Guide to the Dow Jones China Offshore 50 Index SM

Transcription

1 Guide to the Dow Jones China Offshore 50 Index SM

2 Contents 01. Introduction Key Features Base Date and Base Value Index Formula Dividend Treatment Weighting Dissemination Stock Prices Input Data Computational Precision Index Construction Methodology Index Universe Initial Component Selection Periodic Review Semiannual Review Process Quarterly Update Process Announcement Periods and Implementation Dates Index Maintenance Change of Primary Market Listing Monthly Selection List Early Removal Early Entry for Initial Public Offerings (IPO) Spinoffs and Related Restructurings Mergers Takeovers Delisting and Bankruptcy Data Correction Policy Appendix

3 01. Introduction The Dow Jones China Offshore 50 Index is designed to serve as the basis for index-linked products, particularly exchange-traded funds (ETFs) and derivatives. The index intends to represent the largest stocks of companies whose primary operations are in mainland China but that trade on exchanges in Hong Kong or the U.S. The Dow Jones China Offshore 50 Index is constructed by selecting companies from the broad-based Dow Jones China Index with the objective of optimizing the factors of greatest importance in an investable index: liquidity, turnover rate, transaction costs and tracking error against the broad-market benchmark. 02. Key Features 2.1 Base Date and Value Calculation of the Dow Jones China Offshore 50 Index SM began on October 19, The base date for The Dow Jones China Offshore Index is December 31, 2000, and its base value is Index Formula The Dow Jones China Offshore 50 Index is calculated using Laspeyres formula, meaning it measures price changes against a fixed-basedperiod quantity weight. A detailed explanation of the Laspeyres formula is provided in section 8.2 of the Guide to the Dow Jones Global Indexes. 2.3 Dividend Treatment The Dow Jones China Offshore 50 Index is calculated in both pricereturn and total-return forms in U.S. dollars. Dividend payments are not taken into account in the price index, whereas dividend payments net of taxes are reinvested in the index sample of the total-return index. Only extraordinary and special cash dividends are included in the index. Special dividends from non-operating income continue to be included in the index calculation. 2.4 Weighting The Dow Jones China Offshore 50 Index is capitalization-weighted. The float-adjusted shares outstanding for each class of stock are used to determine the company s market capitalization. Float factor adjustments are based on the rules in Section 7 of the Guide to the Dow Jones Global Indexes. The weighting of each component is capped at 10% of the index s total market capitalization at the quarterly updates. The maximum weight of the top five individual securities is 50%. 2.5 Dissemination The index is calculated and disseminated every 15 seconds whenever any of its primary exchanges are open. On exchange holidays, the previous day s closing price for each affected stock is used for index calculation. If a corporate action becomes effective on an exchange holiday, the adjusted closing price for the previous business day is used. 2.6 Stock Prices The Dow Jones China Offshore 50 Index is computed using the lasttraded prices of its components during the official trading hours of the components primary exchanges. Index calculation begins when the first official opening component price is received. Until a particular stock opens, its adjusted closing price from the previous day is used in index computation. If trading of a stock is halted during a session, its last-traded price is used in all subsequent index computations until trading resumes. If trading is suspended before the opening, the stock s adjusted closing price from the previous day is used to calculate the index. 2.7 Input Data Real-time stock prices are provided by Reuters. The latest trading price is used for index calculation. The number of shares outstanding is determined separately for each class of stock. This information is obtained from a variety of data vendors, exchanges or the companies themselves. Corporate actions are sourced from public news services, regulatory filings, data vendors and the companies themselves. Float factors are calculated using data obtained from a variety of sources including data vendors, exchanges, regulators and the companies themselves. 2.8 Computational Precision Index values are available with six decimal precision (note: index values displayed by vendors are rounded to two decimal places). Index divisors are available with up to ten decimal places. Additional precision for index levels and divisors may be maintained internally for index adjustment purposes. Any values derived by the index calculation engine from a corporate action used for the divisor adjustments and index computations are rounded to six decimal places. 3.

4 03. Index Construction Methodology Stocks are selected to achieve representation of the 19 Supersectors defined by the proprietary classification system used by Dow Jones Indexes. 3.1 Index Universe The index selection universe for the Dow Jones China Offshore 50 Index comprises all Hong Kong listed Chinese companies, U.S.-listed shares and ADRs in the Dow Jones China Index. The following rules determine a stock s inclusion in the Dow Jones China Index: The Dow Jones China Index covers the China offshore market and the Hong Kong market. Eligible shares in the China offshore market include Chinese companies listed only on U.S. exchanges, ADRs of Chinese companies. Eligible shares in the Hong Kong market include Hong Kong listed Chinese companies. In both the China Offshore market and Hong Kong market, eligible securities are screened for liquidity. Any security that had more than 10 non-trading days over the past quarter is excluded, unless the lack of trading is due to a situation that is determined to be temporary. The remaining companies have their shares outstanding adjusted by a float factor to represent more accurately the investable size of the security. Stocks in the top 95% of the underlying floatadjusted market capitalization are then selected as components of the index, excluding stocks that fall in the bottom 1% of the universe by float-adjusted market capitalization and in the bottom 0.01% of the universe by turnover. 3.2 Initial Component Selection The selection of the initial index components includes the following steps: 1. Within each of the 19 Supersectors as defined by Dow Jones Indexes classification system, stocks in the index universe are ranked by float-adjusted market capitalization in descending order. If a company has more than one share class in the universe the more liquid share class is selected for the index. No company may have more than one class of stock in the index. 2. The largest stocks are added to a selection list until the floatadjusted market capitalization coverage of each Supersector is as close to 60% as possible. 3. The selected stocks are then ranked by float-adjusted market capitalization in descending order. 4. The largest 50 stocks on the selection list are included in the index. 04. Periodic Review 4.1 Semiannual Review Process The semiannual review process includes the following steps: 1. Repeat steps one and two in Section 3.2 of the Initial Component Selection. 2. Any current index component not already on the selection list is added to it. 3. Stocks on the selection list are then ranked by float-adjusted market capitalization in descending order. 4. The largest 50 stocks are included in the index, selecting current components first and then moving to noncomponents, subject to the following buffer rules: Any current index component ranked 61 or lower is replaced by the highest-ranked non-component stock. Any non-component stock ranked 40 or higher replaces the lowest-ranked current index component. 4.2 Quarterly Update Process The component shares outstanding and float factors are reviewed quarterly to coincide with the review of the Dow Jones China Index. The weighting of each component is capped at 10% of the index s total market capitalization at each quarterly update. If the weight of a component is more than 10%, it is reduced to 10% by a weighting cap factor. 4.3 Announcement Periods and Implementation Dates All review changes, including shares outstanding, float factors and weight-cap factors are announced on the second Friday of the implementation month (i.e. the second Friday in March and September). Changes to the index are implemented after the official closing values have been established. All adjustments are made before the start of the next trading day. Final constituent changes that result from the periodic review will be announced on the second Friday of the third month of each quarter (e.g. March, June, September and December). 05. Index Maintenance In addition to the scheduled semiannual review, the Dow Jones China Offshore 50 Index is reviewed on an ongoing basis. A change to the index composition and a related weight adjustment is necessary whenever there is an extraordinary event (e.g. delisting, 4.

5 bankruptcy, merger, takeover, etc.) involving an index component. In these cases, each event is accounted for as soon as it is effective. Such changes in an index s components are announced, whenever possible, two days prior to their implementation. Divisor adjustments are made using the formulas and procedures described in section 8.3 of the Guide to the Dow Jones Global Indexes. The current index divisors are updated daily and disseminated at Changes of Primary-Market Listing In the event that a component company s primary-market listing is moved to an ineligible exchange as defined in section 3.1, the company may be removed from the Dow Jones China Offshore 50 Index. 5.2 Monthly Selection List A selection list is created at the end of each month and upon a listing of any eligible large IPO. The selection list comprises the top 100 companies including only Hong Kong listed Chinese companies, U.S.- listed stocks and ADRs from the Dow Jones China Index based on float-adjusted market capitalization. The list indicates possible changes in the composition of the index at the next semiannual review and is used to determine replacements for stocks that are removed from the index due to mergers, financial distress or similar extraordinary events. 5.3 Early Removal Any company that is removed from the Dow Jones China Index that is also a component of the Dow Jones China Offshore 50 Index is automatically removed from the Dow Jones China Offshore 50 Index. 5.4 Early Entry for IPOs The selection list is also used to identify any large IPO that is eligible for early entry to the index. If an IPO ranks among the top 25 as of the most recent selection list by float-adjusted market capitalization, it is added to the index immediately to replace the lowest-ranked component. A qualified IPO is normally added to the index two days after its IPO date. The weight of an IPO may not exceed 10% of the float-adjusted market capitalization of the index. 5.5 Spinoffs and Related Restructurings If an index constituent is restructured into two or more new companies, the largest new company in terms of market capitalization will be included in the index immediately after the close of trading on the day the restructuring becomes effective, providing it otherwise would be eligible for index membership. If the restructuring involves an index constituent spinning off a portion of its business to form a new company or companies, the parent company, if otherwise eligible for index membership, generally will be retained in the index until the next semiannual review. However, there may be situations where a spinoff, due to its size, may be retained in an index instead of the legally surviving parent company. 5.6 Mergers If an index constituent merges with another company, component or non-component, its index membership will be assumed by the new company immediately after the close of trading on the effective date of the merger, providing the new company also qualifies for the index. If both companies are current index components, the topranked non-component from the most current selection list will fill the vacancy created by the merger. 5.7 Takeovers If an index component is taken over by another component company, the former will be removed from the index immediately after the close of trading on the day the takeover becomes effective. The replacement will be the highest ranked non-component from the most recent available selection list. If an index component is taken over by a non-component company, the acquiring company will replace its position in the index, provided the acquiring company meets all eligibility criteria. Otherwise, the highest ranking non component from the most recent available selection list will be selected as the replacement. 5.8 Delisting and Bankruptcy If an index constituent is delisted by its primary market, or is in bankruptcy proceedings, it will be removed from the index immediately. It will be replaced by the highest-ranking noncomponent from the most recent selection list. 06. Data Correction Policy To maintain a high standard of data integrity, a series of procedures have been implemented to ensure accuracy, timeliness and consistency. Input prices are monitored using a variety of computerized range-check warning systems for both ticker-plant and real-time index systems. Fault tolerant methods are employed in the collection of market and corporate action data. Various verification and audit tasks are performed to ensure the quality of the real-time data feeds and related market data. While significant efforts are taken to ensure the accuracy of the information used for the index calculation, an index error may occur due to incorrect or missing data, including trading prices, exchange rates, shares outstanding and corporate actions, operational errors or other reasons. 5.

6 07. Appendix Chinese Share Classes B shares: B shares are traded in U.S. Dollars on the Shanghai Stock Exchange and in Hong Kong Dollars in the Shenzhen Stock Exchange. H shares: H shares are companies incorporated in mainland China and traded on the Hong Kong Stock Exchange. They are traded in Hong Kong Dollars and assessable to nonresidents. Red Chips: These are companies that are incorporated outside of mainland China and traded on the Hong Kong Stock Exchange. Red Chips, which are controlled by mainland Chinese entities, are traded in Hong Kong Dollars and are available to nonresidents. U.S.-listed Chinese companies are defined as companies that primarily operate in mainland China but whose primary listings are on a U.S. exchange. In some cases, when a company is traded in both H shares and ADR/ADS, only the more actively traded issue will be eligible for the Dow Jones China Offshore 50 Index. For more information on the Dow Jones China Offshore 50 Index SM, djindexsupport@djindexes.com or call Americas ; Asia ; Europe Learn more at All information as of June CME Group Index Services LLC All rights reserved. Dow Jones Indexes is a licensed trademark of CME Group Index Services LLC ( CME Indexes ). Dow Jones, Dow Jones Indexes, DJ, Dow Jones China Offshore 50 Index and all other index names listed above are service marks of Dow Jones Trademark Holdings, LLC ( Dow Jones ), and have been licensed for use by CME Indexes. CME is a trademark of Chicago Mercantile Exchange Inc. Investment products based on the Dow Jones China Offshore 50 Index are not sponsored, endorsed, sold or promoted by Dow Jones, CME Indexes or their respective affiliates and none of Dow Jones, CME Indexes or any of their respective affiliates make any representation regarding the advisability of investing in such products. Inclusion of a company in any of the indexes in these materials does not in any way reflect an opinion of Dow Jones, CME Indexes or any of their respective affiliates on the investment merits of such company. None of Dow Jones, CME Indexes or any of their respective affiliates is providing investment advice in connection with these indexes. All information in these materials is provided as is. CME Indexes, Dow Jones and their respective affiliates do not make any representation regarding the accuracy or completeness or these materials, the content of which may change without notice, and specifically disclaims liability related to these materials. Ed , RULE-ASI