index.

7 The newly calculated Number of Shares will then become effective at the Adjustment day, the last business day of each month. For the avoidance of doubt, on the 1 st February 2018 (COB) the Transition Index will have exactly the same number of Shares and components as the Existing Index. On the 31 st July 2018, the Transition Index will have exactly the same Number of Shares as the New Index. During the transition period i.e. starting on 1 st February and ending on the 31 st July (both dates excluded), there will be no additional rebalancing in the Existing Index. The rebalancing dates of the New Index will be set for the 31 th January 2018 and the 31 st July 2018, and every 6 months after that, as defined in the Guideline. 2.2 Example The attached excel file provides guidance and explanation with an example. Column T to AA give guidance on the planned method including a Transition Index, while the Index is using capped weights. There will be 6 monthly steps to calculate the NOSH of the Transition Index Month 0: NOSH of the Transition Index = NOSH of the Existing Index. Month 1: (NOSH New Index NOSH Existing Index)/6 are added to the NOSH of the Transition Index Month 2: (NOSH New Index NOSH Existing Index)/6 are added to the NOSH of the Transition Index Month 3: (NOSH New Index NOSH Existing Index)/6 are added to the NOSH of the Transition Index Month 4: (NOSH New Index NOSH Existing Index)/6 are added to the NOSH of the Transition Index Month 5: (NOSH New Index NOSH Existing Index)/6 are added to the NOSH of the Transition Index Month 6: NOSH of the Transition Index = NOSH of the New Index Assuming that no Corporate Action will be applicable, starting from Month 1 to Month 5 (included), the additional NOSH that are valid for the Transition Index will always be the same number. This is the case, as neither the Existing nor the New Index will be rebalanced in this time period. Only in Month 6 the New Index will be rebalanced and capped. The calculated Number of Shares on the Selection Day will be implemented as of the close on the Adjustment Day. To match the correct index level on the Adjustment Day, the Number of Shares will be multiplied with a constant Correction Factor, i.e. the Number of Shares will be up up-scaled or downscaled in the Transition Index from month 0 to 6, in month 0 and month 6 in the New Index. The Number of Shares as of the Selection Day are adjusted for any relevant corporate actions between Selection Day and Adjustment Day. This only relates to corporate actions that have a direct impact on the price and shares (i.e. stock splits, stock dividends, rights issues).

8 For clarification: The calculation of the weighting is based on the close market data as of the Selection Day. 2.3 Timing 26 th January 2018: Announcement of Procedure and Introduction of a Transition Index, Publication of new guideline for the New Index 31 st January 2018: New Index will be calculated for the first time live and published under Ticker (see below). 1 st February 2018: Transition Index will be calculated the first time and published under Ticker (see below). 31 st July 2018: Last publication date for Transition Index and Existing Index 2.4 Vendor Information Solactive will apply for new Tickers and RICs for the Transition Index as well as the New Index. Bloomberg Ticker RIC Name SOLURANT Index.SOLURANT Solactive Global Uranium & Nuclear Components Total Return Index SOLURAT Index.SOLURAT Solactive Global Uranium & Nuclear Components Transition TR Index

9 3 Contact details Information regarding the Paper and the Process Solactive AG Guiollettstr Frankfurt am Main Germany Tel.: +49 (69) The application by the Index Calculator of the method described in this document is final and binding. The Index Calculator shall apply the method described above for the composition and calculation of the Index. However, it cannot be excluded that the market environment, supervisory, legal, financial or tax reasons may require changes to be made to this method. The Index Calculator may also make changes to the terms and conditions of the Index and the method applied to calculate the Index, which he deems to be necessary and desirable in order to prevent obvious or demonstrable error or to remedy, correct or supplement incorrect terms and conditions. The Index Calculator is not obliged to provide information on any such modifications or changes. Despite the modifications and changes the Index Calculator will take the appropriate steps to ensure a calculation method is applied that is consistent with the method described above.