Kuwait Stock Exchange. Index Rulebook

Transcription

1 Kuwait Stock Exchange Index Rulebook

2 Table of Contents 1. Kuwait Stock Exchange Indexes Introduction KSE Family of Indexes Index Eligible Securities Suspension Information Policy Trading Calendar & Hours KUWAIT 15 Index (KSX15) Qualification & Selection Criteria KUWAIT 15 Eligibility Requirements: KUWAIT 15 Index Periodic Review & Dates KUWAIT 15 Selection Criteria KUWAIT 15 Index Reserve List KUWAIT 15 Index Deletions & Replacements KSE Sector Classification ICB Classification Methodology KSE industry sector classification review schedule In accordance with ICB Calculation Index Formulas Market Capitalisation Weighted Index Price Index Price Currency Corporate Events/Actions Discretionary Adjustments Daily vs. Periodic Review of Number of Shares in the Index Corporate Actions Adjustments Cash Dividend Bonus Issue Page 2 of 17

3 5.3.3 Rights Issue Reverse Split (capital decrease) Mergers & Acquisitions (M&A) Spin-offs Market Price Issue Trading Halts, Suspensions & Bankruptcies Other/Miscellaneous Issues Other Adjustments Data Format, Input & Corrections Data Format Data Input (Sources) Index Correction Alternative Information Retrieval & Calculation KSE Index Group Contacts KSE Limitation of Liability Page 3 of 17

4 1. Kuwait Stock Exchange Indexes 1.1 Introduction This document, Index Rulebook, describes the Index calculation and adjustment methodology for the Kuwait Stock Exchange (KSE) Indexes. KSE Indexes consist of, as detailed in Section 1.2, Market Indexes, Industry Sector Indexes, and a KSE Flagship Index (KUWAIT 15 Index). The market Indexes are broad based, in that they include all securities officially listed at KSE (see Section 1.3) and accordingly, reflect the performance of the overall KSE equity market. Market Indexes are not intended to be utilised as investable Indexes, however, are relevant for analytical purposes. Index composition maintenance is carried out on a daily basis to reflect continuous changes in outstanding shares and listed companies. KUWAIT 15 Index (KSX15) is designed to be a bellwether indicator of the Kuwait economy. More specifically, it should track the performance of the Kuwait stock market for the purpose of gaining maximum trading exposure and to facilitate derivative trading on KSE. KUWAIT 15 Index is reviewed periodically to cater for the demands of Index stability, investability and low transaction cost. 1.2 KSE Family of Indexes The table below represents the KSE family of Indexes. Index ID Index name ISIN Base value 11 Market Price-Weighted Index KW0IN , Market Capitalisation-Weighted Index KW0IN Kuwait 15 Index KW0IN , Oil & Gas Sector Price-Weighted Index KW0IN , Oil & Gas Sector Capitalisation-Weighted Index KW0IN Basic Materials Sector Price-Weighted Index KW0IN , Basic Materials Sector Capitalisation-Weighted Index KW0IN Industrials Sector Price-Weighted Index KW0IN , Industrials Sector Capitalisation-Weighted Index KW0IN Consumer Goods Sector Price-Weighted Index KW0IN , Consumer Goods Sector Capitalisation-Weighted Index KW0IN Health Care Sector Price-Weighted Index KW0IN , Health Care Sector Capitalisation-Weighted Index KW0IN Consumer Services Sector Price-Weighted Index KW0IN , Consumer Services Sector Capitalisation-Weighted Index KW0IN Telecommunications Sector Price-Weighted Index KW0IN , Telecommunications Sector Capitalisation-Weighted Index KW0IN Utilities Sector Price-Weighted Index KW0IN , Utilities Sector Capitalisation-Weighted Index KW0IN Banks Sector Price-Weighted Index KW0IN ,000 Page 4 of 17

5 38 Banks Sector Capitalisation-Weighted Index KW0IN Insurance Sector Price-Weighted Index KW0IN , Insurance Sector Capitalisation-Weighted Index KW0IN Real Estate Sector Price-Weighted Index KW0IN , Real Estate Sector Capitalisation-Weighted Index KW0IN Financial Services Sector Price-Weighted Index KW0IN , Financial Services Sector Capitalisation-Weighted Index KW0IN Investment Instruments Sector Price-Weighted Index KW0IN , Investment Instruments Sector Capitalisation-Weighted Index KW0IN Technology Sector Price-Weighted Index KW0IN , Technology Sector Capitalisation-Weighted Index KW0IN Parallel Sector Price-Weighted Index KW0IN , Parallel Sector Capitalisation-Weighted Index KW0IN Index Eligible Securities All officially listed company equity securities or listed securities that exhibit characteristics of equity securities; except mutual funds, ETFs, equity derivatives, rights, warrants or similar derived securities, are eligible for Index inclusion. New listings and shares of companies which have resumed trading after being suspended for 90 days or more shall be included in the Price Index the day after the date of listing or the date of resuming trading. New listings shall be assigned an industry classification before inclusion in the Index. Companies listed on the KSE Parallel Market and Investment Instruments sectors are not eligible for inclusion in the market and industry sectors Indexes or KUWAIT 15 Index. Non-Kuwaiti companies are not eligible for inclusion in KUWAIT 15 Index. KSE may, at its discretion, include any security in any Index or exclude any security from any Index. 1.4 Suspension Suspension of a constituent of KSX15 Index shall be dealt with on a case by case basis. When the general assembly of a listed company decides not to approve or to amend the recommendation of the Board of Directors concerning a corporate action; and when this decision is announced after market close or when KSE is not allowed adequate time to do the necessary adjustment, this company shall be suspended on the day following the general assembly meeting, and shall resume trading the day after. Page 5 of 17

6 1.5 Information Policy Changes to the Index composition, corporate action events and the Index calculation methodology will be published by KSE. Index information is distributed via , the KSE website or FTP service, collectively referred to as KSE distribution channels. Information distribution rules are as follows: Index calculation methodology - material changes to the calculation methodology are announced three (3) months prior to effective date. Adjustment of Index composition and corporate action events, for the KSX15 Index only, are announced no later than the day prior to the event effective date. 1.6 Trading Calendar & Hours Indexes are calculated on KSE business days and trading hours. Trading calendar information with trading day holidays, official holidays and time sessions are published on the KSE website. 2. KUWAIT 15 Index (KSX15) Qualification & Selection Criteria 2.1 KUWAIT 15 Eligibility Requirements: The following represent eligibility requirements: Companies officially listed on KSE s Regular Board are deemed eligible for inclusion in the Index. Companies listed in the Parallel Market Sector, Funds in the Investment Instruments Sector and non-kuwaiti companies are not eligible for inclusion in the Index. 2.2 KUWAIT 15 Index Periodic Review & Dates KUWAIT 15 Index is reviewed as follows (note: actual calendar months stated below may be subject to change provided due notice of such a change): Review of companies in the Index is performed semi-annually Review of companies in the Index is based on data collected after Index close on last trading day of May and November Changes - deletion and replacement - of companies in the Index are implemented after the Index close on the third Thursday in both June and December Liquidity is measured by calculation of six (6) months official turnover in KWD on KSE during December to May and from June to November. 2.3 KUWAIT 15 Selection Criteria The periodic review for selection of companies in KUWAIT 15 Index is conducted in the following steps: 1) Select the 50 most traded companies by turnover according to measured liquidity described in Section 2.2 Page 6 of 17

7 2) Companies chosen in step 1 are ranked by market capitalisation 3) The 15 highest ranked companies in Step 2 are selected to the Index for the next coming period. 2.4 KUWAIT 15 Index Reserve List At the time of the Periodic Review (see Section 2.2), KSE will publish a reserve list of three to five ranked companies which will be drawn on at the time of any deletion of any constituent in the KSX15 Index. A deleted or removed constituent will be replaced by the highest ranked company in the reserve list. 2.5 KUWAIT 15 Index Deletions & Replacements Between Periodic Reviews (see Section 2.2), if a constituent in KUWAIT 15 Index is no longer eligible for the Index, due to not meeting the eligibility requirements as detailed in sections 1.3 and 2.0, the constituent is removed from the Index and replaced with the highest ranked company from the reserve list as determined, at the close of the market two days prior to the deletion. Page 7 of 17

8 3. KSE Sector Classification The Sector classification methodology for the companies listed on KSE is based on the Industrial Classification Benchmark (ICB), a product of FTSE International Limited and has been licensed for use by KSE. 3.1 ICB Classification Methodology The International Industry Classification Benchmark ( ICB ) is owned by FTSE International Limited ( FTSE ). FTSE is a trademark of the London Stock Exchange Group and is used by FTSE under licence. FTSE does not accept any liability to any person for any loss or damage arising out of any error or omission in the ICB. The ICB is a definitive system categorising over 70,000 companies and 75,000 securities worldwide. The ICB system is supported by the ICB Database which is maintained by FTSE International Limited. The ICB system has four levels: 10 Industries, 19 Supersectors, 41 Sectors, and 114 Subsectors. KSE is currently using the topmost two levels of the classification system. In order to maintain continuity with Kuwait market terminology, KSE will continue to use the terms Industry and Sector ; these correspond to the topmost two levels of the ICB which are Industry and Supersector respectively. All companies listed on the KSE official market are assigned a Sector and Industry classification. Each company is classified according to the nature of its business, which is determined by its source of revenue or where it derives the majority of its revenue. A review of the company classification is performed by ICB annually and in case of major corporate action to ensure that the classification remains current. In exceptional cases FTSE in consultation with the ICB Advisory Committee can classify companies on the basis of either the immediate end use of the product or the industrial process used. All enquiries concerning ICB s method, access to data on ICB s Sectors and Subsectors and use thereof should be directed to ICB, firstly by reference to: Page 8 of 17

9 The following table represents the KSE Sector and Industry Classification with their corresponding codes: Sector Name Sector Code Industry Name Industry Code 1 Oil & Gas 0500 Oil & Gas Basic Materials 1000 Basic Materials Industrials 2000 Industrials Consumer Goods 3000 Consumer Goods Health Care 4000 Health Care Consumer Services 5000 Consumer Services Telecommunications 6000 Telecommunications Utilities 7000 Utilities Banks 8300 Financials Insurance 8500 Financials Real Estate 8600 Financials Financial Services 8700 Financials Investment Instruments 8980 Financials Technology 9500 Technology Parallel 9900 Parallel KSE industry sector classification review schedule In accordance with ICB The KSE listed companies Sector classification review is done by ICB based on their classification rules, where all classifications of the companies will be reviewed on an annual basis to ensure that sector allocations remain current. ICB will also review the listed companies in case of any major corporate developments that could redefine the company s primary line of business. ICB Classification Rules can be found in their website Page 9 of 17

10 4. Calculation 4.1 Index Formulas The Indexes are calculated using the following formulas. The objective of the Index calculation is to reflect the changes in value of a portfolio consisting of the Index companies Market Capitalisation Weighted Index The formula for the capitalisation weighted Index is: Where: Price: is the current market price for a stock Weight: the outstanding number of shares for a stock Price Index The formula for the price Index is: Where: N: is the number of stocks participating in the index Price : is the current market price for a stock Base : the closing price for a stock on the base date Corrector : to account for the effect of corporate actions Multiplier : 1000 points 4.2 Price The KSE official closing price is used in calculating KSE s price and market capitalisation weighted Indexes. KSE s Indexes are calculated and disseminated real-time, ie, each is re-calculated for each new trade price. The official closing price is determined by a closing auction. In the event no trade occurs in a closing auction, the official closing price shall be the previous last trade price in the day or, in the event of there being no trade on the day, the opening reference price is used. Page 10 of 17

11 The closing values of the main Indexes are calculated using the official closing prices.number of Shares in Market Capitalisation Weighted Index The number of shares of a company applied in the market capitalised Index is the total outstanding number of shares which are defined here as total issued shares. Certain corporate actions necessitate changes to the Index (see section 5 below). 4.3 Currency Only companies listed on the KSE official market traded in Kuwaiti dinars and fils are eligible for Index inclusion. 5. Corporate Events/Actions This section describes general maintenance policies and appropriate adjustments to uphold the correct representation of the Indexes performance. The following corporate events/actions may lead to an adjustment of the corrections in the Indexes, in order to prevent the individual change affecting the Index itself: 1. Cash Dividend 2. Bonus issue 3. Rights issue 4. Reverse split 5. Mergers and Acquisitions (M&As) 6. Spin-off s 7. Market price issue 8. Trading halts, Suspensions and Bankruptcies. The adjustments effected after the individual event are described in detail in the following sections. 5.1 Discretionary Adjustments The Index calculator may make other adjustments than those stated in the following sections if warranted by special circumstances. In any case, Index adjustments wherever possible shall be in accordance with the parameters set forth in Section Daily vs. Periodic Review of Number of Shares in the Index Companies sometimes engage in rolling programs of share issuance. For example, an employee share scheme may result in shares being awarded for achieving certain targets or on certain occasions such as birthdays, or options may be exercised at the holder s request. Accordingly, the number of shares actually outstanding for any one company may vary daily. However for Indexes which are intended to be investable, the stability of the Index composition is important. One objective in designing an investable Index is to reduce administrative routines and Page 11 of 17

12 costs due to continuous re-balancing of portfolios. Accordingly the Index rules may well define set periods during which the weighting of the number of shares in the Index will not be changed (other than for formal corporate actions) even though the registrar s records may change during this period. For example, a stock dividend or a rights issue with a discount to market price (see 5.1.3) will have an impact on the number of shares considered for the Index, while a directed rights issue to the employees will not impact the number of shares considered until the next review. 5.3 Corporate Actions Adjustments Cash Dividend This adjustment compensates for the drop in price of the security due to the payment of the dividend. This is accomplished by subtracting the amount of the dividend (in currency units per share) from the existing adjusted price. Adjustment formula: New adjusted price = reference price dividend per share. Example: 25% Par value (25 fils) dividend distribution Reference price: 750 fils. Adjusted Reference Price = 750 fils - 25 fils = 725 fils Bonus Issue A bonus issue is a free distribution of new shares to existing shareholders. The shares are brought into existence by the capitalisation of the company s reserves. The issue results in no flow of capital into or out of the company. The number of shares increases, but the market capitalisation value of the company remains unchanged. Effective from the ex-date, the number of shares and price (the KSE reference price) of the constituent is adjusted accordingly. Adjustment formulas: New adjusted number of shares = old number of shares * (1 + bonus issue) New adjusted price = reference price / (1 + bonus issue) Example: 10% bonus issue Reference Price: 650 fils Issued shares: 1,234,567,890 shares. New adjusted number of shares = 1,234,567,890 shares * ( ) = 1,358,024,679 shares New adjusted price = 650 fils / = fils. Page 12 of 17

13 5.3.3 Rights Issue In a rights issue, the company offers existing shareholders the right to purchase new shares generally at a cost below the market price. A rights issue results in a capital inflow and increases both the number of shares and the market capitalisation value of a security. a) Rights issue (discount to market price) If the subscription price of the new shares is below the price immediately before the ex-date, the rights issue is assumed to be fully subscribed on a pro rata basis. Effective from the ex-date, the number of shares and price of the constituent is adjusted. In the case of an offer not being fully subscribed, the number of shares included in the Index will be adjusted by applying the rules set forth for a market price issue (refer to Section 5.3.7) after the result of the rights issue are made available, either by way of: (a)the transaction being registered in the exchange trading system; or (b)the new shares are registered in the central securities depository (Kuwait Clearing Company). Adjustment formulas: New adjusted price = reference price + (par value + premium) * % capital increase / (1 + % capital increase) New adjusted number of shares = old number of shares * (1 + % capital increase) Adjustment to the Index: New weight = old weight * old price / new adjusted price. Example: 30% capital increase Reference price = 475 fils Issued shares = 1,383,533,230 shares Par value = 100 fils, premium = 300 fils. New adjusted price = ( )*0.3 / ( ) = fils (rounded to the nearest tick: 460) New adjusted number of shares = 1,383,533,230*( ) = 1,798,593,199 shares. b) Rights issue (premium to market price) If the subscription price of the new shares is greater than or equal to cum price, the Index calculator will generally not reflect the rights issue on the ex-date. Any increase to the number of shares in the Index will be adjusted by applying the rules set forth for a market price issue (refer to Section 5.3.7) after the result of the rights issue are made available, either by way of: (a)the transaction being registered in the exchange trading system or (b)the new shares are registered in the central securities depository (Kuwait Clearing Company). c) Other than Security of the Issuing Company In the case of a distribution of assets other than the underlying share, where those assets deviate significantly from the Index constituent (e.g. bonds, preferred shares, warrants, shares in other Page 13 of 17

14 company etc.) and, additionally, the number of underlying shares remain unchanged, effective on the ex-date the security s Reference Price is adjusted, or it is determined that the security be excluded from the Index until the day of first price observation Reverse Split (capital decrease) A reverse split is the action of a company recouping its shares. The economic effect of a reverse stock split is equivalent to a bonus issue, as there is no flow of capital into or out of the company. Effective from the ex-date, the security price is adjusted (the KSE reference price) and the number of shares of the constituent is adjusted accordingly. Adjustment formulas: New adjusted price = reference price / 1 - % capital decrease New adjusted number of shares = old number of shares * (1 - % capital decrease) Example: 20% capital decrease Reference price = 430 fils Issued shares = 2,479,975,630 shares New adjusted price =430 / = fils (rounded to the nearest tick: 540) New adjusted number of shares = 2,479,975,630 * (1 0.2) = 1,983,980,504 shares Mergers & Acquisitions (M&A) A merger or an acquisition is the combination of ownership of two companies into a new company or one company which obtains ownership of the other. A merger or acquisition is deemed successful if it is declared wholly unconditional and has received the approval of all regulatory agencies having jurisdiction over the transaction. The adjustments, listed below, will be effective when: (a) the transaction is registered in the exchange trading system; or (b) the shares are registered in the central securities depository (Kuwait Clearing Company). Merger and acquisition cases and the applicable adjustments; Acquiring company and acquired company are both listed on the exchange - the acquired company is removed from the Index when the company is de-listed from the exchange, or when shares issued to the shareholders in the acquired company are subject for trading in the acquiring company. Acquiring company is not listed - the acquired company is removed from Index when the company is de-listed. Acquired company is not listed and the acquisition is settled entirely or partly in eligible shares - the market capitalisation of the acquiring company is increased in accordance with the terms of the merger or acquisition. Page 14 of 17

15 5.3.6 Spin-offs A spin-off is the distribution of shares in a wholly-owned or partially-owned company to the parent company s existing shareholders. A spin-off results in an outflow of capital in the form of a capital transfer from the parent company to the new company. In a spin-off, the number of shares outstanding remains unchanged. However, the price of the security will be affected. Effective on the ex-date, the security price is adjusted (the KSE reference price) or it is determined to be excluded from the Index until the day of first price observation. If the distributed company is listed on the exchange, it is treated in the Index as a New Listing (see Section 1.3) Market Price Issue A market price issue is one in which existing shareholders waive their pre-emptive right to subscribe in the issue and are usually offered as public offerings, public placements or private placements. In the case of Indexes for which the number of shares is reviewed on a daily basis, adjustments will be effective on either of the following; (a) ex-date; (b) the transaction being registered in the exchange trading system; or (c) the new shares are registered in the central securities depository Trading Halts, Suspensions & Bankruptcies In the event of a suspension/trading halt of an Index constituent, in the Index calculation the last paid price prior to the suspension or trading halt will be carried forward during the period. Company securities will be removed at zero value if considered to be in liquidation or at the price prior to the suspension/trading halt for all other circumstances. The exclusion of an Index constituent will usually be carried out on its last listing day. In the situation of a company suspension/trading halt and for which a return to normal business activity and trading is unlikely in the future, exclusion from the Index prior to a de-listing may be decided Other/Miscellaneous Issues Other issues, for example, employee share issues, exercise of warrants and debt to equity swaps result in a capital inflow and increase both the number of shares and the market capitalisation of a security. In the case of Indexes reviewing the number of shares on a daily basis, adjustments will be effective on either of the following; (a) ex-date; (b) the transaction being registered in the exchange trading system; or (c) the new shares are registered in the central securities depository. Page 15 of 17

16 Other Adjustments KSE may make an adjustment in circumstances other than those specified above, decide to modify a provision regarding an adjustment or simply not implement an adjustment. 6. Data Format, Input & Corrections 6.1 Data Format Index base currency in Kuwaiti Dinar (KWD) Index values: rounded to two decimals places for dissemination Index calculation frequency: real-time Index dissemination frequency: real-time. 6.2 Data Input (Sources) KSE trading platform KSE Companies Department KSE Trading Department Kuwait central securities depository system Kuwait Clearing Company KSE listed companies Data service providers. 6.3 Index Correction In the event there is an error in the Index, be it due to an adjustment, data or calculation error, any correction must be carried out as below and clearly communicated to the marketplace. Communication is recommended to be in the form of an Exchange notice (i.e. on the trading platform) and published on the KSE website. The correction procedures for incorrect or missing Index data input are either: Corrected immediately as an intra-day change Corrected after market close. 6.4 Alternative Information Retrieval & Calculation If, in the opinion of KSE, technical or other reasons render the automatic transmission of price information or other information regarding an Index constituent, or; another information system approved by the Exchange is either wholly or partially unavailable, or; such price information is unreliable or in any other way fails to reflect the development of market prices in the currency type or Index Constituent, KSE may utilise another source of information and thereby apply an alternative basis for calculation of the Index than those stated in these Rules. Page 16 of 17

17 7. KSE Index Group Contacts Contact details for Index information at KSE: Kuwait Stock Exchange (KSE) Mubarak Al Kabir Street P.O. Box Safat, 13083, Kuwait Kuwait City Kuwait (Index support & license information): 8. KSE Limitation of Liability KSE shall not be liable for loss or damage resulting from Kuwaiti or foreign legislative enactment, actions of Kuwaiti or foreign authorities, war, power failure, telecommunications failure, fire, water damage, strike, blockade, lockout, boycott, or other similar circumstances outside the control of KSE. The reservation with respect to strikes, blockade, lockout and boycott applies whether KSE adopts or is the object of such measures. KSE shall not be liable or responsible in any circumstance for costs or losses or other damage, direct or indirect, which may be occasioned by any use or non-availability of data relating to KSE including KSE Indexes. KSE provides no express or implied warranties regarding the results which may be obtained as a consequence of the use of KSE Indexes or regarding the value of KSE Indexes at any given time. KSE shall in no case be liable for errors or defects in KSE Indexes nor obligated to provide notice of, or publish notifications concerning, errors in KSE Indexes in any manner other than set forth herein. Page 17 of 17