Ground Rules. FTSE ASFA Australia Listed Investment Companies Index Series v1.9

Transcription

1 Ground Rules FTSE ASFA Australia Listed Investment Companies Index Series v1.9 ftserussell.com January 2018

2 Contents 1.0 Introduction Management Responsibilities FTSE Russell Index Policies Treatment of Eligible Securities Qualification Criteria and Periodic Review of Constituents Changes to Constituents Companies Algorithms and Calculation Method Appendix A: Taxable Income Deduction Example Appendix B: Takeover Example Appendix C: Further Information FTSE Russell FTSE ASFA Australia Listed Investment Companies Index Series, v1.9, January of 15

3 Section 1 Introduction 1.0 Introduction 1.1 FTSE ASFA Australia Listed Investment Companies Index Series The FTSE ASFA Australia Listed Investment Companies Index Series is designed to represent the performance of Listed Investment Companies (LICs). LICs are Australian resident companies, which carry on the business of managing an investment portfolio and are listed on the Australian Securities Exchange (ASX) LICs are companies traded on the ASX where the share price is determined by the market. They are closed-end structures which allow the fund manager to concentrate on investment selection without having to factor in the possibility of money coming into or leaving the fund. Typically, the main incomes they may derive from their investments are: interest, dividends (franked and unfranked) and capital gains on the sale of underlying investments. 1.2 Ground Rules This document sets out the Ground Rules for the construction and management of the FTSE ASFA Australia Listed Investment Companies Index Series. Copies of the Ground Rules are available from FTSE Russell on the website Indexes included in the FTSE ASFA Australia Listed Investment Companies Index Series The following indexes are included in the FTSE ASFA Australia Listed Investment Companies Index Series on a tax-adjusted and unadjusted basis FTSE ASFA Australia Listed Investment Companies Index This index comprises all LICs within the universe that meet the stated eligibility requirements FTSE ASFA Australia Listed Investment Companies Domestic Index This index comprises all companies of the FTSE ASFA Australia Listed Investment Companies Index which are investing principally in shares listed on ASX FTSE ASFA Australia Listed Investment Companies International Index This index comprises all companies of the FTSE ASFA Australia Listed Investment Companies Index which are investing principally in shares listed on international stock exchanges. FTSE Russell FTSE ASFA Australia Listed Investment Companies Index Series, v1.9, January of 15

4 1.3.4 FTSE ASFA Australia Listed Investment Companies Specialist Index This index comprises all companies of the FTSE ASFA Australia Listed Investment Companies Index which are investing in private equities or investment sectors such as wineries, technology companies, resources and telecommunications. 1.4 FTSE Russell FTSE Russell is a trading name of FTSE International Limited, Frank Russell Company, FTSE Global Debt Capital Markets Limited (and its subsidiaries FTSE Global Debt Capital Markets Inc. and MTSNext Limited), Mergent, Inc., FTSE Fixed Income LLC and The Yield Book Inc. 1.5 FTSE Russell hereby notifies users of the index series that it is possible that circumstances, including external events beyond the control of FTSE Russell, may necessitate changes to, or the cessation of, the index series and therefore, any financial contracts or other financial instruments that reference the index series or investment funds which use the index series to measure their performance should be able to withstand, or otherwise address the possibility of changes to, or cessation of, the index series. 1.6 Index users who choose to follow this index or to buy products that claim to follow this index should assess the merits of the index s rules-based methodology and take independent investment advice before investing their own or client funds. No liability whether as a result of negligence or otherwise is accepted by FTSE Russell (or any person concerned with the preparation or publication of these Ground Rules) for any losses, damages, claims and expenses suffered by any person as a result of: any reliance on these Ground Rules, and/or any errors or inaccuracies in these Ground Rules, and/or any non-application or misapplication of the policies or procedures described in these Ground Rules, and/or any errors or inaccuracies in the compilation of the Index or any constituent data. FTSE Russell FTSE ASFA Australia Listed Investment Companies Index Series, v1.9, January of 15

5 Section 2 Management Responsibilities 2.0 Management Responsibilities 2.1 FTSE International Limited (FTSE) FTSE is the benchmark administrator of the index series FTSE is responsible for the daily calculation, production and operation of the FTSE ASFA Australia Listed Investment Companies Index Series and will: maintain records of the index weightings of all constituents; make changes to the constituents and their weightings in accordance with the Ground Rules; carry out the periodic index reviews of the index series and apply the changes resulting from the reviews as required by the Ground Rules; publish changes to the constituent weightings resulting from their ongoing maintenance and the periodic reviews; disseminate the indexes FTSE is responsible for monitoring the performance of the FTSE ASFA Australia Listed Investment Companies Indexes throughout the trading day. 2.2 Listed Investment Companies Association of Australia Listed Investment Companies Association of Australia (LICAA), in association with the Australian Securities Exchange (ASX), is responsible for undertaking the review of the Index. The ASX will maintain a master list of all entities satisfying their definition of a Listed Investment Company. The ASX will provide FTSE Russell with an updated list of constituents on a monthly basis The classification of Listed Investment Companies into Domestic/International/Specialist is determined by the Listed Investment Companies Association of Australia (LICAA), in association with the Australian Securities Exchange (ASX). LICAA and ASX will provide FTSE Russell with written notification of any change in classification to be implemented at the next semi-annual review by the data cut-off date prior to the review. The ASX will notify FTSE Russell of any additions or deletion from the list of constituents before they occur. FTSE Russell FTSE ASFA Australia Listed Investment Companies Index Series, v1.9, January of 15

6 2.3 Status of these Ground Rules These Ground Rules provide information about the publication of the FTSE ASFA Australia Listed Investment Companies Index Series and set out the methodology underlying the FTSE ASFA Australia Listed Investment Companies Index Series. 2.4 Amendments to These Ground Rules These Ground Rules shall be subject to regular review by FTSE Russell to ensure that they continue to meet the current and future requirements of investors and other index users. Any proposals for significant amendments to these Ground Rules will be subject to consultation with FTSE Russell advisory committees and other stakeholders if appropriate. The feedback from these consultations will be considered by the FTSE Russell Product Governance Board before approval is granted. FTSE Russell FTSE ASFA Australia Listed Investment Companies Index Series, v1.9, January of 15

7 Section 3 FTSE Russell Index Policies 3.0 FTSE Russell Index Policies These Ground Rules should be read in conjunction with the following policy documents which can be accessed using the links below: 3.1 Queries and Complaints FTSE Russell s complaints procedure can be accessed using the following link: Benchmark_Determination_Complaints_Handling_Policy.pdf 3.2 Index Policy for Trading Halts and Market Closures Guidance for the treatment of index changes in the event of trading halts or market closures can be found using the following link: Index_Policy_for_Trading_Halts_and_Market_Closures.pdf 3.3 Index Policy in the Event Clients are Unable to Trade a Market Details of FTSE Russell s treatment can be accessed using the following link: Index_Policy_in_the_Event_Clients_are_Unable_to_Trade_a_Market.pdf 3.4 Recalculation Policy and Guidelines The FTSE ASFA Australia Listed Investment Companies Index Series are recalculated whenever errors or distortions occur. Users of the Index Series are notified through appropriate media. For further information please refer to the FTSE Russell Recalculation Policy and Guidelines document which is available from the FTSE Russell website using the link below or by contacting info@ftserussell.com. Index_Recalculation_Policy_and_Guidelines_Equity_Indexes.pdf 3.5 Policy for Benchmark Methodology Changes Details of FTSE Russell s policy for making benchmark methodology changes can be accessed using the following link: Policy_for_Benchmark_Methodology_Changes.pdf FTSE Russell FTSE ASFA Australia Listed Investment Companies Index Series, v1.9, January of 15

8 Section 4 Treatment of Eligible Securities 4.0 Treatment of Eligible Securities 4.1 Eligible Securities All Listed Investment Companies listed on the Australian Securities Exchange, as advised by the ASX and the Listed Investment Companies Association of Australia, are eligible for inclusion. 4.2 Minimum Voting Rights Companies assigned a developed market nationality are required to have greater than 5% of the company s voting rights (aggregated across all of its equity securities, including, where identifiable, those that are not listed or trading) in the hands of unrestricted shareholders or they will be deemed ineligible for index inclusion. Emerging market securities are not subject to this requirement Existing constituents with a developed market nationality who do not currently meet the above requirement have a 5 year grandfathering period to comply. If subsequently they continue to fail the minimum voting rights requirement they will be removed from FTSE Russell indexes at the September 2022 review The percentage of a company s voting rights in public hands is calculated as: The number of votes in the hands of shareholders that are unrestricted as determined by the application of FTSE Russell free float definitions The total number of votes conferred by the shares oustanding of all the company s voting securities including those that have not been admitted to trading on a regulated venue For example, Company A has 100m listed Class A shares each conferring one vote, free float is 65%. It also has 300m unlisted Class B shares each conferring 10 votes. The test to assess whether the listed Class A line has the required greater than 5% of the company s voting rights is as follows: 65m (i.e.100m Class A voting rights 65% float) 3.1bn (i.e.100m Class A+3bn Class B. =2.097% of the company s voting rights in public hands FTSE Russell FTSE ASFA Australia Listed Investment Companies Index Series, v1.9, January of 15

9 Section 5 Qualification Criteria and Periodic Review of Constituents 5.0 Qualification Criteria and Periodic Review of Constituents 5.1 Review Dates The universe and companies included in the FTSE ASFA Australia Listed Investment Companies Index Series are reviewed semi-annually in June and December using data from the close of business on the Monday 4 weeks prior to the review effective date. 5.2 Review Process FTSE ASFA Australia Listed Investment Companies Index Series review universe is comprised of all eligible LICs that satisfy Rule The semi-annual review will be implemented after the close of business on the third Friday (i.e. effective Monday) in June and December. FTSE Russell FTSE ASFA Australia Listed Investment Companies Index Series, v1.9, January of 15

10 Section 6 Changes to Constituents Companies 6.0 Changes to Constituents Companies 6.1 New Issues A new issue is eligible for inclusion at the next semi-annual review. 6.2 Removal If a constituent is delisted, or ceases to have a firm quotation, or is subject to a takeover or has, in the opinion of FTSE Russell (or their nominated deputies), ceased to be a viable constituent as defined by the Ground Rules, it will be removed from the list of constituents. Announcements made after the close of the index calculation are normally applied before the start of the index calculation on the following business day. 6.3 Takeovers (Mergers/Acquisition) Broadly, scrip for scrip rollover applies when a share/unit in a security or a fixed trust is exchanged for a similar share/unit in another security, typically as a result of a takeover If an investor chooses scrip for scrip rollover, any capital gain relating to the original interest is disregarded. The cost base of the original interest becomes the acquisition cost of the replacement interest. However, rollover does not apply to a capital loss. (For a detail example of takeover methodology, please see Appendix B.) If scrip for scrip rollover tax treatment is available in the acquisition, FTSE Russell will apply the scripfor-scrip tax treatment as the default method. FTSE Russell will continue to monitor if there are any ATO class rulings that would change any treatment applied and will modify accordingly at the next semi-annual review. 6.4 Suspended Companies FTSE Russell s treatment can be found using the following link: Suspended_Companies_Rule.pdf FTSE Russell FTSE ASFA Australia Listed Investment Companies Index Series, v1.9, January of 15

11 Section 7 Algorithms and Calculation Method 7.0 Algorithms and Calculation Method 7.1 Prices The FTSE ASFA Australia Listed Investment Companies Index Series uses the Australia Securities Exchange official closing prices for the end of day index calculation. 7.2 Shares in Issue The number of shares in issue for each constituent LIC is expressed to the nearest share. To prevent a large number of insignificant weighting changes, the number of shares in issue for each constituent security is amended only when the total shares in issue held within the index system changes by more than 1% on a cumulative basis. Changes will be made quarterly after the close of business on the third Friday of March, June, September and December (subject to Rules and 7.2.3). The cutoff for these changes will be the close of business on the third Wednesday of the month prior to the review month Changes to numbers of shares in issue of index constituents resulting from corporate actions are applied simultaneously with the corporate action If the cumulative unapplied changes in the number of shares in issue is 10% or greater of the total index shares in issue or it represents at least USD 2 billion of a company s total market capitalisation, the change is implemented between the quarterly updates. A minimum of 4 days notice will be given to users of the index. WM/Reuters Spot Rates are used to convert the market capitalisation into USD. The USD 2 billion threshold may be adjusted annually in December All index adjustments are made before the start of trading on the effective date. 7.3 Dividend Treatment Cash dividends are included in the total return calculations of the FTSE ASFA Australia Listed Investment Companies Index Series based on their ex-dividend dates The imputation (franking) credits attached to dividend distributions are included in the tax adjusted total return calculations but not in the non-tax adjusted total return calculations of the FTSE ASFA Australia Listed Investment Companies Index Series. 7.4 Taxation Treatment Tax-adjusted total return indices are calculated based on the mid tax bracket (Income tax plus medicare levy, currently 30%+1.5%); this tax rate is subject to change by the Listed Investment FTSE Russell FTSE ASFA Australia Listed Investment Companies Index Series, v1.9, January of 15

12 Companies Association of Australia. The total return indexes take into account taxation on dividend distributions. The realised indexes take into account the capital gains tax treatment associated with the normal sale of index shares The FTSE ASFA Australia Listed Investment Companies Index Series are calculated on the basis of Australian and New Zealand investors. According to the Australian Tax Office (ATO), if a listed investment company (LIC) pays a dividend that includes an LIC capital gain amount, eligible investors can be entitled to an income tax deduction % of the attributable portion, as advised by the LICs, can be deducted from investors taxable income to reduce income tax. (For a detailed example of taxable income reduction, please see Appendix A.) The Listed Investment Companies Association of Australia will advise on the treatment of the income tax deduction derived from the capital gain attributable part of a dividend. When the information of dividend breakdown is not available on the declared date, an indicative breakdown will be implemented and later amended on the review date. 7.5 Capital Gains Tax Treatment The FTSE ASFA Australia Listed Investment Companies Index Series includes the followings: The price index The total return index The realised index The unrealised index Both realised and unrealised indexes are calculated on a daily basis. The realised index takes into account capital gains tax events as and when they occur in the calculation of the index. The unrealised index assumes on a daily basis that the entire index portfolio is sold; this provides an indication of whether the index has accumulated any unrealised capital gains, or any unrealised capital losses (i.e. deferred tax assets). The indexes assume that no cash is held as part of the index calculation The FTSE ASFA Australia Listed Investment Companies Indexes recognise any realised and unrealised CGT events after the close of trading on the day prior to the day that the index change is effective. This is different to the treatment of dividend adjustments which are applied at the start of trading on the ex-dividend date. 7.6 Algorithm The FTSE ASFA Australia Listed Investment Companies Index Series is calculated using the chained Paasche methodology The performance of the FTSE ASFA Australia Listed Investment Companies Index Series on any given day is determined by calculating the percentage difference between: the index s market capitalisation as at the close of that day and the market capitalisation at the start of that day. Start of the day market capitalisation is defined as the previous day's market close capitalisation adjusted for capital changes, additions and deletions, etc The FTSE ASFA Australia Listed Investment Companies Indexes are calculated on an end of day basis. FTSE Russell FTSE ASFA Australia Listed Investment Companies Index Series, v1.9, January of 15

13 Appendix A: Taxable Income Deduction Example Company A goes ex-dividend with a fully-franked dividend that includes a LIC capital gain component. The calculation table below shows the mechanism of how the relevant items are calculated in the FTSE ASFA Australia Listed Investment Companies Indexes. Items Notation/Formula Declared Dividend 0.7 DeclaredDiv Franking Credit percentage 100% FCRate Corporate Tax Rate 30% CorpTaxRate Franking Credit 0.3 FC = DeclaredDiv * FCRate * CorpTaxRate / (1-CorpTaxRate) Gross up Dividend 1 GroDiv = DeclaredDiv +FC Declared Capital Gain Dividend 0.28 DeclaredCGD Franking Credit on Capital Gain Dividend 0.12 FCCGD = DeclaredCGD * FCRate * CorpTaxRate / (1-CorpTaxRate) Gross up Capital Gain component (Capital Gain Attributable Part) 0.4 CGAP = DeclaredCGD + FCCGD % Deduction for LIC capital gain 50% DeRate Deduction for LIC capital gain 0.2 De = CGAP * DeRate Taxable income 0.8 TI = GroDiv - De Income Tax Rate 31.5% ITaxRate = Midtaxrate +medicare levy Income Tax ITax = TI * ITaxRate After Tax Dividend Div = GroDiv - ITax FTSE Russell FTSE ASFA Australia Listed Investment Companies Index Series, v1.9, January of 15

14 Appendix B: Takeover Example Company A is acquiring Company B. Each Company B share can exchange for 0.5 Company A share and the effective date is 30 June The calculation table below shows how the scrip-for-scrip tax treatment is implemented in the calculation of the Index Series. Company B Tax Lots before takeover Acquired Date Shares Cost Base (AUD) Current Price (AUD) Unrealised Capital Gains/Loss (AUDm) Tax lot 1 30-Jun ,000, Tax lot 2 30-Jun ,000, ,200 Tax lot 3 30-Jun ,000, ,400 Tax lot 4 30-Jun ,000, ,500 Tax lot 5 30-Jun ,000, ,500 Tax Lots after rollover, rollover does not apply to capital loss Acquired Date Shares Cost Base (AUD) Current Price (AUD) Unrealised Capital Gains/Loss (AUDm) Tax lot 2 30-Jun ,000, ,200 Tax lot 3 30-Jun ,000, ,400 Tax lot 4 30-Jun ,000, ,500 Buy the remaining shares using current price Acquired Date Shares Cost Base (AUD) Current Price (AUD) Unrealised Capital Gains/Loss (AUDm) Tax lot 2 30-Jun ,000, ,200 Tax lot 3 30-Jun ,000, ,400 Tax lot 4 30-Jun ,000, ,500 Tax lot 6 30-Jun ,000, FTSE Russell FTSE ASFA Australia Listed Investment Companies Index Series, v1.9, January of 15

15 Appendix C: Further Information A Glossary of Terms used in FTSE Russell s Ground Rule documents can be found using the following link: Glossary.pdf Further information on the FTSE ASFA Australia Listed Investment Companies Index Series is available from FTSE Russell. For contact details please visit the FTSE Russell website or contact FTSE Russell client services at info@ftserussell.com. Website: London Stock Exchange Group plc and its applicable group undertakings (the LSE Group ) and the Association of Superannuation Funds of Australia ( ASFA ). The LSE Group includes (1) FTSE International Limited ( FTSE ), (2) Frank Russell Company ( Russell ), (3) FTSE Global Debt Capital Markets Inc. and FTSE Global Debt Capital Markets Limited (together, FTSE Canada ) and (4) MTSNext Limited ( MTSNext ), (5) Mergent, Inc. ( Mergent ), (6) FTSE Fixed Income LLC ( FTSE FI ) and (7) The Yield Book Inc ( YB ). All rights reserved. The FTSE ASFA Australia Listed Investment Companies Index Series is calculated by or on behalf of FTSE International Limited or its affiliate, agent or partner. FTSE International Limited is authorised and regulated by the Financial Conduct Authority as a benchmark administrator. FTSE Russell is a trading name of FTSE, Russell, FTSE Canada, MTSNext, Mergent, FTSE FI and YB. FTSE, Russell, FTSE Russell MTS, FTSE4Good, ICB, Mergent, WorldBIG, USBIG, EuroBIG, AusBIG, The Yield Book and all other trademarks and service marks used herein (whether registered or unregistered) are trade marks and/or service marks owned or licensed by the applicable member of the LSE Group or their respective licensors and are owned, or used under licence, by FTSE, Russell, MTSNext, FTSE Canada, Mergent, FTSE FI or YB. ASFA is a trade mark of The Association of Superannuation Funds of Australia ( ASFA ). All information is provided for information purposes only. Every effort is made to ensure that all information given in this publication is accurate, but no responsibility or liability can be accepted by any member of the LSE Group nor their respective directors, officers, employees, partners or licensors for any errors or for any loss from use of this publication or any of the information or data contained herein. No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any claim, prediction, warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the FTSE ASFA Australia Listed Investment Companies Index Series or the fitness or suitability of the Index Series for any particular purpose to which it might be put. No member of the LSE Group nor their respective directors, officers, employees, partners or licensors provide investment advice and nothing in this document should be taken as constituting financial or investment advice. No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any representation regarding the advisability of investing in any asset. A decision to invest in any such asset should not be made in reliance on any information herein. Indexes cannot be invested in directly. Inclusion of an asset in an index is not a recommendation to buy, sell or hold that asset. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional. No part of this information may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission of the applicable member of the LSE Group. Use and distribution of the LSE Group index data and the use of their data to create financial products require a licence with FTSE, Russell, FTSE Canada, MTSNext, Mergent, FTSE FI, YB and/or their respective licensors. FTSE Russell FTSE ASFA Australia Listed Investment Companies Index Series, v1.9, January of 15