- DFMGI test launched
- DFM 15, another index to be launched shortly
- Both indices to have base as 1000 points
- Index committee constituted; will review all indices twice a year
Dubai Financial Market (DFM) yesterday announced the launch of a new index, the DFM General Index (DFMGI). Beta testing of DFMGI is already on and in due course it will replace the existing DFM Index. DFMGI will comprise stocks that are primary listings on DFM and will exclude bonds & Sukuks and mutual funds. The index will have a base of 1000 points.
The new DFMGI will have two critical parameters when compared to the old index. Firstly, the last traded price of a stock will be considered as the closing price. In the old index the average trading price of a stock on that particular day was considered as the closing price. The new DFMGI will therefore have an international method of calculating market capitalization for any stock.
Secondly, in the new DFMGI, the free float of a stock will be considered for calculating market capitalization of that company, whereas in the earlier index, the entire capital of the company was considered for calculating its market capitalization.
DFM also announced its intentions to launch DFM 15, which will include the 15 most active listed companies. In addition, DFM is also considering launching new sectoral indices, based on a thorough review to restructure sectors. As well, DFM also plans to constitute an “Index Committee” that will review all indices twice a year.
Essa Kazim, Director General of DFM said: “DFM is growing by leaps and bounds. As the market grows, we fell that there is a need to review the Index and provide more indices as options for local and international investors and analysts to refer to. Hence we have adopted internationally acclaimed methodologies for formulating these indices. The base as 1000 is in sync with GCC and other international stock markets.”
“The methodology that we have adopted is identical to the one adopted by large number of international institutions that calculate indices for most international exchanges. And international institutions prefer ‘free float methodology’ and also the last traded price of a stock for calculating market capitalization. The new DFMGI reflects price movements in a better way and is not biased to certain companies. We have put maximum limit to market value of each stock at 25% of the total market value of the index,” he added.
The following parameters will be applied for calculating the new index:- The new index calculates the market value based on the price of last trade of the security. This means the index will reflect the latest direction of the price movement on the market. So the market value will be calculated according to the price of the latest transaction of the security.
- The maximum limit of weight of a single company in the index is set at 25% in an effort to reduce the influence of large market value companies on the index.
- The weight of a company in the index is related to the number of shares available for trading only. This means excluding the shares of founding members, major shareholders and government holdings and all holdings exceeding 5% of a company’s capital
- The following matrix shall be implemented for calculating the percentage of shares that are floating and they shall be applied to all listed companies to determine the market value of each company in the index.
- 25% of the market value of the company in case the free for trade shares are between 5% - 25%
- 50% of the market value of a company in case the free-for-trade-shares are between 25% - 50%
- 75% of the market value of a company in case the free-for-trade-shares are between 50% - 75%
- 100 % of the market value of a company in case the free-for-trade-shares are between 75% - 100%
- Any company will be excluded from the index if the percentage of free-for-trade-shares is less than 5% of its total capital
- Regarding the newly listed companies on DFM, these stocks will be considered for being part of the new index only upon completion of a month’s trading, in order to avoid initial price fluctuations.
Historical data of the index will be provided on daily basis starting from December 2003 and shall be provided on DFM’s website along with the rules and methodology of calculating the index.
