ISEQ 20 change of selection methodology

ISEQ 20 change of selection methodology

Introduction

Background

Euronext would like to consult a proposed change of methodology the selection methodology for the ISEQ 20 Index. The changes will imply using a combined ranking of Free Float Market Capitalization and Turnover to perform the selection, instead of two separate rankings.

In addition 12months turnover will be used instead of 3months turnover for this ranking, in order to use more representable view of the trading in the companies.

At Reviews a buffer zone it is proposed to be implemented where current constituents have preference over those that are not currently in the index. For the Annual Review the buffer zone is proposed to be for companies between 19 and 22 and for quarterly reviews between 16 and 25.

Timelines

Stakeholders will have until the 4th of December to react to the consultation, the new rules if validated by the ISEQ Steering Committee will be implemented as of the Annual Review  of the ISEQ family in March.

Proposed new rules

Proposed changes highlighted in bold

Ranking Rule

Current Rule

Proposed Rule

Selection based on two distinct rankings:

  1. The value of Regulated Turnover observed over a 3-month period;
  2. The free float adjusted market capitalisation on the Review Cut-Off Date.

Selection based on a combined ranking (50%/50%):

  1. Regulated Turnover[1]observed over a 12-month period; and
  2. The free float adjusted market capitalisation on the Review Cut-Off Date.

In case this would lead to an equal ranking between two Companies, the Company with the highest Free Float Market Capitalisation will rank higher.

[1] Regulated Turnover consists of value of turnover traded via the Euronext electronic order book as well as the value of turnover from off-exchange transactions within the scope of Euronext’s regulatory environment, such as block trades and the like.

Selection Rules for March review

Current Rule Proposed Rule
  • Current constituents that rank > 25 in Regulated Turnover or free float market capitalisation, will be replaced in the index in case a non-constituent that ranks <= 25 in both criteria exists.
  • Non-constituents that rank <= 20 in Regulated Turnover or free float market capitalisation, will be included in the index if a current constituent that ranks > 25 in one of the criteria exists.
  • The 18 highest combined ranking companies are selected.
  • A buffer zone, where current constituents have priority over companies that currently do not form part of the ISEQ 20  consists of the companies ranked 19th  to 22nd .

 

Selection Rules for Quarterly  review

Current Rule Proposed Rule

  • Current constituents that rank > 30 in Regulated Turnover or free float market capitalisation, will be replaced in the index in case a non-constituent that ranks <= 25 in both criteria exists.

  • Non-constituents that rank <= 15 in Regulated Turnover or free float market capitalisation, will be included in the index. Excluded then will be the constituent which ranks > 25 in one of the criteria. If no constituent rank >25 in one of the criteria, the constituent with the lowest free float market capitalisation will be excluded.
  • The 15 highest ranking companies are selected. A buffer zone, where current constituents have priority over companies that currently do not form part of the ISEQ 20  consists of the companies ranked 16th  to 25th .