Quarterly index review to lift JSE equities volumes
March 15, 2013
Johannesburg, 14 March 2013 – Market watchers can expect to
see large trading volumes on the JSE’s equity market tomorrow as a methodology
change to the FTSE/JSE Africa Index Series is implemented. This change will
impact all investments that track an index including unit trusts, exchange
traded funds, institutional funds as well as index derivatives products.
The indices will now be constructed according to an actual free float
instead of a banded free float methodology. “While the JSE’s quarterly index
review does not typically have a large impact, this quarter’s changes should see
a spike in trading volumes due to a substantially larger than usual turnover in
portfolio positions,” says Dr Jannie Immelman, Head of Information Services at
the JSE. For example, the JSE’s quarterly index review normally creates a
portfolio churn of around 0.9% for FTSE/JSE Top 40 Index trackers, while this
review is forecasted to result in a churn of 5.8% - nearly 6.5 times larger than
normal.
The change in index construction from a banded to an actual free
float methodology is in line with a global index methodology change applied by
FTSE. While the banded structure worked well over the past 10 years, as an
unintended consequence a relatively small change in the free float of a company
could result in a significant move between bands. These large moves had the
potential to cause a short-term liquidity squeeze. The new methodology will
measure actual free float rounded up to the next 1%. Furthermore, a 3% buffer
will apply, which means that the free float figure for a constituent will only
be adjusted if the move in free float is larger than 3%.
“This change
will improve the market representation of the indices and potentially reduce
large changes to constituent weights. An additional advantage is that free float
data available to investors will be significantly more precise,” says Immelman.
FOR MEDIA ENQUIRIES:
Victoria Williams/Roz Thomas
Corporate Communications Consultants
Tel: (011) 463 2198 Cell: 072 452
1772 / 082 925 8806
Email: victoria@corpcom.co.za / rozt@corpcom.co.za
On behalf of Dr
Jannie Immelman
Head of Information Services
JSE Ltd
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