Tel Aviv Stock Exchange (TASE) To Consider All-New Equity Indices Methodology

In order to strengthen its indices quality and brand name, TASE currently conducts a Round Tables with Market Participants to examine the impact of the all new equity indices methodology

Aug 10, 2015, 07:00 ET from Tel Aviv Stock Exchange (TASE)

TEL AVIV, Israel, Aug. 10,2015 /PRNewswire/ --

Background

In July 2010, the Tel Aviv Stock Exchange (TASE) launched a new equity indices methodology, which aligned its methodology with that of leading international index providers and accelerated the growth of TASE index-tracking products.

Over the past year, given the growing experience and the changes which have occurred in the capital market, TASE is currently re-evaluating the existing methodology with an eye to introducing improvements aimed at rendering indices more robust for investors as well as for mid and small-cap companies seeking to raise capital on TASE.

The envisioned all-new methodology is designed to improve the stability of TASE's indices and significantly reduce the risk undertaken by investors and index tracking instruments, which currently manage assets of some NIS 37.5 billion in instruments tracking TASE equity indices alone.

The TASE board of directors has already undertaken a preliminary discussion of the issue and round tables between TASE's indices team and market participants have already started in order to articulate finalized proposals. Once approved, the smooth transition to the all-new methodology will be conducted incrementally, over the course of a year in a monthly 12-steps.

The principles underlying the all-new methodology and the issues under examination include:

Implementation of the UCITS[1] 5/10/40 diversification criteria in mutual funds marketed to retail investors

UCITS 5/10/40 Criteria:

  • The weight cap of a single share in the index will not exceed 10%.
  • Shares weighted more than 5% will not constitute more than 40% of the total value of the index.

To reduce the risk undertaken by retail investors in the TASE's existing indices, and to allow better diversification, the number of index constituents will be increased and lower weight caps will be set.

TASE's flagship indices, which were originally launched in the early 90s, will undergo the following changes (a list of changes of all indices can be found in the table below):

Index Before

Index After

Weight Cap

TA-25

TA-35

4%

  TA-100

  TA-125

4%

TA-75

TA-90

2%

Anticipated results – lower weighting of TASE's top 10 large-cap shares in the indices:


Weight of Top Ten Shares

Index

Before reform

After reform

TA-35 (formerly TA-25)

71%

40%

TA-125 (formerly TA-100)

57%

36%

TA-Composite

55%

5%

TA-90 (formerly TA-75)

33%

20%

TA Mid-Cap 60 (formerly TA-Mid-Cap 50)

36%

20%

TA  Mid-Cap

24%

20%

Tightening criteria for flagship indices and easing criteria for growth indices

Approximately 95% of the capital invested in TASE's Equity indices are concentrated in the flagship indices: TA-25, TA-75, TA-100 and TA-Banks. Accordingly, the criteria for constituency in these indices should be tightened. At the same time, the TASE index team is interested in easing constituency requirements for growth indices, as is customary abroad, while paying close attention to constituent quality and proper diversification for all indices.

  • Minimum free float of 35% for all constituents (30% for existing constituents);
  • Minimum free float market cap – NIS 100 million (NIS 50 million for existing constituents)
  • Minimum free float market cap for TA-35 constituents –NIS 1.5 billion (1 billion for existing constituents).

Alignment of treatment of corporate actions in TASE indices with international standards

Index rebalancing rules will provide high quality and transparent treatment for a wide array of corporate actions and events. Rebalancing will be simplified and the rules made more "investor-friendly".

Simpler and "Investor-friendly" rebalancing rules:

  • Monthly rebalancing will replace weekly, quarterly and some special rebalancing.
  • The parameters for rebalancing share weights in the index will be simplified.
  • A schedule of up-coming rebalancing dates will be regularly posted on the TASE website.

Increase attractiveness of new listed companies as well as for already to listed companies:

  • Fast track with lighter index criteria for newly listed companies;
  • Fast track for listed companies that meet index criteria  

2 New major Equal Weighted indices will be launched alongside the all-new methodology:

The indices designed to address existing market needs and is expected to serve as a market benchmark for large and midcap portfolios

- TA BlueChip-12 (EW)

The index designed for foreign investors looking for precise exposer to the Israeli industry, which meet high volume standards.

The index will include the 12 shares out-of TA-35 Index with the largest market capitalization, which meet the following criteria:

  • Companies incorporated & domiciled in Israel;
  • Constituents solely from the "Real" and "High Tech" super-sectors;
  • Exclusion of companies from the "Investments and Holdings" sector;
  • Maximum 2 shares for each TASE subsector.

- TA-150 (EW)

The index designed to meet the demand of various local investors for exposer to a wide and diverse portfolio representing the Israeli midcap market. 

The index will serve as TASE's "backbone index" which will include all the 150 shares in TA-90 and TA-MidCap-60.

Strengthening the identity of 2 significant indices:

- Differentiation of the TASE's "All-Market Index"  TA Composite from the  TA-125

Currently, the weighting overlap between constituents of the TA-Composite and TA-100 indices reach 95%. Investment in the TA-Composite is practically identical to investment in the TA-100 Index.

The new methodology better defines the TA-Composite index as the "all-market index" and differentiates the two indices in which the overlap is reduced to only 40%.

- Absolute differentiation between the TA-MidCap-60 Index and TA-MidCap Index

Currently the weighting overlap between constituents of the TA-MidCap and TA-MidCap-50 indices reach 66%.

Under the new methodology, the constituents of the TA-MidCap-60 index will not be included in the TA MidCap index, which will subsequently become TA MidCap-60 & TA-SmallCap indices, therefore, there will be no overlap between the two indices.

3. New Index Structure

 

Series

 

Index Before

 

Index After

Number of
constituents

New
weight
limit  

1

TA-25

TA-35

35

4%

2

TA-100

TA-125

125

4%

3

TA-75

TA-90

90

2%

4

TA MidCap-50

TA MidCap-60

60

2%

5

TA MidCap

TA MidCap

about-125

2%

6

TA Composite

TA Composite

310

0.50%

7

TA Finance

TA Finance

about-25

10%

8

TA Banks

TA Banks-5

5

33%

9

TA Insurance

TA Insurance

about-7

20%

10

TA BlueTech

TA BlueTech

about-80

2%

11

TA Tech-Elite

TA Tech-Elite

about-40

4%

12

TA-Technology

TA-Technology

about-50

4%

13

TA-Biomed

TA-Biomed

about-30

4%

14

TA Oil and Gas

TA Oil and Gas

about-12

15%

15

TA RealEstate15

TA RealEstate

about-65

2%

16

TA Com

TA Com

about-8

20%

17

TA-Maala

TA-Maala

about- 30

equable weight  

18

TA-Div

TA-Div

about-35

equable weight  

19

NEW!

TA-BlueChip12

12

equable weight  

20

NEW!

TA-150

150

equable weight  

For more information please contact: Idit Yaaron or Orna Goren, TASE, +972(076)8160405/6

Visit the Tel Aviv Stock Exchange's Website: http://www.tase.co.il

1 UCITS- Undertakings for the Collective investment in Transferable Securities

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SOURCE Tel Aviv Stock Exchange (TASE)



RELATED LINKS

http://www.tase.co.il