Industry Classification Methodology Guide ISE Mobile Payments Industry Classification 1
Table of Contents Chapter 1. Introduction Chapter 2. Industry Classification 2.1. Structure and Changes 2.2 Classification Guidelines 2.3 Card Networks 2.4 Infrastructure & Software 2.5 Processors 2.6 Solutions Chapter 3. Classification Committee Chapter 4. Disclosures and Disclaimer 2
Chapter 1. Introduction Given the lack of an existing generally accepted equity classification scheme identifying and cataloging equity securities of companies involved in the payments industry, the ISE Mobile Payments Industry Classification was developed by ISE. The ISE Mobile Payments Industry Classification provides a framework for investment research, portfolio management and asset allocation. Eligible companies are publicly listed on exchanges globally and derive all or a material proportion of their revenues from payments or payments related activities. Nasdaq is responsible for the classification of companies within the ISE Mobile Payments Industry Classification, maintenance of the database of companies comprising the ISE Mobile Payments Industry Classification, including the history of changes, and the timely communication of any updates to licensees of the data. 3
Chapter 2. Industry Classification 2.1 Structure and Changes The Classification Committee will rely primarily on published audited annual reports and discussions with company investor relations groups, industry participants and experts to vet companies for inclusion and determine their classification. Companies are allocated into a category based on the focus of their business. In cases where a company s business straddles two or more segments, a final category determination will be made based on audited reported revenue segments as well as discussions with that company s investor relations group. Qualified and newly listed companies are assessed and approved by the Classification Committee for inclusion in the ISE Mobile Payments Industry Classification. As the payments industry continues to evolve, the framework of the ISE Mobile Payments Industry Classification will evolve in order to accurately reflect the then-current state of the payments industry. Any adjustments to the framework of the ISE Mobile Payments Industry Classification will be based on long-term trends driving the payments industry and will be announced in advance of implementation. In the event of a significant change to a company s structure or business, its classification may be reviewed on an ad hoc basis. Events triggering a review include, but are not limited to: mergers, acquisitions, bankruptcy and delisting. Companies will also undergo a semi-annual review. Companies may not apply, and may not be nominated for inclusion in the ISE Mobile Payments Industry Classification. Additions and deletions to the list of companies eligible for classification may occur on an ad hoc basis and is dependent wholly on the reported activities of those companies. No changes in the ISE Mobile Payments Index Classification will be based on non-public information. 4
2.2 Classification Guidelines All equities listed on exchanges globally are eligible for review. Companies are classified quantitatively and qualitatively. Each company is assigned to a single category according to its principal business activity based on audited financial reporting including the director s report. Nasdaq uses revenues as a key factor in determining a company s principal business activity. Earnings and market perception are also recognized as important and relevant information for categorization purposes and are taken into account during the review process. The scope of the definition of payments can be quite broad. For the purposes of the ISE Mobile Payments Index Classification, we consider payments to be concerned with the facilitation of transactions through many different channels, including but not limited to digital and mobile transactions. The basic eligibility determinant for inclusion in the ISE Mobile Payments Index Classification is that prospective companies are card networks, infrastructure and software providers, payment processors, or payment solution providers. These four categorizations have been labeled as: Card Networks companies that provide services for controlling where cards are accepted and to facilitate transactions between merchants and card issuers. Infrastructure & Software companies that provide hardware or software services for transacting payments across various channels, such as point-of-sale, mobile, and online. Processors companies that handle front end and back end transactions and processing from various channels, such as credit cards, debit cards, or point-of-sale payments. Solutions companies that provide products and services for accepting payments by a variety of payment methods. 2.3 Card Networks These are companies that provide services for controlling where cards are accepted. In addition, they govern interchange fees. In this part of the transaction process, a card network company receives the payment details from the acquiring processor. It then forwards the payment request to the issuing bank and then sends the issuing bank s response to the acquiring processor. These card networks are critical as they help to facilitate ample transactions and payments (whether it is mobile or digital) in seconds between merchants and the issuing banks. 2.4 Infrastructure & Software These are companies that provide the hardware or software services for transacting payments across different channels. This could include point-of-sale, mobile, or even online transactions. These companies ensure and enable the transactions to happen in the first place, as they provide critical hardware and software to enable the card networks, issuing banks, processors, and payment solution 5
providers to conduct their role in the process. Examples of infrastructure and software include ATMs, point-of-sale terminals, or a software-as-a-service (SaaS) that enable the transactions to occur. 2.5 Processors These are companies that handle front end and back end transactions and processing from various channels, such as credit cards, debit cards, or point-of-sale payments. Payment processors will check the details received by the customer during the transaction and then will check them with the issuing bank for verification and will also carry out anti-fraud measures for the transaction. Processors also help ensure that the transaction will get approved (or calculate the probability of it being declined). Processors are an important link between various merchants and issuing banks as they help to communicate and relay information as to whether or not the transaction is going to be approved or denied. 2.6 Solutions These are companies that provide products and services for accepting payments by a variety of payment methods. These companies help facilitate payment transactions between some sort of payment portal (web-based, app, or interactive service) and an issuing bank. It is essentially an e-commerce service that enables merchants to accept many types of transactions. Ensuring that merchants have proper payment solutions is critical with increased use of digitized transactions. 6
Chapter 3. Classification Committee The Classification Committee is comprised of employees of Nasdaq. Additional resources include direct contract with companies engaged in payments and industry associations supporting the payments industry. The Classification Committee will meet on a semi-annual basis to discuss any proposed changes to the ISE Mobile Payments Industry Classification. Ad hoc meetings may be convened at the discretion of the Classification Committee. Meetings will typically consist of discussion and review of the framework and company classifications to ensure that the ISE Mobile Payments Industry Classification continues to reflect the then-current state of the payments industry. 7
Chapter 4. Disclosures and Disclaimer GENERAL ANNOUNCEMENT POLICY Nasdaq announces Index-related information via our premier service Global Index Watch at http://indexes.nasdaqomx.com. Generally, the list of annual additions and deletions as a result of the annual evaluation is publicly announced via a press release in the early part of December in conjunction with the announcement on Global Index Watch. Corporate actions are implemented in the Indexes in accordance with the Index maintenance rules. Announcement is made prior to the effective date of the corporate actions. In the event that a change has been made to an Index intraday, an announcement will be made to inform clients of the change. In the event that an Index calculation has been corrected historically an announcement will be provided and clients are asked to update their databases accordingly. DISCRETIONARY ADJUSTMENTS Nasdaq may, from time to time, exercise reasonable discretion as it deems appropriate in order to ensure Index integrity. DISCLAIMER Nasdaq may, from time to time, exercise reasonable discretion as it deems appropriate in order to ensure Index integrity including but not limited to quantitative inclusion criteria. Nasdaq may also, due to special circumstances, if deemed essential, apply discretionary adjustments to ensure and maintain the high quality of the index construction and calculation. Nasdaq does not guarantee that any Index accurately reflects future market performance. Neither Nasdaq, Inc. nor any of its affiliates (collectively "Nasdaq") makes any recommendation to buy or sell any security or any representation about the financial condition of any company. Investors should undertake their own due diligence and carefully evaluate companies before investing. The information contained herein is provided for informational and educational purposes only, and nothing contained herein should be construed as investment advice, either on behalf of a particular security or an overall investment strategy. ADVICE FROM A SECURITIES PROFESSIONAL IS STRONGLY ADVISED. 8
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