SIX Swiss Exchange: SMI® Is Now EU-Compliant

With effect from 18 September 2017 an important adjustment is being made to the index rules governing the SMI. The maximum weight of each constituent in the SMI is now limited to 18%. The reason for this change is that the SMI has not fully complied with the diversification limits of the ESMA - UCITS Directive[PDF] in the past. As a result, the usage of the SMI for index funds or index derivatives was constrained in the EU. Based on the findings of a comprehensive market consultation and the recommendation of the Index Commission, SIX Swiss Exchange decided to bring the SMI into line with EU guidelines as of 18 September 2017 (see media release of 4 May 2017[PDF]), so that it can be used as a reference index for the Swiss equity market within the EU.

Stepwise implementation of the capping

In order to implement the transition without causing market distortions, the weightings in the SMI will be capped gradually by a maximum of 3% per quarter until every component has reached the target weighting of 18%. In today's index review it was not yet possible to reduce the weighting of all constituents to 18%, which means that another reduction will be applied in the next quarterly index review.

SMI® composition and weights after the Index Review in September
(First part of the transition period completed / the weight of the largest constituent is reduced by 3%)

Once all the index constituents have reached the maximum weighting of 18%, the general provisions[PDF] for capped weightings will enter into force. These permit a single constituents to exceed the weighting of 20% between index reviews. As soon as the weightings of two index constituents are over 20%, an ad-hoc adjustment will be made to 18% after the market close.

Consequences for investors

The adjustment to the new maximum weighting will take place automatically for investors that have financial products linked directly to the SMI. They will benefit from improved diversification in the SMI due to the capping. In addition, compliance with the UCITS Directive will widen the pool of users for the SMI, which in general will also have a positive effect for investors.

Further information on the adjustment of the SMI can be found on the SIX Swiss Exchange website.