Leading index provider FTSE Group (“FTSE”), will apply new enhanced liquidity measures at the next FTSE Asia Pacific ex Japan index review on 27th March 2007. The new rule will raise the liquidity hurdle for inclusion in FTSE indices, giving investors more accurate representation of investability by using median daily, rather than average monthly, trading volume as a screen.
The main benefit of the new liquidity rule is that companies can only remain in the index if they trade consistently throughout, rather than just in a few days during the month. It effectively eliminates infrequently traded companies from the index. The new rule also ensures that companies which are removed from the index for failing liquidity must improve significantly before rejoining. These tightened liquidity criteria mean that investors can have more confidence that the stocks tracked by the index are completely liquid.
Paul Hoff, Managing Director, FTSE Asia Pacific commented, “FTSE is committed to providing index tools that accurately reflect market conditions. The new enhanced liquidity rule is an example of FTSE’s continuous innovation in the field of indexing, and our dedication to providing investors with best possible measurement tools.”
Companies failing to meet the new liquidity rule will be announced as part of the FTSE Asia Pacific Index Review, after markets close on Wednesday 28th February.
For more information about the new liquidity screen within FTSE’s Ground Rules please see the factsheet.
