In 2006, the Exchange conducted a market consultation exercise with a broad range of market participants to obtain feedback on a proposal to implement a free-float methodology for the ISEQ® indices. The response was uniformly positive and supportive. Since then we have engaged further with interested market participants on how this transition will be achieved and the appropriate implementation steps for the Irish market have been identified. The Board of the Exchange ratified the introduction of free-float to the ISEQ® in early February.
On June 18th 2007, the Exchange will implement a free-float based methodology when calculating its ISEQ® indices. This represents a change to the current methodology which (except for the ISEQ®20 index) utilises the entire issued share capital of ISEQ index constituents. This date has been selected for consistency with the standard European index rebalancing calendar (i.e. third Friday of the last month in each quarter). It is also consistent with the ISEQ®20 rebalancing in June, 2007.
Benefits to the market
A free-float weighted ISEQ® will be beneficial for the Irish market as:- Free-float index calculation has become the industry norm for domestic and European benchmark indices. The introduction of a free-float methodology ensures the ISEQ indices are in line with best industry practice. Other indices using free-float include FTSE 100, the German DAX, Italy’s MIB, the French CAC, Eurostoxx 50 and the S&P Euro.
- A free-float based methodology ensures that investors are not at a disadvantage when trying to match the constituent weighting of a stock where a significant portion of an issuers shares are not available for active trading in the market.
- It encourages investment in the underlying stocks as some investors or investment strategies are now restricted to free-float indices.
- The Markets in Financial Instruments Directive (MiFiD) requires that liquid instruments are identified not only by trading turnover but also by the free-float market capitalisation of the company. Therefore the market needs to have a robust free-float mechanism in place prior to November, 2007.
Free-float collection and publication
The ISEQ®20 index has been free-float based since its inception in March 2005. From June 18th, 2007 all ISEQ® indices will adopt the same process of free-float collation and calculation as the ISEQ®20 which has functioned successfully since its launch.- Free-float information will be received directly from ISEQ constituent companies as well as from third party sources.
- Free-float figures calculation dates are the last trading day of February, May, August and November.
- Free-float adjustments will be applied on the third Friday of the last month in each calendar quarterly; i.e. March, June, September and December. This quarterly adjustment procedure is known as “Chaining”.
- Free-float adjustments will be made available to the market in advance of each Chaining date.
Continued briefing prior to free-float implementation
In advance of the actual implementation on June 18th, 2007, the Exchange will publish pro-forma free-float figures as at the end of March and April, 2007. This will allow market participants, issuers and other interested parties to review the impact on individual securities and at an overall index level. We believe this will facilitate the market in receiving and accommodating easily to the extent and nature of the changes to ISEQ® weighted shareholdings, while mitigating any risk of increased volatility in the market for certain shares.
These pro-forma free-float figures will be available on the ISE website.
