FTSE FAQ Document
August 2014
FTSE China 25 Index
Enhancement
September 2014
FAQ
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Overview
With over 13 years experience developing indices specifically for the
China market, FTSE has become widely recognized by investors and
financial product issuers globally as a leading measure of the China
equities market and the natural choice for creating China-themed
investment products.
Launched in 2001, the FTSE China 25 Index was specifically designed to
help international investors access the Chinese market. It is comprised
of 25 of the largest and most liquid Chinese stocks (H Shares, Red Chips
and P Chips) listed and trading on the Hong Kong Stock Exchange
(HKEx), and combines the ease of trading on HKEx with a methodology
to meet fund regulatory requirements worldwide.
Since the original launch of the FTSE China 25 Index more than a
decade ago, there has been a substantial increase in the number of
stocks in the eligible universe. In response to feedback from market
practitioners, FTSE is extending the current FTSE China 25 Index to
become a 50 stock index after the close of trading on 19 September
2014 (effective from the start of trading on 22 September 2014). The
FTSE China 25 Index will be renamed the FTSE China 50 Index.
1. What change is planned for the FTSE China 25
Index?
The FTSE China 25 Index is being enhanced to become a 50 stock
index, and its name will change to the FTSE China 50 Index. As part of
the increase in constituent numbers FTSE will also be enhancing the
capping methodology and aligning the foreign exchange rates source
used in the official closing index values with that of FTSE’s Global
Indices.
A net of tax index will also become available to index users. The
additional index will be based on the maximum withholding tax rates
applicable to dividends received by institutional investors who are not
resident in the same country as the remitting company, and who do not
benefit from double taxation treaties. This tax stance is used for FTSE’s
Global Indices.
Max tax rates are available at
http://www.ftse.com/products/indices/withholding-tax-service.
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2. Why has FTSE decided to make these changes?
Since its launch in 2001, the FTSE China 25 Index has become widely
recognized by market participants as a leading Chinese benchmark for
international investors. In recent years, there has been a substantial
increase in the number of stocks in the eligible universe of companies
that are freely accessible to international investors. In fact the review
universe has more than doubled over the past 10 years (70 vs. 157).
FTSE is enhancing the FTSE China 25 Index to become a 50 stock index
in response to this market evolution. FTSE has also been receiving a
growing number of requests from market practitioners to extend the
breadth of the index, and change the foreign exchange source used in
the official closing index values.
In addition, FTSE has reviewed the existing capping methodology
applied to the FTSE China 25 Index at the quarterly reviews.
3. What is the new capping methodology and how does it differ from the previous methodology?
In response to feedback from index users we are enhancing the
methodology to reduce the probability of the index constituents
breaching the existing concentration requirements between the capping
date and implementation date. The enhanced capping methodology will
also move away from the stepped approach to capping that is applied in
steps of 1% (i.e. 10,9,8,7,6,4…), with the aim of reducing turnover and
improving the tracking error compared to the underlying (uncapped)
index.
Further information on the new capping methodology can be found in
the FTSE China 50 Index ground rules.
4. When will the change take place?
The FTSE China 25 Index will become a 50 stock index and its name will
change to the FTSE China 50 Index as part of the quarterly review cycle
after the close of trading on 19 September 2014 (effective from the start
of trading on 22 September 2014). Over three monthly reviews the
constituent weights’ will be migrated in a phased approach starting on
22 September 2014 and finishing on 24 November 2014.
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5. When will the FTSE China 50 Index constituents be announced as part of the September 2014 review?
The FTSE China 50 Index constituents will be announced after the FTSE Asia Pacific Regional Advisory Committee on 3 September 2014.
6. How will the additional 25 companies be selected for inclusion to the FTSE China 50 Index?
At the September 2014 review, eligible companies of the FTSE All-World Index will be ranked by their full market capitalisation. In determining the full market capitalisation of a company, all share classes are included, while only the eligible share classes are included in the index weighting. The review will take into consideration any constituent changes to the FTSE All-World Index as announced by the FTSE Asia Pacific Regional Committee. A company will be inserted into the FTSE China 50 Index if it rises to 40th position or above when the eligible companies are ranked by full market capitalisation (before the application of any investability weightings). A company in the FTSE China 50 Index will be deleted if it falls to 61st position or below when the eligible companies are ranked by full market value (before the application of any investability weightings). To ensure the index comprises of 50 companies at the September 2014 review, the securities of the highest ranking companies which are presently not included in the Index will be inserted. The review will be based on data from the close of business on the next trading day following the third Friday in August. The review will be implemented after the close of business on the third Friday (i.e. effective Monday) in September 2014. Over three monthly reviews the constituent weights’ will be migrated in a phased approach starting on 22 September 2014 and finishing on 24 November 2014. Further information on the periodic review selection process can be found in the FTSE China 50 Index ground rules.
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7. When will the last review of the FTSE China 25 Index take place?
The FTSE China 25 Index will become a 50 stock index and its name will change to the FTSE China 50 Index as part of the quarterly review cycle in September 2014. The last review of the FTSE China 25 Index using the existing FTSE China 25 Index ground rules will take place in June 2014.
8. Will there be a change to the vendor/ticker codes, FTSE index codes or file names?
Existing vendor/ticker codes and file names will remain the same to minimise any disruption to existing clients.
Vendor FTSE China 25 Index Code
FTSE Code XIN0
Bloomberg 24 Characters "Short Name" FTSE CHINA 25 IDX
Bloomberg Total Return Codes TXINOU
FTSE- Declared or Net Declared
Bloomberg BBGID BBG000NV4162
Price Bloomberg Codes XIN0I Index
Thomson Reuters 14 Characters "Short Name" FTSE China 25
RIC Total Return Codes .TRIXIN0
FTSE- Declared or Net Declared
Price RIC Codes .FTXIN25
Telekurs Codes 1224983
Factset Codes XIN0.LOC-FTX
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9. Will new Ground Rules be made available?
Ground Rules for the FTSE China Index Series pre and post-change are
freely available on FTSE.com at
http://www.ftse.com/products/indices/china.
This will include the ground rules for the FTSE China 50 Index migration.
10. Will a provisional history of the FTSE China 50 Index
be made available? To provide supporting data to clients on how the FTSE China 50 Index would have performed historically using the enhanced FTSE China 50 Index ground rules FTSE will make available a ten year provisional history. This information will be available directly from FTSE.
FTSE China 25 Index Bloomberg Ticker
HKD Price Index (XIN0) XIN0I
HKD Declared Total Return Index (XIN0) TXINOU
HKD Net Tax Total Return Index (XIN0N) TXIN0NH
USD Price Index (XIN0U) XIN0U
USD Declared Total Return Index (XIN0U) TXINOUU
USD Net Tax Total Return Index (XIN0UN) TXIN0UNU
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11. What impact will there be on the FTSE China 50 Index by including additional companies?
By including an additional twenty-five companies to the FTSE China 50 Index it is estimated that the new companies will comprise of just under twenty percent of the index.
FTSE China 50 Index Weight Contribution by Existing / New FTSE
China 50 Index Constituents (%)
Source: FTSE Group – provisional data as at 31 July 2014
80.31
19.69
Existing FTSE 25 Index
Constituents
New FTSE China 50
Index Constituents
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12. Will there be any changes to the composition of the FTSE China 50 Index?
Including an additional twenty-five companies in the FTSE China 50 Index is estimated to reduce the weight of financials in the index by just under 10 per cent. The next largest estimated weighting change will be the consumer goods industry with an increase of over 4 per cent. Oil and Gas and Telecommunications will potentially also see a change in index weighting of just over 3 per cent. Industry Breakdown of the FTSE China 25 Index and FTSE China 50
Index
ICB Industry
FTSE China 25
Index Weight (%)
FTSE China 50
Index Weight (%)
Difference
Basic Materials 3.86 3.44 -0.42
Consumer Goods 1.74 6.80 5.06
Consumer Services - 0.24 0.24
Financials 55.39 45.52 -9.87
Health Care - - -
Industrials 1.84 4.72 2.88
Oil & Gas 11.54 14.50 2.96
Technology 10.27 11.06 0.80
Telecommunications 15.36 11.83 -3.53
Utilities - 1.88 1.88
Totals 100.00 100.00 -
Source: FTSE Group – provisional data as at 31 July 2014
13. What is FTSE doing to help clients implement this
change? To help our clients manage the migration, FTSE will be providing clients with the option of utilising a FTSE China 50 Reference Index. The FTSE China 50 Reference Index will allow users to move to the official FTSE China 50 Index in one step, with all 50 stocks being included at their full index weights from 22 September 2014. The FTSE China 50 Reference Index will be calculated until November 2014 when the FTSE China 50 Index has fully migrated.
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14. What are the key dates for the FTSE China 50 Index over the migration process?
The following table provides information of the key dates for the
calculation of the FTSE China 50 Index over the migration process.
Date Note
18 Aug 2014 September review data cut-off date to determine the
FTSE China 50 Index constituents
3 Sep 2014 Indicative review product is disseminated following
announcement of the index constituents
12 Sep 2014 FTSE China 50 Index weights are determined after the
FTSE China 50 Reference Index is capped
19 Sep 2014 Index name is changed to the FTSE China 50 Index after
the close of trading
Index name in products are also changed
22 Sep 2014 First day of index calculation with 50 constituents
WM/Reuters Closing Spot Rates ™ applied to closing
USD index calculation
Indicative review product now adjusted to focus on 20
Oct 2014 migration review implementation date
10 Oct 2014 Migration review - FTSE China 50 Index weights are
determined
20 Oct 2014 Effective date of the migration review changes
Indicative review product now adjusted to focus on 24
Nov 2014 migration review implementation date
21 Nov 2014 Last day that the Indicative review product is
disseminated on a daily basis
24 Nov 2014 Effective date of the migration review changes
The migration process is now complete
December review data cut-off date to determine whether
any IPO’s are added to the FTSE China 50 Index
12 Dec 2014 FTSE China 50 Index is capped using the new capping
process
22 Dec 2014 Effective date of the December review
23 Mar 2015 Effective date of the March 2015 review – the first full
review since the index migrated
15. How does the migration process work?
As part of the migration process a separate FTSE China 50 Reference
Index will be calculated. This index will be a reference point for the
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FTSE China 50 Index over the migration period. The FTSE China 50
Reference Index will be capped using prices as at 12th September 2014.
On 22 September 2014, a third of the weights of the existing FTSE
China 25 Index constituents are adjusted. New companies added to the
FTSE China 50 Index at the review will see their index weights rise by a
third of their full index weights. The target weights will be determined
by the FTSE China 50 Reference Index.
This process continues whereby a proportion of the weights are
reapportioned in October and November 2014 until the FTSE China 50
Index has the same composition as the FTSE China 50 Reference Index.
Throughout the migration process corporate events that will shift the
index weights in the opposite direction to that which is intended will be
neutralised.
Overview of the FTSE China 50 Migration Process
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16. When will the next review take place after the migration period ends?
After the migration period ends in November 2014, FTSE will not undertake
a full review of the constituents at the December 2014 review. The next full
review of the FTSE China 50 Index will take place in March 2015. At the
December 2014 review, FTSE will include any eligible IPO that listed over the
migration period that was not included in the index (see question 17 below).
The index will also be capped in December using the new capping method.
17. How long will the FTSE China 50 Reference Index be calculated for?
The FTSE China 50 Reference Index will be calculated until November 2014
when the FTSE China 50 Index has fully migrated.
18. What are the key dates for the FTSE China 50 Reference
Index over the migration process?
The following table provides information of the key dates for the calculation
of the FTSE China 50 Reference Index over the migration process.
Date Note
3 Sep 2014 Indicative review product is disseminated following
announcement of the index constituents
12 Sep 2014 Capping factors calculated for the FTSE China 50
Reference Index
15 Sep 2014 5 day tracker product starts to disseminate
19 Sep 2014 Tracker product and opening constituent list calculated
22 Sep 2014 First day of index calculation (all daily products)
21 Nov 2014 Last day of index calculation – final products
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19. What are the FTSE China 50 Reference Index codes and Bloomberg tickers?
FTSE Code Bloomberg Code Index Name
CH50REF CH50REHP FTSE China 50 Reference Price Index in
HKD
CH50REF CH50REHT FTSE China 50 Reference Total Return
Index in HKD
CH50REFN CH50REHN FTSE China 50 Reference Net Tax Index in
HKD
CH50REF CH50REUP FTSE China 50 Reference Price Index in
USD
CH50REF CH50REUT FTSE China 50 Reference Total Return
Index in USD
CH50REFN CH50REUN FTSE China 50 Reference Net Tax Index in
USD
20. Will further detail on the migration process for the FTSE China 50 Index be made available?
A document outlining the migration process for the FTSE China 50 Index will
be made freely available on FTSE.com in April 2014.
21. Will IPO’s be eligible for inclusion in the index over the migration period?
Over the migration period no IPO’s will be eligible for inclusion into either the
FTSE China 50 Index or the FTSE China 50 Reference Index. The migration
period will start after the close of trading on 19 September 2014 (effective
from the start of trading on 22 September 2014) until the next capping date
effective on 22 December 2014. After this date IPO’s will become eligible for
inclusion.
Where an IPO lists over the migration period whose size would have made it
eligible for inclusion, FTSE will add the company to the FTSE China 50 Index
at the next capping date, effective on 22 December 2014. The review of
eligible IPO's will be based on data from the close of business on the next
trading day following the third Friday in November.
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22. What notifications will FTSE provide during the migration process?
The existing index products will provide all the information that clients will
need to manage the migration of the FTSE China 25 Index to the FTSE China
50 Index.
Index changes such as additions/deletions and corporate events will be
included in the 1-day and 5-day tracker products. The 5-day tracker product
will look forward up to five business days ahead to provide information on
any adjustments to index constituents.
FTSE will also provide on a daily basis the index review product. For the
migration process this product will look forward to the next monthly
migration to allow clients to see constituent weight changes after the
monthly migration has taken place. For example, once the September
migration has been completed it will start showing the constituents weights
following the October migration.
23. Will FTSE provide examples of how the migration process will work?
To provide further information on how the migration process will work, FTSE
has created a series of worked examples in Microsoft Excel format. These
examples are freely available on FTSE.com at
http://www.ftse.com/Indices/FTSE_China_Index_Series/index.jsp.
24. How will capping be applied to the index constituents over the migration process?
At the September 2014 review the FTSE China 50 Index will have its index
constituent weights adjusted by taking a third of the weights of the FTSE
China 50 Reference Index that will be capped using the new capping process
as per the FTSE China 50 Index rules. The remaining two-thirds weights will
be taken from the existing FTSE China 25 Index prior to migrating to the
FTSE China 50 Index. The cut-off date for calculating these weights will be
on the second Friday of the review month (12th September).
The FTSE China 25 Index will not be capped in September. We will not cap
the FTSE China 25 Index as we would potentially be will shifting the index
weights in the opposite direction to that which is intended as we move
towards the index weights of the FTSE China 50 Reference Index (which is
capped).
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Information on the constituent weights for the FTSE China 25, FTSE China
50, and FTSE China 50 Reference Indices will be provided as part of the
September review products.
The next capping of the FTSE China 50 Index constituents will take place at
the December 2014 review using the new capping methodology.
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If you have any questions and would like to speak to a client services individual directly, please do not hesitate to contact us on the numbers below, or via email at [email protected].
Hong Kong +852 2164 3333
London +44 (0) 20 7866 1810
Milan +39 02 3604 6953
New York +1 888 747 FTSE (3873)
Sydney +61 (2) 9293 2864
Tokyo +81 (3) 3581 2811
©FTSE International Limited (“FTSE”) 2014.
“FTSE®” is a trade mark of the London Stock Exchange Plc Group companies and is used by FTSE International Limited (“FTSE”) under licence. All rights in and to the FTSE China 25 Index, the FTSE China 50 Index, and the FTSE China 50 Reference Index (the “Indices”) vest in FTSE. All information is provided
for information purposes only. Every effort is made to ensure that all information given in this publication is accurate, but no responsibility or liability can be accepted by FTSE or its licensors for any errors or for any loss from use of this publication. Neither FTSE nor any of its licensors makes any claim, prediction,
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to past performance and are sourced by FTSE. Past performance is not a reliable indicator of future results. No part of this information may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission of FTSE. Distribution of FTSE data and the use of FTSE indices to create financial products requires a licence with FTSE and/or its licensors.