For Managing the Hang Seng Index Jun 2016 Version 1.4
Amendment History Date Description 1.0 September 2011 First Issue 1.1 November 2013 Updated description of index universe in Section 3 - Constituent Eligibility 1.2 January 2015 1) Updated Universe for inclusion of REITs in Section 3 - Constituent Eligibility 2) Updated Index Capping in Section 6 - Index Calculation 1.3 April 2016 Updated treatment to trading suspension in Section 5 - Index Review and Constituent Changes 1.4 June 2016 1) Updated Universe in Section 3 - Constituent Eligibility 2) Updated Index Capping in Section 6 - Index Calculation 3) Addition of exclusion of Companies with High Shareholding Concentration in Section 5 - Index Review and Constituent Changes
Table of Content Page 1. Overview 2 2. Management Responsibility 3 3. Constituent Eligibility 4 4. Sub-Indexes 7 5. Index Review and Constituent Changes 8 6. Index Calculation 9 7. Index Rebalancing 10 8. Dissemination 11 9. Contact Information 12 10. Disclaimer 13 1
1 Overview 1.1 The Hang Seng Index ( HSI ) serves as a market benchmark that reflects the overall performance of the Hong Kong stock market. 1.2 The HSI was launched on 24 November 1969 and is one of the earliest stock market indexes in Hong Kong. The HSI measures the performance of the largest and most liquid companies listed in Hong Kong. 1.3 To better reflect the stock market movements of major industry sectors, four sub-indexes were introduced in 1985. The constituent securities of the HSI are grouped under Finance, Utilities, Properties, and Commerce and Industry sub-indexes. 1.4 The HSI is a freefloat-adjusted market capitalisation weighted index with a cap on the weighting of individual constituent securities. 1.5 The HSI is calculated and disseminated real-time at 2-second intervals during the trading hours of the stock exchange of Hong Kong ( HKEX ). 2
2 Management Responsibility Hang Seng Indexes Company Limited ( HSIL ) 2.1 HSIL is responsible for conducting regular reviews in accordance with the Index Methodology. 2.2 HSIL is responsible for monitoring company announcements and making ad hoc proposals which must be approved by the Chairman of the HSI Advisory Committee if constituent changes between the regular reviews are needed. 2.3 HSIL is responsible for seeking the HSI Advisory Committee s endorsement of any special action in cases where, due to exceptional circumstances, an index review is not conducted according to the Index Methodology. 2.4 HSIL is responsible for seeking the HSI Advisory Committee s endorsement of changes to the Index Methodology. HSI Advisory Committee 2.5 The Committee is responsible for ensuring index reviews are undertaken in accordance with the Index Methodology. 2.6 The Committee is responsible for reviewing any actions proposed by HSIL in the event that, due to exceptional circumstances, an index review is not conducted according to the Index Methodology. 2.7 The Committee is responsible for reviewing and endorsing all changes to the Index Methodology as proposed by HSIL. 2.8 The Committee is responsible for giving advice on any issues related to the Index Methodology. 3
3 Constituent Eligibility Universe 3.1 The universe of securities ( Universe ) for the HSI includes stocks and real estate investment trusts ( REITs ) primarily listed on the Main Board of the HKEX, excluding securities that are secondary listings, foreign companies, preference shares, debt securities, mutual funds and other derivatives. 3.2 If a company has two classes of listed shares, each class of shares will be considered separately. Eligible Securities 3.3 A security is eligible for constituent selection if it fulfils the following eligibility criteria. Market Value ( MV ) Requirement 3.4 The MV of each individual security refers to the average of month-end MVs for the past 12 months of any review period. 3.5 An eligible security must be among those that constitute the top 90th percentile of the total MV of the Universe. Turnover Requirement 3.6 For each security, turnover in the past 24 months is assessed for eight quarterly sub-periods. 3.7 The turnover requirement adopts a scoring approach, with details as follows: (a) for each quarterly sub-period, a security will be regarded as passing the turnover requirement in that period if it is among the top 90th percentile of the aggregate market turnover of the Universe (b) two points will be assigned for each pass achieved over the latest four sub-periods, and one point will be assigned for each pass attained over the previous four sub-periods 3.8 The highest score for turnover requirement is 12 points. Securities should obtain at least 8 points to meet the turnover requirement. 4
3 Constituent Eligibility Listing History Requirement 3.9 To ensure that constituents of the HSI are representative securities of the Hong Kong stock market and meet the MV and turnover requirements in 3.4 3.8, a security should normally be listed for at least 24 months before becoming eligible for inclusion in the HSI. 3.10 A security with a very large MV but with a listing history of less than 24 months may be considered for inclusion in the HSI if it satisfies the more stringent MV requirements detailed below: MV Rank by Review Cut-off Date Minimum Listing History Top 5 3 Months 6 15 6 Months 16 20 12 Months 21 25 18 Months Below 25 24 Months Note: MV Rank refers to: (i) average of month-end MVs since the listing date for securities listed for less than 12 months; and (ii) average of month-end MVs for the past 12 months for securities listed for 12 or more months. 3.11 For a security with a listing history of less than or equal to 12 months, it will pass the turnover requirement if it is among the top 90th percentile of the aggregate market turnover of the Universe for each quarterly sub-period. For a security with a listing history of over 12 months, it will pass the turnover requirement should its score reach the minimum requirement, i.e. 8 points, as detailed in 3.7 3.8. 3.12 The listing history is defined as the period between the listing date and the next review meeting date (both dates inclusive). Special Requirement for H-share Companies 3.13 The H-shares of mainland China enterprises listed on HKEX will not be selected unless the company has no unlisted share capital. Principles of Final Selection 3.14 Companies or REITs meeting all eligibility requirements will be considered for inclusion in the HSI. 5
3 Constituent Eligibility 3.15 Principles that are applied in assessing potential constituents include: (a) MV and turnover rank of securities; (b) representation of the relevant sub-sector within the HSI directly reflecting that of the market; and (c) financial performance. 3.16 The final selection will be decided by the Advisory Committee after the above criteria have been taken into consideration. Number of Constituents 3.17 The number of constituents is fixed at 50. 3.18 The ratio of H-shares vs. non-h shares in terms of constituent number in the HSI will not be fixed. However, in deciding on constituent changes, HSIL will endeavour to maintain a balanced combination that best reflects the performance of the Hong Kong stock market as a whole. 6
4 Sub-Indexes 4.1 The HSI has four sub-indexes: Finance, Utilities, Properties, and Commerce and Industry. 4.2 Each of the HSI constituents belongs to one of the sub-indexes based on the industry classification of the Hang Seng Industry Classification System ( HSICS ) and the following mapping table. HSI HSICS Sub-Index Code Industry Finance 50 Financials Utilities 40 Utilities Properties 60 Properties & Construction Commerce and Industry 00 Energy 05 Materials 10 Industrials 20 Consumer Goods 30 Consumer Services 35 Telecommunications 70 Information Technology 80 Conglomerates 7
5 Index Review and Constituent Changes Regular Quarterly Review 5.1 HSIL undertakes regular quarterly reviews of HSI constituents with data cut-off dates of end of March, June, September and December each year. 5.2 A quarterly review is normally completed within eight weeks after the end of each calendar quarter. 5.3 In each review, there may or may not be constituent additions or deletions. Eligible candidates will be selected as constituents of the HSI according to principles stated in 3.14-3.16. 5.4 Constituents failing to meet the MV requirement or turnover requirement may be considered for removal from the HSI. 5.5 Even if they fulfil all the eligibility requirements, the smallest constituents and the constituents with lowest liquidity may be considered for removal from the HSI subject to the availability of appropriate replacement candidates. Effective Date 5.6 Effective dates of constituent changes will be the next trading day after the first Friday of March, June, September and December. If that Friday falls on a public holiday, it will be postponed to the next Friday, subject to the final decision made by HSIL. Under normal circumstances, five trading days notice will be given for any constituent changes before the effective dates. Trading Suspension 5.7 Whether to remove a suspended constituent from the HSI and replace it with an appropriate candidate will be determined in the regular index review. Should a suspended constituent be removed from the HSI, its last traded price may be adjusted down to the system lowest price, i.e. $0.0001 in the security s price currency, or an official residual price (if available) for index calculation on the trading day preceding the effective date of the constituent changes. Please refer to the Index Operation Guide for details. High Shareholding Concentration 5.8 Companies that are the subject of a Securities and Futures Commission High Shareholding Concentration notice will not be eligible for inclusion in the HSI. 8
6 Index Calculation Index Capping 6.1 The HSI is freefloat-adjusted MV weighted index with a 10% cap on individual securities. Index Formula 6.2 The formula of the HSI is set out below: Current Index = ( P IS FAF CF) t ( Pt 1 IS FAF CF) Yesterday s Closing Index P t : Current Price at Day t P t 1 : Closing Price at Day (t-1) IS : Issued Shares FAF : Freefloat Adjusted Factor, which is between 0 and 1 CF : Capping Factor, which is between 0 and 1 6.3 The HSI is a price index without adjustments for cash dividends or warrant bonuses. 9
7 Index Rebalancing 7.1 The following provides the general principles on index rebalancing. Please refer to the Index Operation Guide for details about corporate actions adjustments and index rebalancing. Frequency and Schedule 7.2 The adjustment of the freefloat-adjusted factors ( FAFs ), the calculation of the Cap Factors ( CFs ) and the update of issued shares ( IS ) will be undertaken quarterly. 7.3 The regular rebalancing is usually implemented after market close on the first Friday in March, June, September and December, and comes into effect on the next trading day. 7.4 The schedule for regular index rebalancing is available at the HSIL website: http://www.hsi.com.hk/hsi-net/static/revamp/contents/en/products/is_update.pdf. Ad Hoc Changes 7.5 IS will be updated simultaneously with the index adjustment for corporate actions such as bonus issue, rights issue, share split and share consolidation. 7.6 Ad hoc rebalancing will be conducted if a constituent s IS and/ or FAF is substantially different from the production data. 7.7 The index will also be recapped in the event of constituent changes if the newly added component has a weighting that is higher than the index cap level. 7.8 A minimum notice period of two trading days will be given to subscribers of data products issued by HSIL for any ad hoc rebalance. 10
8 Dissemination 8.1 The HSI is calculated and disseminated real-time every 2 seconds during trading hours on each trading day of the Hong Kong stock market, based on the calendar of the HKEX. 8.2 Please refer to the index dissemination timetable provided on the HSIL website for further details. (http://www.hsi.com.hk/hsi-net/static/revamp/contents/en/products/timetable_e.pdf) 8.3 The HSI is calculated and published in Hong Kong dollars. 8.4 Vendor codes for the HSI Vendor Code for Price Index Code for Total Return Index Bloomberg HSI HSI 1 Thomson Reuters.HSI.HSIDV ET-Net HSI -- Infocast HSI -- 11
9 Contact Information Hang Seng Indexes Company Limited Address : Website E-mail: 83 Des Voeux Road Central, Hong Kong www.hsi.com.hk info@hsi.com.hk 12
10 Disclaimer All information contained herein is provided for reference only. Hang Seng Indexes Company Limited ( HSIL ) ensures the accuracy and reliability of the above information to the best of its endeavours. However, HSIL makes no warranty or representation as to the accuracy, completeness or reliability of any of the information contained herein and accepts no liability (whether in tort or contract or otherwise) whatsoever to any person for any damage or loss of any nature arising from or as a result of reliance on any of the contents of this document, or any errors or omissions in its contents and such contents may change from time to time without notice. The information contained in this document is not intended to provide professional advice and should not be relied upon in that regard. Persons intending to use any information obtained from this document are advised to obtain appropriate professional advice. Hang Seng Indexes Company Limited 2016. All rights reserved. - End - 13