PSE overhauls rules on index companies

Published by rudy Date posted on April 27, 2011

The local bourse said yesterday it is changing the manner in which it keeps track of stock through the Philippine Stock Exchange index (PSEi), indices in six sectors and the all-shares index. The new bourse policy takes effect in September, according to PSE.

The PSE said the revision will enhance the quality of the PSE’s indices, reflect corporate actions in a timely manner, as well as elevate index standards to international best practices.

PSE president Hans Sicat said the revision should enhance investor confidence and at the same time challenge listed companies to make their shares more attractive to investors.

Under the amended policy, companies should meet three revised criteria to qualify under the PSEi: the company’s free float level should be at least 12 percent which is an increase from the current 10 percent; the company must rank among the top 25 percent in terms of median daily value in nine out of the 12-month period in review from the current P5 million average daily value criterion; and the ranking of qualified companies should be based on full market capitalization instead of float market capitalization.

The ranking shall no longer consider the sector representation of companies and shall treat eligible companies equally, the PSE said.

Currently, final selection of companies for the PSEi is done in two stages. Initially, the two highest-ranked companies from each of the six sectors fill the first 12 slots to ensure sector representation whiler the remaining slots are occupied by the 18 highest-ranked companies from among the other qualifiers.

To be eligible for the sector indices, common stocks of the company must rank among the top 50 percent in terms of median daily trade per month in eight out of the 12-month period in review.

The index recomposition periods will also be moved to March and September yearly from the current May and November schedules.

Other notable changes to the index policy include the creation of a Reserve List to be used in the event that one or more constituents are deleted from the PSEi; stricter rules for insertions and removals to provide stability in the index selection process; and additional provisions to better reflect the effectiveness of the PSEi as a market indicator.

The move to update its index management practices follows the PSE’s latest index review that will take effect on May 9, with Security Bank Corp. joining the PSEi in place of China Banking Corp. –Danessa O. Rivera, Daily Tribune

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