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.
Today, a breach of the capping thresholds of the UCITS rules means that the entire portfolio is capped according to the 36-9-4.5 per cent rule, i.e. also the companies that do not exceed any thresholds.
As of 1 January, only the company weighting more than 10 per cent or the companies that bring the portfolio above the 40 per cent threshold at the weekly control calculation will be capped at 9 or 4.5 per cent, while the weights of the remaining companies remain unchanged.
Moreover, the A and B groups which are formed today in connection with the initiation of the portfolio will be dissolved. The A group comprises all companies that meet the following weighting requirement: 4.5 per cent < X ¡Ü 9 per cent. The B group comprises all companies that meet the following weighting requirement: X ¡Ü 4.5 per cent. This grouping has meant that between two re-groupings, a company from the B group could never weight more than 4.5 per cent at re-balancing.
Finally, the period between the regular cappings of the portfolio is extended. Today, this takes place on the first Friday of every month, but from the beginning of the new year, the Exchange introduces quarterly initiation of the portfolio (on the first trading day of January, April, July and October).
The rule changes are the result of a desire to further harmonise rules within NOREX and a desire to facilitate portfolio switches as fewer major adjustments of the portfolios are made.
‘Guidelines for the adjustment of capped indices’ will be downloadable from the Exchange website, www.cse.dk, click Products/Publications, from the beginning of the new year.
