Colombo Stock Exchange Equity Indices Policies & Practices

Transcription

1 Colombo Stock Exchange Equity Indices Policies & Practices

2 Table of Contents Introduction... 2 Eligibility Factors... 3 Index Calculations... 3 Index Maintenance... 3 Base adjustment... 3 Additions and Deletions... 4 Adjustments for Corporate Actions... 4 Sector Indices... 5 Total Return Indices... 5 Adjustment for Cash Dividend... 6 Computation of TRI... 6 Index Governance... 8 Index Dissemination... 8 Contact Information P a g e

3 Introduction The Colombo Stock Exchange (CSE) calculates and publishes the All Share Price Index (ASPI) and its related indices including CSE Sector Indices and Total Return Indices in accordance with the policies and procedures mentioned in this document. If any event not described below occurs or the CSE decides it is impossible to use the following method, the CSE will use an alternative method of calculation it deems valid. This document is prepared solely for the understanding of indices calculated and published by the CSE, and is not to be construed as a solicitation or offer to buy or sell any securities or related financial instruments. The content of this document can be used only for reference. Any forms of publishing, copy or distribution of information in this document is strictly prohibited. The ASPI is the broad market index of the CSE, and is designed to measure the movements of the overall market. The index is calculated in real-time as a market capitalization weighted index, which constitutes all voting and non-voting ordinary shares listed on the CSE. 2 P a g e

4 Eligibility Factors The following share classes of stocks listed on the Colombo Stock Exchange are eligible for index inclusion: Voting Ordinary Shares Non-voting Ordinary Shares (with effect from 19 th June 2017) Index Calculations The ASPI is calculated using the following formula; ASPI = Market Capitalization of All Listed Comapnies Base Market Capitalization 100 Where, Market Capitalization = n i=1 Current No. of Listed Shares of Company i Market Price i n Base Market Capitalization = i=1 No. of Listed Shares of Company i Market Price i Base values are established with average market value on year Hence the base date is January 02, 1985 and base value is equal to 100. Index Maintenance In the event of any increase or decrease in the current market value due to reasons other than fluctuations in the stock price movements, the CSE will make necessary adjustments to the Base Market Capitalization in order to eliminate all effects other than price movements. By adjusting the Base Market Capitalization, the index value retains its continuity before and after the event. Base adjustment The following formula will be used for base adjustments. B t = B t 1 ( IMC t IMC t 1 ) 3 P a g e

5 Where; B t 1 Base Market Capitalization at time t-1 B t - Base Market Capitalization at time t IMC t Indexed Market Capitalization at time t IMC t 1 Indexed Market Capitalization at time t-1 Additions and Deletions In the event of a new listing (by way of an Introduction, Offer for Sale or Offer for Subscription), the security will be added to the index on the date of listing. Base Market Capitalization will be adjusted based on the Issued Price and the quantity of the newly listed security. Securities can be deleted from the index due to mergers, acquisitions, or delistings. The security will be deleted at the end of the day (EOD) before the delisting date and the base will be adjusted accordingly. Adjustments for Corporate Actions Corporate actions that require Price and Base adjustments are implemented prior to the opening of trading on the effective date (Ex-Date) ensuring that the movement of the index does not reflect the corporate actions of the companies in it. In the event that a listed issuer announces a share sub-division or a share consolidation or makes changes to its capital structure by way of rights issues, bonus issues, cash dividend payments, etc., are adjusted to the previous closing price of the relevant listed security on the Ex- date. Below table shows the necessary adjustments to the index and the Base Market Capitalization for corporate actions. 4 P a g e

6 Adjustments for Corporate Actions Event Index Adjustment Base Adjustment Rights Issue B new shares for A shares held at subscription price of C per share Indexed Price (New) = {Indexed Price(Old) A)} + (B C) (A + B) Indexed Qty (New) = Indexed Qty (Old) { (A + B) A } Yes. As per the above base adjustment formula Scrip Dividend/ Capitalization of Reserves B new shares for A shares held A Indexed Price (New) = Indexed Price (Old) (A + B) (A + B) Indexed Qty (New) = Indexed Qty (Old) { } A No (The increase in Indexed quantity and the decrease in the Indexed Price ensures the Base value to be unchanged) Share Split/Reverse Split/Capital reduction A shares split into B shares Share Repurchase Indexed Price (New) = Indexed Price (Old) A B Indexed Qty (New) = Indexed Qty (Old) B A Indexed Qty (New) = Indexed Qty (Old) Repurchased Qty No (The change in Indexed quantity and the change in the Indexed Price ensures the Base value to be unchanged) Yes. As per the above base adjustment formula Sector Indices The CSE Sector Indices consists of indices created by dividing the constituents of ASPI into twenty Sectors. These price indices reflect the price movements of companies in the twenty respective sectors. The base dates and base values of these indices are the same as of ASPI (i.e. base date is January 02, 1985 and base value is equal to 100). Additions, deletions and adjustments for corporate actions for these indices follow the same rules of ASPI. Total Return Indices Introduced in January 2004, the Total Return Indices (TRI) are calculated daily in addition to the Price Indices. The TRI reflects returns due to both price changes and dividend income. The TRI is 5 P a g e

7 hence a better measure of returns from an investor's perspective. In computing the TRI, it is assumed that dividends earned from a share are re-invested in the market. The total return indices of ASPI, S&P SL20, and Sector Indices are published daily, using the total returns basis. The TRI calculated on ASPI is known as ASTRI. Adjustment for Cash Dividend To adjust the price index for dividends, an index dividend adjustment is computed representing the value of cash dividends declared by the constituent on ex-dividend date, as expressed in index points. The formula used for the computation of the ex-dividend adjustment for a value-weighted total return index is given below: Ex-dividend adjustment (XDJ) XDJ = GiWi B Base Index value Where: Gi - Dividend per share of the i th component security Wi - Weighting of the i th component security (equal to the number of ordinary shares issued by the company) B - Base market capitalization of the relevant price index Base Index Value: ASPI= 100, S&P SL20=1000 Computation of TRI The formula used for calculating TRI is given below: Where: TRIt - Total Return Index value today TRIy - Total Return Index value previous day PIt - Underlying Price Index today 6 P a g e

8 PIy - Underlying Price Index previous day XDJ - Ex-dividend adjustment as computed above 7 P a g e

9 Index Governance Index Committee The ASPI and related indices are maintained by the Index Governance Committee of the CSE, which is responsible for the oversight and management of all internally published stock indices of the CSE. In addition, the committee may review the index methodology periodically to evaluate whether the index continues to measure what it is designed to measure and/or achieve the objective it is intended to achieve. The Index Committee is composed of full-time employees of the CSE and external personnel who possess the relevant levels of expertise and competence. Index Dissemination Index values for ASPI and other related Price Indices are disseminated in real-time basis via CSE website ( major information vendors and various print and electronic media. Total return index (TRI) values are only available on an EOD basis. Contact Information Index Management Nishantha Hewavithana Head - Research & New Products/ Chairman of the Index Committee nishanthah@cse.lk Media Relations Sheraj Obeyesekere Senior Executive - Public Relations Sheraj@cse.lk P a g e