Ground Rules. FTSE Global Equity Index Series v6.2

Transcription

1 Ground Rules FTSE Global Equity Index Series v6.2 ftserussell.com July 2016

2 Contents 1.0 Introduction Management Responsibilities Queries, Complaints and Appeals Country Inclusion Criteria Security Inclusion Criteria Investability Weightings Periodic Review of Constituents Additions Outside of a Review Corporate Actions and Events Treatment of Dividends Industry Classification Benchmark (ICB) Announcing Changes Algorithm and Calculation Method Appendix A: Eligible Exchanges and Market Segments Appendix B: Eligible Classes of Securities Appendix C: Calculation Schedule Appendix D: Country Additions and Deletions Appendix E: Country Classification Appendix F: Country and Regional Indexes Appendix G: FTSE Russell China Share Descriptions Appendix H: Further Information FTSE Russell FTSE Global Equity Index Series, v6.2, July of 48

3 Section 1 Introduction 1.0 Introduction 1.1 The FTSE Global Equity Index Series The FTSE Global Equity Index Series covers securities in 46 different countries and is divided into Developed, Advanced Emerging and Secondary Emerging segments. For the purpose of these Ground Rules, reference to the FTSE Global Equity Index Series incorporates the: FTSE Global Equity Index Series (Large, Mid and Small Cap) FTSE All-World Index Series (Large and Mid Cap) FTSE Global Small Cap Index Series (Small Cap) FTSE World Index Series (Large and Mid Cap - Developed and Advanced Emerging only) Indexes are calculated at the following levels: Geographic (Global, Regional, Country) State of market development (Developed, Advanced Emerging, Secondary Emerging) ICB Industry ICB Sector Capital and Total Return Indexes. Fully customised indexes are also available. Net Total Return Indexes based on maximum withholding tax rates (see Section 10). Fully customised indexes are also available. Currency Hedged Indexes. Fully customised indexes are also available. Constituent size - Large, Mid and Small Cap Indexes. For full details of the breakdown between Large, Mid and Small Capitalisation Indexes see Section 7. Other indexes including Value and Growth Indexes are calculated. Separate Ground Rules are available for these indexes. Selected indexes of the FTSE Global Equity Index Series are calculated and disseminated on a real time basis (see Appendix C). All indexes are calculated in US Dollars and local currency. The index values are also published in Euros, UK Pounds Sterling, and Japanese Yen. Full technical details of calculations and statistical procedures are contained in the Appendices to these Ground Rules and the FTSE Global Equity Index Series Guide to Calculation Methods and Corporate Actions and Events Guide for Market Capitalisation Weighted Indexes available from FTSE Russell. FTSE Russell FTSE Global Equity Index Series, v6.2, July of 48

4 1.2 FTSE Russell FTSE Russell is a trading name of FTSE International Limited (FTSE), Frank Russell Company (Russell), FTSE TMX Global Debt Capital Markets Inc. and FTSE TMX Global Debt Capital Markets Limited (together, FTSE TMX ) and MTSNext Limited. FTSE, Russell and FTSE TMX are each benchmark administrators of indexes. References to FTSE Russell should be interpreted as a reference to the relevant benchmark administrator for the relevant index. 1.3 Statement of Principles for FTSE Russell market capitalisation weighted equity indexes (the Statement of Principles) Indexes need to keep abreast of changing markets and the Ground Rules cannot anticipate every eventuality. Where the Ground Rules do not fully cover a specific event or development, FTSE Russell will determine the appropriate treatment by reference to the Statement of Principles which summarises the ethos underlying FTSE Russell s approach to index construction. The Statement of Principles is reviewed annually and any changes proposed by FTSE Russell are presented to the FTSE Russell Index Policy Advisory Board for discussion before approval by FTSE Russell s Governance Board. The Statement of Principles can be accessed using the following link: Statement_of_Principles.pdf 1.4 Index objective and Intended Use The indexes and index statistics are intended to reflect the investment markets included in the index definitions and to facilitate the detailed analysis of such markets FTSE considers that the FTSE Global Equity Index Series meets the IOSCO Principles for Financial Benchmarks as published in July Full details can be accessed at Details of FTSE s Statement of Compliance with respect to the IOSCO Principles can be accessed using the following link: IOSCO Statement of Compliance 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 should be able to withstand, or otherwise address the possibility of changes to, or cessation of, the index Index users who choose to follow this index series or to buy products that claim to follow this index series 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 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 Global Equity Index Series, v6.2, July of 48

5 1.5 These Ground Rules This document sets out the construction and maintenance of the FTSE Global Equity Index Series These Ground Rules should be read in conjunction with the FTSE Global Equity Index Guide to Calculation Methods and Corporate Actions and Events Guide which can be accessed using the links below: FTSE_Global_Equity_Index_Series_Guide_to_Calc.pdf Corporate_Actions_and_Events_Guide.pdf FTSE Russell FTSE Global Equity Index Series, v6.2, July of 48

6 Section 2 Management Responsibilities 2.0 Management Responsibilities 2.1 FTSE International Limited (FTSE) FTSE is the Benchmark Administrator as defined by the IOSCO Principles for Financial Benchmarks published in July FTSE Russell is responsible for the daily calculation, production and operation of the 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; publicise changes to the constituent weightings resulting from their ongoing maintenance and the periodic reviews; disseminate the indexes. 2.2 FTSE Russell External Advisory Committees To assist in the oversight of the indexes FTSE Russell has established the following external advisory committees: FTSE Russell Asia Pacific Regional Equity Advisory Committee FTSE Russell Europe, Middle East & Africa Regional Equity Advisory Committee FTSE Russell Americas Regional Equity Advisory Committee FTSE Nationality Advisory Committee FTSE Country Classification Advisory Committee FTSE ICB Advisory Committee The Terms of Reference of the FTSE Russell external advisory committees are set out on the FTSE Russell website and can be accessed using the following link: Terms of Reference 2.3 FTSE Russell Index Policy Advisory Board The FTSE Russell Index Policy Advisory Board, whose membership is representative of users of FTSE Russell Indexes, is established by FTSE Russell as an independent committee. The FTSE FTSE Russell FTSE Global Equity Index Series, v6.2, July of 48

7 Russell Index Policy Advisory Board provides strategic advice to FTSE Russell on the construction and maintenance of agreed indexes (as stipulated in their terms of reference) and to oversee the practitioner committees established by FTSE Russell to assist in the management of the indexes The Terms of Reference of the FTSE Russell Index Policy Advisory Board are set out on the FTSE Russell website and can be accessed using the following link: 2.4 FTSE_Russell_Index_Policy_Advisory_Board.pdf 2.5 Amendments to These Ground Rules These Ground Rules shall be subject to regular review (at least once a year) 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 Governance Board before approval is granted As provided for in Rule 1.3, where FTSE Russell determines that the Ground Rules are silent or do not specifically and unambiguously apply to the subject matter of any decision, any decision shall be based as far as practical on the Statement of Principles. After making any such determination, FTSE Russell shall advise the market of its decision at the earliest opportunity. Any such treatment will not be considered as an exception or change to the Ground Rules, or to set a precedent for future action, but FTSE Russell will consider whether the Rules should subsequently be updated to provide greater clarity. FTSE Russell FTSE Global Equity Index Series, v6.2, July of 48

8 Section 3 Queries, Complaints and Appeals 3.0 Queries, Complaints and Appeals A constituent or prospective constituent company (or professional advisor acting on behalf of the company), a national organisation or a group of no fewer than ten users of the Indexes from different organisations acting in their professional capacity may appeal against decisions taken by FTSE Russell. FTSE Russell s complaints procedure can be accessed using the following link: Queries_and_Complaints_Policy.pdf FTSE Russell s Appeal Process can be accessed using the following link: Appeals_Against_Decisions.pdf FTSE Russell FTSE Global Equity Index Series, v6.2, July of 48

9 Section 4 Country Inclusion Criteria 4.0 Country Inclusion Criteria 4.1 Classification Categories FTSE classifies countries included in its global indexes into one of three categories: Developed, Advanced Emerging and Secondary Emerging. FTSE maintains a set of criteria to assess market status and minimum standards for each category for countries and markets to achieve in order to be eligible for that category. The minimum standards increase from Secondary Emerging to Advanced Emerging and from Advanced Emerging to Developed. A country will be classified under the category with the highest standards which it meets. FTSE conducts an annual review of all countries included in its global indexes and those being considered for inclusion. See Appendix E for a current list of countries included in each category. Also refer to the following link: Country_Classification Countries and markets currently eligible for the FTSE Global Equity Index Series can be seen in Appendix A. 4.2 Criteria for Index Inclusion Once a country has met the required standards, it will be eligible for inclusion in the FTSE Global Equity Index Series. However, for the country index to be constructed and included in the FTSE Global Equity Index Series, it must have a minimum of 3 companies which pass the securities eligibility criteria and screens (see sections 5, 6 and 7). An existing country index will remain in the FTSE Global Equity Index Series while any eligible constituents representing the country remain within the index. On the deletion of the last constituent, the country will continue to be eligible, but the country index will be immediately removed from the FTSE Global Equity Index Series and will only be reconsidered for inclusion if it meets the minimum requirement of 3 eligible companies Country and regional indexes currently calculated for the FTSE Global Equity Index Series can be seen in Appendix F. FTSE Russell FTSE Global Equity Index Series, v6.2, July of 48

10 4.3 Country Review Process FTSE conducts an annual review of all countries included in its global indexes and those being considered for possible inclusion. Countries already in the indexes will be assessed against the minimum standards for each category and prior to any reclassification or removal from the index will be placed on a watch-list. Countries not in the index will be assessed against the minimum standards for each category and, if appropriate, will be added to the watch list for possible future inclusion to one of the categories. In conducting the annual review, FTSE will consult the FTSE Country Classification Advisory Committee. In March and September of each year, FTSE will publish a watch list of countries being monitored for possible promotion or demotion. This process is detailed in the following document: FTSE_Country_Classification_Paper.pdf FTSE releases the results of its annual review in September of each year. FTSE will normally give at least six months notice before changing the classification of any country Countries may be added to the indexes at any time after a prior announcement New regional indexes may be added at any time after a prior announcement Companies in the newly added countries will be reviewed in line with the relevant semi-annual regional review and any changes implemented after a prior announcement. 4.4 Market Deletion or Suspension Details of FTSE Russell s treatment can be accessed using the following link: FTSE_Russell_Index_Policy_in_the_Event_Clients_are_Unable_to_Trade_a_Market.pdf FTSE Russell FTSE Global Equity Index Series, v6.2, July of 48

11 Section 5 Security Inclusion Criteria 5.0 Security Inclusion Criteria 5.1 FTSE Russell will review the classes of securities to be included in each country periodically. Appendix B shows the current list of eligible classes for eligible countries The following are regarded as ineligible: Companies whose business is that of holding equity and other investments (e.g. Investment Trusts) which are assumed by the Industry Classification Benchmark as Subsector equity investment instruments (8985) and Non-equity investment instruments which are assumed by the Industry Classification Benchmark as Subsector non-equity investment instruments (8995) will not be eligible for inclusion. Limited Liability Partnerships (LLP), Limited Partnerships (LP), Master Limited Partnerships (MLP), Limited Liability Companies (LLC) and Business Development Companies (BDC) will not be eligible for inclusion. Where a stapled unit comprises an eligible security and a non eligible security (such as non equity or an Investment Trust structure) the unit will not be eligible for inclusion. Convertible preference shares and loan stocks are excluded until converted. Companies will be ranked by their full market capitalisation. A company s full market capitalisation will consist of any equity shares that are listed and in issue at the index review cut-off date in accordance with FTSE s shares in issue rules as set out in the Corporate Actions and Events Guide, Section 2, Rule 2.6 which can be accessed using the following link: Corporate_Actions_and_Events_Guide.pdf Non-negotiable shares are included in the calculation of the full market capitalisation for Chinese companies. Shares that have been listed but do not form part of a company s current issued share capital, such as treasury shares and shares pending issuance to an employee scheme, will be excluded from the full market capitalisation calculation. Securities which are subject to surveillance by the stock exchanges and have been assigned to any of the following segments will not be eligible for index inclusion. Where an existing constituent is assigned to an ineligible segment it will normally be deleted from the index at the next quarterly review and it will only be reconsidered for index inclusion after a period of 12 months from its FTSE Russell FTSE Global Equity Index Series, v6.2, July of 48

12 deletion subject to it no longer being under surveillance. For the purposes of the index eligibility it will be treated as a new issue. Country Exchange Segment China Shanghai Stock Exchange Special Treatment (ST) Shenzhen Stock Exchange Malaysia Bursa Malaysia PN17 Singapore Singapore Exchange Watch-list South Korea Korea Exchange Administrative Issues Taiwan Taiwan Stock Exchange Altered Trading Method (ATM) Thailand Stock Exchange of Thailand Companies facing possible delisting according to No. 9(6) of SET s Regulations on Delisting of Securities Turkey Borsa Istanbul Watchlist Eligible securities are required to pass screens for liquidity, free float and foreign ownership restrictions before being included in the FTSE global indexes (see Rules 6.1 and 7.4.2) All securities included in FTSE global indexes are assigned a nationality in accordance with the rules as set out in the Nationality Statement. Details can be accessed using the following link: Determining_Nationality.pdf 5.2 Multiple Lines Where there are multiple lines of equity capital in a company, all are included and priced separately, provided that they pass index eligibility screens in their own right. All partly-paid classes of equity are priced on a fully-paid basis if the calls are fixed and are payable at known future dates. Those where future calls are uncertain in either respect are priced on a partly-paid basis. FTSE Russell FTSE Global Equity Index Series, v6.2, July of 48

13 Section 6 Investability Weightings 6.0 Investability Weightings 6.1 Constituents of the FTSE Global Equity Index Series are adjusted for free float and foreign ownership limits. Further details on free float restrictions can be accessed using the following link: Free_Float_Restrictions.pdf A. Initial Weighting Free float restrictions will be calculated using available published information. For equity shares of companies that have a free float greater than 5%, the actual free float will be rounded up to the next highest whole percentage number. Companies with a free float of 5% or below are excluded from the index. B. Percentage Point Thresholds Following the application of an initial free float restriction, a constituent s free float will only be changed if its rounded free float moves to more than 3 percentage points above or below the existing rounded free float. Where a company s actual free float moves to above 99%, it will not be subject to the 3 percentage points threshold and will be rounded to 100%. A constituent with a free float of 15% or below will not be subject to the 3 percentage points threshold. C. Changes in Free Float A constituent s free float will also be reviewed on publication of further information on restricted shareholdings. For changes resulting from a corporate event, refer to the Corporate Actions and Events Guide for further information. Where a change is not corporate event driven, the update in free float will be applied after the close of business on the third Friday of March, June, September and December, whichever comes first. The data cut-off for these quarterly changes will be the close of business on the third Wednesday of the month prior to the review month. Any change in free float will be subject to Rule 6.1B. D. Foreign Ownership Restrictions FTSE s index methodology takes account of the restrictions placed on the equity holdings of foreign investors in a company where these have been imposed by a government, regulatory authority or the company's constitution. FTSE Russell FTSE Global Equity Index Series, v6.2, July of 48

14 Where the presence of a foreign ownership restriction creates a limit on foreign ownership (the Foreign Ownership Limit or FOL) that is more restrictive than the calculated free float for a company, the precise Foreign Ownership Limit is used in place of the free float for the purposes of calculating the company s investability weight. If the foreign ownership restriction is less restrictive or equal to the free float restriction, the free float restriction is applied, subject to Rule 6.1A. If a company changes its foreign ownership restriction, the change will be implemented in FTSE Russell indexes at the subsequent quarterly review, subject to rule 6.1 E Minimum foreign headroom requirement. E. Minimum Foreign Headroom Requirement FTSE Russell defines foreign headroom as the percentage of shares available to foreign investors as a proportion of the company s Foreign Ownership Limit (FOL), i.e. (FOL foreign holdings)/fol. For example, if a company has a foreign ownership limit, of 49%, of which 39% is held by foreign investors, the foreign headroom will be calculated as 20.41% i.e. (49% - 39%)/ 49%. (i) (ii) For a non-constituent that is subject to foreign ownership limit, a minimum headroom of 20% must be available in order to be included in the index. Where the headroom of an existing constituent falls below 10%, its investability weight will be reduced an absolute value of 5% at the next quarterly review. For example, if Company A s current investability weight is 49% (i.e. equal to the FOL), a 5% absolute reduction will result in an adjusted investability weight of 44.0% (49%- 5%). If Company B s current investability weight is 30% (i.e. Free Float more restrictive than FOL), a 5% absolute reduction will result in an adjusted investability weight of 25% (30%-5%). Please note, prior to March 2016, existing index constituents which had a headroom less than 10%, had their investability weight reduced by 10% of their current investability weight i.e. if their investability weight was 49%, a 10% relative adjustment will result in an adjusted investability weight of 44.1% (49% * 0.9). (iii) (iv) The investability weight will continue to be reduced at subsequent quarterly reviews in increments of 5% until the headroom level increases to 10% or above. As a result of these quarterly 5% downward adjustments, should the investability weight of the security fall to 5% under this process, the security will no longer be eligible to remain in the index. The investability weight of an existing constituent which has been subject to headroom adjustments will have its most recent 5% adjustment reversed at a quarterly review subject to a minimum 20% headroom remaining post reversal (as illustrated in step 2 below). For example, Company A has an FOL of 49%, foreign holdings of 32% and a current investability weight of 29%. Step 1: The foreign headroom test is calculated as 35% (i.e. (49%-32%)/49%), highlighting a potential reversal. FTSE Russell FTSE Global Equity Index Series, v6.2, July of 48

15 Step 2: The post reversal foreign headroom test is calculated as 24% (i.e. (49%- 37%)/49%). For the purpose of the test the 5% adjustment is deemed to have the effect of increasing the foreign holding to 37%. In the above example, Company A qualifies for a headroom reversal. The investability weighting will be increased from 29% to 34% (i.e. 29% + 5%). (v) In the event a security with a headroom adjustment increases its foreign ownership limit (FOL), the increase in the FOL will implemented in two, 50% tranches, subject to the headroom remaining at 20% or above. For example, Company A had two headroom adjustments down from a FOL of 24% to a current investability weight of 14.00% Company A Initial FOL of 24% (Q1) First Headroom Adjustment 19.00% (5% reduction from 24%) (Q2) Second Headroom Adjustment 14.00% (5% reduction from 19%) The Company announces an increase to its FOL from 24% to 35%. The increase in the FOL will be implemented in the following steps: Company A announces an FOL increase to 35% (11% increase) (Q1) Subject to 20% headroom availability, FOR is increased by 50% of the 11% 14.00% % = 19.50% increase (Q2) Subject to 20% headroom availability, FOR is increased by remaining 50% of the 19.50% % = 25.00% 11% increase (Q3) Subject to 20% headroom availability, reverse second headroom adjustment of 25.00% % = 30.00% 5.0% (Q4) Subject to 20% headroom availability, 30.00% % = 35.00% reverse first head room adjustment of 5.0% First quarterly review following the announcement of an increase in FOL to 35%; 50% of the FOL increase (in this case 5.50%) will be implemented (subject to headroom remaining at 20% or above). Second quarterly review; the remaining 50% of the FOL increase will be implemented (subject to headroom remaining at 20% or above). Subsequent quarterly reviews; if the headroom availability remains at 20% or above, the previous two headroom adjustments of 5% each will be reversed on a quarterly basis. (vi) In the event a security with a headroom adjustment decreases its foreign ownership limit (FOL), the decrease in the FOL will be implemented in full at the next quarterly review. For example, Company A had a headroom adjustment down from a FOL of 24% to a current investability weight of 19.0%. The Company announces a decrease in the FOL to 21% (a decrease of 3% from the previous FOL of 24%). FTSE will decrease the existing adjusted investability weight by the 3% reduction in FOL at the next quarterly review, resulting in Company A having a new investability weighting of 16.0% (19% - 3%). FTSE Russell FTSE Global Equity Index Series, v6.2, July of 48

16 (vii) An existing constituent with a headroom adjustment, that passes the index eligibility screens (for example liquidity, minimum size, investability weight) will not be eligible for index promotion from Small Cap to All-World (Large/Mid) until all headroom adjustments have been reversed. An index demotion from All-World (Large/Mid) to Small Cap will proceed for an existing constituent with a headroom adjustment. (viii) Where foreign ownership restrictions are not universally applied to all foreign investors, but only impact a particular set of foreign investors, a 5% headroom adjustment will be applied where there is evidence of these restrictions being enforced. This headroom restriction will be reassessed on a quarterly basis and will not be lifted until either foreign ownership restrictions are removed or all foreign investors are treated equally. (ix) (x) (xi) (xii) For an existing index constituent, where foreign investors are prohibited from purchasing additional shares (for example, where Indian companies are placed on the Reserve Bank of India (RBI) Ban List), a 5% headroom adjustment will be applied at the next quarterly review and reassessed on a quarterly basis. Upon removal of restrictions prohibiting the purchase of shares, a headroom test will be conducted at the next quarterly review and headroom adjustments removed if the index constituent passes the headroom test. Where a non constituent passes the relevant headroom test, but foreign investors are only permitted to hold a maximum of 1% of the free float adjusted shares in issue, the security will not be eligible for index membership. Headroom tests will be conducted in conjunction with the March, June, September and December quarterly reviews. Unless there is an increase in the foreign ownership limit, a headroom adjustment will not be reversed for a period of 6 months (i.e. if a headroom adjustment has been implemented at the June review then the earliest it can be reversed is at the following March review). (xiii) If a constituent has been removed from the index as a result of its investability weight falling below 5% following a headroom adjustment, it will only be reconsidered for inclusion after a period of 12 months from its deletion. For the purposes of index eligibility it will be considered as a new issue. (xiv) Securities are assigned their official foreign ownership limit, however if permission is required from a local regulator to purchase additional shares beyond a certain permission threshold, then the more restrictive permission level is assigned as the foreign ownership limit for example, a security may have a foreign ownership limit of 24%, however any purchase beyond 22% requires prior permission from the local regulatory authority. In this example the security would be assigned a foreign ownership limit of 22%. F. Thailand Non-Voting Depositary Receipts A Non-Voting Depositary Receipt (NVDR) is a trading instrument issued by the Thai NVDR Company Ltd to overcome foreign investment barriers such as foreign investment limits. NVDRs entitle holders to the same financial benefits as those who invest directly in a company s ordinary shares, except that they have no voting rights. The NVDR price is equal to the price of the underlying securities on the Local Board. If NVDRs are available FTSE Russell may, under certain circumstances, represent them in the index in order to fully represent the investable shares available to foreign investors. FTSE Russell FTSE Global Equity Index Series, v6.2, July of 48

17 (i) (ii) Where a security is not subject to a foreign ownership restriction, it is included in the index at its calculated free float. Where a security is subject to a foreign ownership restriction, there is no NVDR or the NVDR does not satisfy the minimum foreign headroom requirement as outlined in Section E, and its Foreign Board share passes liquidity, it is included at its Foreign Board price with an investability weight equivalent to its FOL or calculated free float, whichever is more restrictive. For example, Company A has an FOL of 25% and a free float of 90%. It has a maximum NVDR issuance limit of 35%, of which 30% has already been issued. As the NVDR fails the minimum foreign headroom requirement of 20%, the Foreign Board share is included with an investabiity weight of 25%. (iii) Where a security is subject to a foreign ownership restriction and an NVDR is available which satisfies the minimum foreign headroom requirement as outlined in Section E, both the Foreign Board share and the NVDR are included in the index. The Foreign Board share is included in the index with an investability weight equivalent to the FOL and the separate NVDR with an investability weight equivalent to its NVDR limit or the difference between its Free Float and FOL, whichever is more restrictive. For example, Company A has an FOL of 49% and a free float of 80%. It has a maximum NVDR issuance limit of 35%, of which 20% has already been issued. It passes the minimum foreign headroom requirement. Company A will be included in the index with 2 separate lines: Foreign Board share is included in the index with an investability weight of 49% (FOL) NVDR is included in the index at an investability weight of 31% (i.e. 80%-49%), as it is more restrictive than its NVDR limit of 35% (iv) Where a security is subject to a foreign ownership restriction and its Foreign Board share fails liquidity, subject to the Local share passing all eligibility screenings and the NVDR satisfying the minimum foreign headroom requirement as outlined in Section E, the Local share is included with an investability weighting equivalent to its FOL + NVDR or its calculated free float, whichever is more restrictive. For example, Company A has an FOL of 49% and a free float of 60%. There is no limit on its NVDR issuance, so effectively its can be 100% invested. Therefore the Local share is included in the index at an investability weight of 60%.. FTSE Russell FTSE Global Equity Index Series, v6.2, July of 48

18 Section 7 Periodic Review of Constituents 7.0 Periodic Review of Constituents 7.1 Index Regions and Reviews Countries are grouped into regions (detailed below) for the purpose of reviews. The review of each region takes place semi-annually as detailed below. Regions to be Reviewed Date of Review Data Taken as of Asia Pacific ex Japan March Last business day in December Developed Europe Emerging Europe Japan Latin America Middle East & Africa North America September Last business day in June Note: Advanced Emerging and Secondary Emerging markets are treated as Emerging for the purposes of Sections 7 and Index Reviews Countries are usually reviewed semi-annually in March and September, on a region by region basis, based on data as at the close of business on the last business day of December and June. Any constituent changes resulting from the periodic review will be implemented after the close of business on the third Friday (i.e. effective the following Monday) of March and September The review process is designed to reflect market movements since the previous review and to minimise turnover Timings of announcements about changes to the Index Series resulting from the review can be found in Section Review Process Define the 100% Regional Universe by selecting all eligible companies (as per Appendices A and B) assigned the nationality of countries that are included in the global indexes Value companies by full market capitalisation (shares in issue * price), group secondary lines, and rank companies (not securities) by full market value. Throughout the review process all of a company s eligible securities will remain grouped, and companies as a whole, rather than individual securities are assigned to Large, Mid or Small Cap (see Rule 7.5). FTSE Russell FTSE Global Equity Index Series, v6.2, July of 48

19 Please note: In determining the full market capitalisation of Chinese companies, the A shares will be included in the calculation for index ranking purposes. However only the eligible share classes (as per Appendix G) will be included in the index Calculate the total market capitalisation of the universe by totalling the full capitalisation of all eligible companies in the region Define the Index Universe - Ranked by full market capitalisation in descending order, calculate the cumulative market capitalisations of all stocks in the regional universe and their relevant weights. The top 98% of the Regional Universe will be selected and forms the Index Universe. 7.4 Screens Applied to Eligible Securities Eligible securities are subject to the following screens: Investability Weightings and Multiple Lines as detailed in Sections 5 and Liquidity Calculating Liquidity: Each security will be tested for liquidity semi-annually in March and September by calculation of its monthly median of daily trading volume. Liquidity will be calculated for the March review from the first business day of January to the last business day of December of the previous year and for the September review from the first business day of July of the previous year to the last business day of June. When calculating the median of daily trading volume of any security for a particular month, a minimum of 5 trading days in that month must exist, otherwise the month will be excluded from the test. For each month, the daily trading volume for each security is calculated as a percentage of the shares in issue for that day adjusted by the free float at the review cut off date. These daily values are then ranked in descending order and the median is taken by selecting the value for the middle ranking day if there is an odd number of days and the mean of the middle two if there is an even number of days. Daily totals with zero trades are included in the ranking, therefore a security that fails to trade for more than half of the days in a month will have a zero median trading volume for that month. Any period of suspension will not be included in the test. For newly eligible securities where the testing period is less than 12 months, the liquidity test will be applied on a pro-rata basis. Liquidity Thresholds: A. An existing constituent which, based on its median daily trading volume per month does not turnover at least 0.04% of its shares in issue (after the application of any free float weightings*) for at least eight of the twelve months prior to a full market review will be removed from the Index Series. B. A non-constituent which, based on its median daily trading volume per month, does not turnover at least 0.05% of its shares in issue (after the application of any free float weightings*) for at least ten of the twelve months prior to a full market review will continue to be excluded from the Index Series. C. New issues which do not have a twelve month trading record must have a minimum three month trading record when reviewed. They must turnover at least 0.05% of their shares in FTSE Russell FTSE Global Equity Index Series, v6.2, July of 48

20 issue (after the application of any free float weightings)* based on their median daily trading volume each month, on a pro-rata basis since listing. This rule will not apply to new issues added under the Fast Entry Rule (see Rule 8.1.3). Newly eligible securities will be treated as new issues and liquidity will be tested from the date of eligibility. Trading records prior to this date will generally not be taken into account. D. In assessing liquidity, data will be aggregated from trading volume in the country in which the company is classified by FTSE and from any other trading venues, as approved by FTSE, operating in a similar time zone. In the event that a company fails the liquidly test based on its underlying shares, and the company has an equivalent Depositary Receipt (DR) then the DR may be considered for inclusion in the index if it passes the liquidity test in its own right and is traded on an exchange within the similar regional time-zone to where the underlying shares are listed. Where a company has both DR and underlying shares listed, both lines will be tested separately for liquidity. The underlying share will be included as long as it passes the liquidity test in its own right. The DR will only be eligible for inclusion if the underlying share fails the liquidity test and the DR passes in its own right. Where the DR has been included it will remain in the index until such a time it either fails the liquidity test or the underlying share passes a future liquidity test with greater liquidity than the DR. In the event that the underlying share fails the liquidity test and the DR trades in a different time-zone, but passes the test in its own right, the underlying share will be included as long as the DR is fully fungible (i.e. the DR can be converted into underlying shares and the underlying shares can be converted into DRs). E. The above percentage figures may be adjusted by up to 0.01% at a market review so that, in FTSE s opinion, the index better reflects the liquid investable market of the region. This discretion may only be exercised across the whole of a region and may not be applied to individual securities or countries. For further details please refer to the FTSE Global Equity Index Series - Guide to Calculation Method for the Median Liquidity Test which can be accessed using the following link: Guide_to_Calculation_Methods_for_GEIS_Liquidity.pdf 7.5 Reviewing Constituents for the Indexes To reduce turnover, existing and potential constituents are subject to a series of buffer zones to determine the cut-off points between Large, Mid and Small Cap the buffers are detailed in the table below. In addition to the percentage cut-offs, new constituents are required to pass basis points entry and exit levels allocated to each specific region and index segment (FTSE All-World Index and FTSE Global Small Cap Index). These basis points entry and exit levels are detailed in Rule Turnover Bands (Based on the Index Universe) Eligible for Inclusion Eligible for Exclusion Large Cap 68%* 72%* Mid Cap 86%* 92%* Small Cap 98%* 101%* Note: 101% of the Index Universe is approximately 99% of the Regional Universe. * When testing liquidity the free float weight as at the last date in the testing period will be used for the calculation for the whole of that period FTSE Russell FTSE Global Equity Index Series, v6.2, July of 48

21 7.5.2 Inclusion and exclusion percentage levels by investable market capitalisation for all the regions in the FTSE Global Equity Index Series to determine additions and deletions and other changes in the index are shown below. These percentages are based on the respective regional Small Cap Index. Individual securities will be tested against the relevant regional levels. Region Developed Europe North America Asia Pacific ex Japan Japan For Inclusion (New Stocks) For Exclusion (Current Stocks) 0.02% 0.005% 0.05% 0.01% Latin America 0.50% 0.20% Emerging Europe Middle East & Africa 1.00% 0.20% In exceptional circumstances where FTSE believes that strict adherence to the inclusion and exclusion levels listed in the above table and in Rule would produce either excessive turnover at an index review, or an index that inaccurately represented different size segments, FTSE reserves the right to vary the percentage levels Companies Currently Not in the Global Equity Index Series: Companies at or above 68% of the Index Universe by full market capitalisation with a weight greater than 0.04% of the current respective regional All-World Index by full market capitalisation, and with a weight greater than the inclusion percentage levels stated in Rule for the respective region by investable market capitalisation, will be included in the Large Cap Index for the region under review. Companies ranked below 68%, but within the top 86% of the Index Universe by full market capitalisation with a weight greater than 0.04% of the current respective regional All-World Index by full market capitalisation, and with a weight greater than the inclusion percentage levels stated in Rule for the respective region by investable market capitalisation, will be included in the Mid Cap Index for the region under review. Companies ranked below the top 86%, but within the top 98% of the Index Universe by full market capitalisation or have a weight less than 0.04% of the current respective regional All-World Index by full market capitalisation, and with a weight greater than the inclusion percentage levels stated in Rule for the respective region by investable market capitalisation will be included in the Small Cap Index for the region under review. Existing Constituents: Large Cap constituents will remain in the Large Cap Index if they fall within the top 72% of the ranking described in Rule 7.3. If they are ranked between 72% and 92% of the Index Universe they will move to the Mid Cap. If they are ranked below 92% of the Index Universe but within the top 101% of the Index Universe, they will move to the Small Cap. If they are ranked below 101% of the Index Universe by full market capitalisation or have a weight less than the exclusion percentage levels stated in Rule for the respective region by investable market capitalisation, they will be excluded from the index. Mid Cap constituents will move to the Large Cap if they fall within the top 68% of the ranking described in Rule 7.3. If they are ranked between 68% and 92% of the Index Universe they will remain in the Mid Cap. If they are ranked below 92% of the Index Universe but within the top 101% of the Index Universe, they will move to the Small Cap. If they are ranked below FTSE Russell FTSE Global Equity Index Series, v6.2, July of 48

22 101% of the Index Universe by full market capitalisation or have a weight less than the exclusion percentage levels stated in Rule for the respective region by investable market capitalisation, they will be excluded from the index. Small Cap constituents will move to the Large Cap if they fall within the top 68% of the ranking described in Rule 7.3. If they are ranked between 68% and 86% of the Index Universe by full market capitalisation and have a weight greater than 0.04% of the current respective regional All-World Index by full market capitalisation they will move to the Mid Cap. If they are ranked below 86% of the Index Universe or have a weight less than 0.04% of the current respective regional All-World Index by full market capitalisation, but within the top 101% of the Index Universe, they will remain in the Small Cap. If they are ranked below 101% of the Index Universe by full market capitalisation or have a weight less than the exclusion percentage levels stated in Rule for the respective region by investable market capitalisation, they will be excluded from the index. FTSE Russell FTSE Global Equity Index Series, v6.2, July of 48

23 Section 8 Additions Outside of a Review 8.0 Additions Outside of a Review 8.1 Definition of Fast Entry Thresholds a) Large Cap Inclusion Level - Full market capitalisation of the smallest company that falls wholly within the top 68% of the Index Universe by full market capitalisation of the respective region when ranked according to Rule 7.3. b) Mid Cap Inclusion Level - Full market capitalisation of the smallest company that falls wholly within the top 86% of the Index Universe by full market capitalisation of the respective region when ranked according to Rule For a security to be considered for fast entry, it will have to meet both a full market capitalisation threshold at company level and an investable market capitalisation threshold at security level. The full market capitalisation threshold is defined as 1.5 times the Mid Cap inclusion level (see 8.1b). For example, if the 86% Mid Cap inclusion level is 10bn USD. The full market capitalisation fast entry threshold at company level will be 10bn * 1.5 = 15bn USD The investable market capitalisation threshold is defined as 0.5 times the Mid Cap inclusion level. For example, if the 86% Mid Cap inclusion level is 10bn USD. The investable market capitalisation fast entry threshold at security level will be 10bn * 0.5 = 5bn USD Where a security passes both the full market capitalisation and investable market capitalisation test, it will be assigned to the Large Cap index subject to its full market capitalisation breaching the Large Cap inclusion level (see 8.1a), otherwise it will be assigned to the Mid Cap index. Shares being offered as a greenshoe (over allotment option) will be excluded from the investable market capitalisation calculation The Fast Entry level will be set at the time of the semi- annual reviews in March and September using data as at the last trading day in December and June, the Fast Entry levels will be adjusted up to 11 February or 11 August (previous trading day s data will be taken if any of these dates are on a non-trading day), respectively, to reflect the performance of the FTSE Global Equity Index Series as a whole, and will be published by FTSE Russell. FTSE Russell FTSE Global Equity Index Series, v6.2, July of 48

24 In June and December the Fast Entry levels will be adjusted up to 11 May or 11 November (previous trading day s data will be taken if any of these dates are on a non-trading day) respectively, to reflect the performance of the FTSE Global Equity Index Series as a whole, and an updated figure will be published by FTSE Russell Where a company, whether an existing constituent or not, undertakes an Initial Public Offering of a new equity security, that security will be eligible for fast entry inclusion to the FTSE Global Equity Index Series if it meets the following conditions: A. A new equity security (IPO), which satisfies the eligibility criteria and the screens other than the liquidity screen, is eligible for fast entry when its full market capitalisation and its investable market capitalisation using the closing price on the first day of trading is greater than the Fast Entry Thresholds for the relevant region (see Rule 8.1.1). The addition of a new security to the index will be implemented after the close of business on the fifth day of trading. In the event of the fifth day of trading being in close proximity to an index review, FTSE Russell may use its discretion to include a fast entrant at the index review date following advance notice. B. A new equity security (IPO) which does not qualify as an immediate fast entrant to the index will be re-considered for inclusion into the FTSE Global Equity Index Series at the next review. However, for inclusion at a quarterly review outside the March and September semi-annual reviews, its full company market capitalisation at close on 11 May or 11 November (previous trading day s data will be taken if any of these dates are on a non trading day), as appropriate, must be: equal to or greater than the entry levels under Rules and (index adjusted to reflect the change in performance of the regional index since its previous semi-annual review). and it must qualify under Rules 6.1 and (including the minimum requirement of a 3 month trading record under Rule 7.4.2C). C. In the case of a demutualisation where upon listing the entire free float of a new eligible security is immediately transferred to private shareholders the addition of the security will be deferred for one month after trading has commenced - provided that adequate liquidity over the intervening period (as defined under Rule 7.4.2) is demonstrated. D. Newly eligible securities, for example a non-constituent moving to an eligible market, will be reviewed for inclusion at the next semi-annual review. FTSE Russell FTSE Global Equity Index Series, v6.2, July of 48