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The S&P Sri Lanka 20 covers the largest and most liquid stocks from the Sri Lankan equity market and is designed to be the basis for tradable products. The index is based on S&P Indices' global index methodology, which provides consistency, transparency and liquidity.
The S&P Sri Lanka 20 seeks to be comprised of liquid and tradable stocks for easy and cost effective replication as trading instruments, with possible application as index funds and Exchange-Traded Funds (ETFs). Index constituents are the 20 largest blue chip companies chosen from the universe of all stocks listed on Colombo Stock Exchange. The indices are calculated using a capped market capitalization-weighting scheme (capped at 15%).
Currency of Calculation
The S&P Sri Lanka 20 is calculated in Sri Lankan Rupee.
Base Date
The base period of the S&P Sri Lanka 20 is December 17, 2004. The base value is 1000.
Eligible Securities
Only companies established in Sri Lanka and listed on the Colombo Stock Exchange are included in the S&P Sri Lanka 20. All common shares are eligible for inclusion in the index. Convertible stocks, bonds, warrants, rights, and preferred stocks that provide a guaranteed fixed return are not eligible.
Eligibility Criteria
Stocks are eligible for inclusion in the S&P Sri Lanka 20 if they meet the following criteria for size, liquidity and financial viability.
Market Capitalization
The S&P Sri Lanka 20 is designed to include liquid investable stocks from the Sri Lankan equity market. Market capitalization is a key criterion for stock selection. Stocks must have a float-adjusted market capitalization above 500 million Sri Lankan Rupee (Rs) as of the rebalancing reference date. Stocks that meet the liquidity criteria (defined below) are ranked by total market capitalization. The 20 largest stocks are included in the S&P Sri Lanka 20, subject to a 3 stock buffer for current index constituents. If a current index constituent is ranked in the top 23, it remains in the index. If not, the stock is deleted and the next largest stock, that is not an index constituent, is added.
Additionally, if a current index constituent falls below the Rs 500 million threshold but is no less than Rs 300 million then the stock remains in the index provided it ranks among the top 23 by market cap and also meets the other inclusion criteria.
Liquidity
To ensure investability, a minimum six-month average daily value traded (ADVT) of Rs 1 million is required. At each annual reconstitution, if a current index constituent falls below Rs 1 million but is no less than Rs 0.7 million then the stock remains in the index provided it also meets the other eligibility criteria. All eligible stocks are required to trade a minimum of 10 days each month for the three months prior to the annual rebalancing reference date.
Financial Viability
Stocks must be profitable, as measured by positive net income over the latest 12-month period, as of the rebalancing reference date. The figure is calculated by adding the latest four quarters of net income reported for the company.
Timing of Changes
The index is reconstituted once a year in December. The annual reconstitution is effective after the market close on the third Friday in December. The reference date for the data used in the review is the last trading day in November. New constituents and index shares are made available to clients with a five-day notice.
Additions
An index addition is generally made only if a vacancy is created by an index deletion. The selection criterion for the addition is consistent with that of index constituents, namely size and liquidity. With IPOs, the Index Committee considers the inclusion of new listings during the regular index reviews using consistent market capitalization and expected trading volume guidelines. An exception is made for extraordinarily large offerings where the IPO stock’s float-adjusted market capitalization ranks in the top five of the index. With Committee approval, these stocks are added as soon as practical, with the exact date depending upon the announced date of share issuance and allowing for a reasonable time period for funds to adjust their portfolios.Deletions. A guiding principle of index management is the minimization of turnover among index constituents. The most common reason for deleting a stock from the index is its acquisition by another company. Other reasons for deleting a company are as follows.
* Bankruptcy: Once a company applies for bankruptcy proceedings, it is deleted from the S&P Sri Lanka 20.
* Reorganization: The Index Committee analyzes the company's reorganization plan before deciding whether the reorganized company and/or any spin-offs will retain index membership.
* Other reasons: A company may no longer meet the eligibility criteria for index inclusion for reasons such as the inability of a stock to reflect the market due to a large change in size or liquidity. In addition, a company is removed from the index, as soon as practical, if it is listed for closer supervision by the exchange.
S&P Indices believes turnover in index membership should be avoided when possible. At times a company may appear to temporarily violate one or more of the addition criteria. However, the addition criteria are for addition to an index, not for continued membership. As a result, an index constituent that appears to violate criteria for addition to that index will not be deleted unless ongoing conditions warrant an index change.
Index Maintenance
Changes in the index level reflect changes in the float-adjusted market capitalization of the index that are caused by stock price movements in the market. They do not reflect changes in the market capitalization of the index, or of the individual stocks, which are caused by corporate actions such as dividend payments, stock splits, distributions to shareholders, mergers, or acquisitions. When a corporate action affects the price of a security – such as when the price drops on a special distribution ex-date – the price of the security is adjusted to reflect the ex-date change and the index divisor is adjusted to offset any change in the total available market value of the index.
When a stock is replaced by another stock, the index divisor is adjusted so that the change in index market value that results from the addition or deletion does not change the index level.
Rebalancing
The Index Committee reviews the S&P Sri Lanka 20 constituents annually. Any index constituent change is implemented after the market closes on the third Friday of December. The data review reference date is the last trading date in November. The eligible universe of stocks is also reviewed on a quarterly basis. At that time, the Committee may decide to adjust constituent stock selection in relation to changes in market conditions resulting from issuance of new shares, company mergers and other corporate actions. All relevant announcements are sent to clients five-days before the effective date of any needed adjustment. The Index Committee takes every care to reduce index turnover.
5% Rule
All share changes of 5% or more are made at the effective date, or as soon as reliable information is available. Changes of less than 5% are implemented at the following quarterly rebalancing, which is scheduled on the third Friday of March, June, September and December. Investable Weight Factor (IWF) changes of 5% or more resulting from a major shareholder’s change in holdings are applied immediately. Changes of less than this are applied at annual reviews.
Capping
Stocks that exceed the 15% cap between rebalancings are brought back to 15% at each quarterly rebalancing.
Corporate Actions
Maintaining the S&P Sri Lanka 20 includes monitoring and completing the adjustments for company additions and deletions, share changes, stock splits, stock dividends, and stock price adjustments due to restructurings or spin-offs. Some corporate actions, such as stock splits and stock dividends, require simple changes in the common shares outstanding and the stock prices of the companies in the index. Other corporate actions, such as share issuances, change the market value of an index and require an index divisor adjustment to prevent the value of the index from changing. Adjusting the index divisor for a change in market value leaves the value of the index unaffected by the corporate action. This helps keep the value of the index accurate as a barometer of stock market performance, and ensures that the movement of the index does not reflect the corporate actions of the companies in it. Divisor adjustments are made after the close of trading and after the calculation of the closing value of the index. Corporate actions such as splits, stock dividends, spin-offs, rights offerings, and share changes are applied on the ex-date.
Source:http://www.cse.lk/welcome.htm
The S&P Sri Lanka 20 seeks to be comprised of liquid and tradable stocks for easy and cost effective replication as trading instruments, with possible application as index funds and Exchange-Traded Funds (ETFs). Index constituents are the 20 largest blue chip companies chosen from the universe of all stocks listed on Colombo Stock Exchange. The indices are calculated using a capped market capitalization-weighting scheme (capped at 15%).
Currency of Calculation
The S&P Sri Lanka 20 is calculated in Sri Lankan Rupee.
Base Date
The base period of the S&P Sri Lanka 20 is December 17, 2004. The base value is 1000.
Eligible Securities
Only companies established in Sri Lanka and listed on the Colombo Stock Exchange are included in the S&P Sri Lanka 20. All common shares are eligible for inclusion in the index. Convertible stocks, bonds, warrants, rights, and preferred stocks that provide a guaranteed fixed return are not eligible.
Eligibility Criteria
Stocks are eligible for inclusion in the S&P Sri Lanka 20 if they meet the following criteria for size, liquidity and financial viability.
Market Capitalization
The S&P Sri Lanka 20 is designed to include liquid investable stocks from the Sri Lankan equity market. Market capitalization is a key criterion for stock selection. Stocks must have a float-adjusted market capitalization above 500 million Sri Lankan Rupee (Rs) as of the rebalancing reference date. Stocks that meet the liquidity criteria (defined below) are ranked by total market capitalization. The 20 largest stocks are included in the S&P Sri Lanka 20, subject to a 3 stock buffer for current index constituents. If a current index constituent is ranked in the top 23, it remains in the index. If not, the stock is deleted and the next largest stock, that is not an index constituent, is added.
Additionally, if a current index constituent falls below the Rs 500 million threshold but is no less than Rs 300 million then the stock remains in the index provided it ranks among the top 23 by market cap and also meets the other inclusion criteria.
Liquidity
To ensure investability, a minimum six-month average daily value traded (ADVT) of Rs 1 million is required. At each annual reconstitution, if a current index constituent falls below Rs 1 million but is no less than Rs 0.7 million then the stock remains in the index provided it also meets the other eligibility criteria. All eligible stocks are required to trade a minimum of 10 days each month for the three months prior to the annual rebalancing reference date.
Financial Viability
Stocks must be profitable, as measured by positive net income over the latest 12-month period, as of the rebalancing reference date. The figure is calculated by adding the latest four quarters of net income reported for the company.
Timing of Changes
The index is reconstituted once a year in December. The annual reconstitution is effective after the market close on the third Friday in December. The reference date for the data used in the review is the last trading day in November. New constituents and index shares are made available to clients with a five-day notice.
Additions
An index addition is generally made only if a vacancy is created by an index deletion. The selection criterion for the addition is consistent with that of index constituents, namely size and liquidity. With IPOs, the Index Committee considers the inclusion of new listings during the regular index reviews using consistent market capitalization and expected trading volume guidelines. An exception is made for extraordinarily large offerings where the IPO stock’s float-adjusted market capitalization ranks in the top five of the index. With Committee approval, these stocks are added as soon as practical, with the exact date depending upon the announced date of share issuance and allowing for a reasonable time period for funds to adjust their portfolios.Deletions. A guiding principle of index management is the minimization of turnover among index constituents. The most common reason for deleting a stock from the index is its acquisition by another company. Other reasons for deleting a company are as follows.
* Bankruptcy: Once a company applies for bankruptcy proceedings, it is deleted from the S&P Sri Lanka 20.
* Reorganization: The Index Committee analyzes the company's reorganization plan before deciding whether the reorganized company and/or any spin-offs will retain index membership.
* Other reasons: A company may no longer meet the eligibility criteria for index inclusion for reasons such as the inability of a stock to reflect the market due to a large change in size or liquidity. In addition, a company is removed from the index, as soon as practical, if it is listed for closer supervision by the exchange.
S&P Indices believes turnover in index membership should be avoided when possible. At times a company may appear to temporarily violate one or more of the addition criteria. However, the addition criteria are for addition to an index, not for continued membership. As a result, an index constituent that appears to violate criteria for addition to that index will not be deleted unless ongoing conditions warrant an index change.
Index Maintenance
Changes in the index level reflect changes in the float-adjusted market capitalization of the index that are caused by stock price movements in the market. They do not reflect changes in the market capitalization of the index, or of the individual stocks, which are caused by corporate actions such as dividend payments, stock splits, distributions to shareholders, mergers, or acquisitions. When a corporate action affects the price of a security – such as when the price drops on a special distribution ex-date – the price of the security is adjusted to reflect the ex-date change and the index divisor is adjusted to offset any change in the total available market value of the index.
When a stock is replaced by another stock, the index divisor is adjusted so that the change in index market value that results from the addition or deletion does not change the index level.
Rebalancing
The Index Committee reviews the S&P Sri Lanka 20 constituents annually. Any index constituent change is implemented after the market closes on the third Friday of December. The data review reference date is the last trading date in November. The eligible universe of stocks is also reviewed on a quarterly basis. At that time, the Committee may decide to adjust constituent stock selection in relation to changes in market conditions resulting from issuance of new shares, company mergers and other corporate actions. All relevant announcements are sent to clients five-days before the effective date of any needed adjustment. The Index Committee takes every care to reduce index turnover.
5% Rule
All share changes of 5% or more are made at the effective date, or as soon as reliable information is available. Changes of less than 5% are implemented at the following quarterly rebalancing, which is scheduled on the third Friday of March, June, September and December. Investable Weight Factor (IWF) changes of 5% or more resulting from a major shareholder’s change in holdings are applied immediately. Changes of less than this are applied at annual reviews.
Capping
Stocks that exceed the 15% cap between rebalancings are brought back to 15% at each quarterly rebalancing.
Corporate Actions
Maintaining the S&P Sri Lanka 20 includes monitoring and completing the adjustments for company additions and deletions, share changes, stock splits, stock dividends, and stock price adjustments due to restructurings or spin-offs. Some corporate actions, such as stock splits and stock dividends, require simple changes in the common shares outstanding and the stock prices of the companies in the index. Other corporate actions, such as share issuances, change the market value of an index and require an index divisor adjustment to prevent the value of the index from changing. Adjusting the index divisor for a change in market value leaves the value of the index unaffected by the corporate action. This helps keep the value of the index accurate as a barometer of stock market performance, and ensures that the movement of the index does not reflect the corporate actions of the companies in it. Divisor adjustments are made after the close of trading and after the calculation of the closing value of the index. Corporate actions such as splits, stock dividends, spin-offs, rights offerings, and share changes are applied on the ex-date.
Source:http://www.cse.lk/welcome.htm
