From 1 January 2004, the Copenhagen Stock Exchange will calculate the weights for the capped indices KAXcap and KBXcap every week as opposed to every six months, which is the practice today. At the same time the Exchange lowers the capping thresholds of a company's maximum weight, and the thresholds for how much companies with significant shares in the index may weight in the aggregate.
The capped indices are primarily used for benchmarking by investment funds, which are subject to the so-called UCITS rules or the 40-10-5 rule. According to the UCITS rules a single company may not weight more than 10 per cent of the portfolio. In addition, the group of companies that weight more than 5 per cent may not exceed 40 per cent in the aggregate.
Calculation of weights will in future occur weekly instead of biannually
Up to now, the Exchange has calculated the weights of constituent companies in KAXcap and KBXcap twice a year, but from the turn of the year the calculation will be made every week. The change is a consequence of a bill issued by the Danish Ministry of Economic and Business Affairs which moves to reduce the investment funds possibility of exceeding the thresholds of the UCITS-rules from the present six months to eight days from the turn of the year.
Lowering of capping thresholds
With a view to reducing the probability that a capped portfolio will have to be re-balanced at the weekly control calculation, the Copenhagen Stock Exchange sets up a framework or a buffer within which the group of capped companies may move.
The framework means that the Exchange will initially cap the index portfolios at thresholds of 36-9-4.5, and only if the 40-10-5 thresholds of the UCITS rules are exceeded will the Exchange re-balance the portfolio to the thresholds of 36-9-4.5.
