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Index Committee
The S&P/TSX indices are maintained by the S&P/TSX Canadian Index Policy Committee (the Committee). The Committee, comprised of four members representing Standard & Poor’s and three members representing the TSX, is responsible for setting policy and determining index composition. The Committee is chaired by a member designated by Standard & Poor's. Meetings are held on a monthly basis and from time to time as needed. The Committee maintains the right to add, remove or by-pass any income trust and in its sole and absolute discretion applies rules and policies in making all inclusion and deletion decisions and setting any other index changes, policies or procedures. The following Criteria for Inclusion and Maintenance Policies are continually reviewed by the Committee and are subject to change at any time. All trading data used will be based on trading activity on the TSX.
Sector Representation. Sector representation, with respect to the income trust universe, will be a factor when considering income trusts for inclusion in the S&P/TSX Capped Income Trust Index. The income trust universe will include all income trusts listed on the TSX for at least 12 months. For the purpose of sector representation, the income trust universe will be classified by the following three GICSâ: Utilities, Real Estate and Energy. All other income trusts will be placed in the non-GICS category, “diversified business trusts”. The Index will seek to be representative of the income trust universe.
Domicile. Only Canadian income trusts listed on the TSX will be considered for inclusion in the S&P/TSX Capped Income Trust Index. For this purpose, “Canadian” means the trust is established in Canada.
Size. Larger income trusts, as measured by the float-adjusted market capitalization, are considered for the S&P/TSX Capped Income Trust Index. The number of adjusted or “float” trust units of a particular issue is determined by removing individual or related groups of unitholders which in aggregate total 20 percent or more of the total number of trust units issued and outstanding. Related groups, for the purpose of these indices shall mean any two or more parties where there exists the potential for one party to influence another through their ownership of trust units or through any agreements related to their ownership of trust units on any voting matter or corporate action. All determinations as to whether, in a given case, there is a related group are made by the Committee in its sole and absolute discretion based on publicly available information.
Liquidity. Only trust units which are actively and regularly traded are considered for inclusion in the S&P/TSX Capped Income Trust Index. Liquidity is measured using float turnover and dollar value traded.
Company Fundamentals. Normally, only trusts whose income streams are derived from actual underlying business assets will be considered for inclusion in the S&P/TSX Capped Income Trust Index. Both the financial and operating condition of an income trust are rigorously analyzed. The objective is to include only relatively stable income trusts in the index, thereby minimizing index turnover. The Committee in its sole and absolute discretion reserves the right to exclude income trusts not deemed to be appropriate.
Sector and Industry Classification
Standard & Poor’s uses 10 economic sectors, as defined by the Global Industry Classification Standard (GICSâ), that S&P jointly manages with MSCI. A sector is defined as a group of industries that have similar fundamental characteristics. These sectors are common across all Standard & Poor’s indices, including the S&P 500. Standard & Poor’s generally classifies an index constituent according to the source of its largest revenue and/or earnings share. For example, companies with multiple lines of business, such as conglomerates or multi-industry companies, are assigned to the sector that accounts for the largest percentage of revenues and/or earnings. Standard & Poor’s, in consultation with MSCI, in its sole and absolute discretion reserves the right to determine the classification of index constituents.
Index Deletion
A guiding principle of Standard & Poor’s index management is the minimization of turnover among index constituents. The most common reason for deleting an income trust from the S&P/TSX Capped Income Trust Index is its acquisition by another company or trust. Additionally, income trusts may be deleted for the following reasons:
Bankruptcy. An income trust is removed from the index immediately after filing for bankruptcy.
Restructuring. Each income trust’s restructuring plan is analyzed in depth. The restructured income trust and any spin-offs are reviewed for index inclusion or exclusion.
Lack of representation. An income trust may be removed from the Index if it no longer meets current criteria for inclusion or is no longer representative of its industry group in terms of relative size and liquidity. The Committee, in its sole and absolute discretion reserves the right to remove any income trust for lack of representation.
Index Additions
If two merging income trusts, the acquiring and the acquired, are index constituents, the Committee will evaluate the action and, in its sole and absolute discretion, make a determination regarding membership of the newly merged entity.
Under normal circumstances, income trusts must be listed on the TSX for at least 12 calendar months before being eligible for inclusion in the S&P/TSX Capped Income Trust Index. Standard & Poor’s in its sole and absolute discretion reserves the right to add IPO’s at any time after their listing on the TSX, based on the availability of public information about the trust. Income trusts that arise as the result of the conversion of or spin-off from an S&P/TSX Composite Index constituent company may, at the discretion of the Committee and subject to methodology, be added immediately upon their listing on the TSX.
To respond quickly to events affecting index constituents, a list of pre-screened prospective constituents will be maintained in a replacement pool, which will be closely monitored by the Committee. This list is kept strictly confidential.
Announcement of Index Changes
Index announcements will generally be made three days in advance of implementation of anticipated corporate events whenever practical, bearing in mind that the timing of such events is occasionally uncertain. Changes that reflect a departure from normal Standard & Poor's operating procedures will, when practical, be announced with additional lead time.
Announcements will be made after the daily close of trading by way of a news release. The news release may be posted on recognized Canadian and international wire services and on the Standard & Poor’s Index Services website at www.standardandpoors.com.
Float Adjustments
The proportion of market capitalization included for index calculation purposes is called the investable weight factor. The product of the investable weight factor and the total trust units outstanding is called the float trust units
Investable weight factors will be reviewed and updated quarterly on the third Friday of March, June, September and December.
If a change to an income trust’s units outstanding and/or investable weight factor results in an increase of 0.25 percent or more of that trust’s Relative Weight in the S&P/TSX Capped Income Trust Index, the change will be reflected in the index as soon as reasonably possible. Changes of less than 0.25 percent will be incorporated into the Index at the next quarterly rebalancing.
Index Calculation
Index calculations are based on trust unit prices taken from live feeds from the TSX. The official daily Index close for both price and total return Indices is based on the last board-lot traded price for each constituent, and will be calculated after the market close.
Real-time quotes will be provided and updated every 15 seconds through recognized international data vendors.
Total Return Indices
Total return indices (i.e., dividends reinvested) are published daily and are available from TSX Datalinx. For information, call (416) 947-4452.
Standard & Poor’s methodology for calculating total return indices assumes the dividends are reinvested in the index on the “ex-date.”
Criteria and Maintenance for Capping Constituents
I) Definitions
“Quarterly Valuation Date” is defined as the trading day immediately preceding the day of the announcement of quarterly additions, deletions and trust unit updates of the months of March, June, September and December of each year.
“QMV” or Quoted Market Value of an income trust on any day is defined as the closing price of that income trust on that day multiplied by the number of float trust units.
“Relative Weight” of an income trust is that income trust’s percentage of total index QMV. So Relative Weight = 100 times trust unit QMV divided by index QMV.
“Quarterly Update Effective Date” is defined as the first business day following the third Friday of March, June, September and December of each year.
1. Criteria for Capping Index Constituent Float
Any S&P/TSX Capped Income Trust Index constituent whose Relative Weight exceeds 25 percent on the Quarterly Valuation Date will be capped at 25 percent. This cap will be put in place by reducing the number of trust units in the float until a maximum integer number of units in the float results in a Relative Weight equal to 25 percent. The decision to impose a maximum weight restriction on any Capped Index will be subject to the sole and absolute discretion of the Index Committee.
2. Maintenance for Capped Constituents
- Any capped Index constituent whose Relative Weight is below 25 percent on the Quarterly Valuation Date will have its float units increased until either the income trust is at full float or the Relative Weight reaches 25 percent of the total index QMV, whichever comes first.
- Any Capped Index constituent whose Relative Weight is above 25 percent of S&P/TSX Capped Income Trust Index QMV after the close of the market on the Quarterly Valuation Date will have its float units decreased until the Relative Weight reaches 25 percent of the total Index QMV.
- Cap adjustments resulting from 2a) and/or 2b) will be effective after the close of business on the Quarterly Update Effective Date. The Investable Weight Factor will be determined by using closing unit prices and outstanding trust units after the close of business on the Quarterly Valuation Date.
- Any Capped Index constituent whose Relative Weight lies below 20 percent after the close of business on any TSX trading day will have its float trust units increased until either the trust is at full float or the Relative Weight reaches 25 percent, whichever comes first. This adjustment in float units will be made effective at the opening of trading on the first practical date. The Committee reserves the right to delay an adjustment arising from a corporate action indefinitely, if in its sole and absolute discretion, the Committee determines that in doing so, turnover would be minimized.
- Any Capped Index constituent whose Relative Weight lies above 30 percent after the close of business on any TSX trading day will be capped at 25 percent Relative Weight in that index at the opening of trading on the first practical date. Standard & Poor's reserves the right to delay such an adjustment arising from a corporate action indefinitely, if in the sole and absolute discretion of the Committee, if the Committee determines that in doing so, turnover would be minimized.
- Should a Capped Index constituent require another cap on a day other than the Quarterly Valuation Date, the number of capped float trust units will be determined using closing trust unit prices and outstanding trust units after the close of business on the day prior to the day the index notice is sent to the market.
