Introduction of free-float adjusted indices reflects consistent public comments received from various users indicating that free-float adjustment methodology should be introduced. In addition, this change is designed to avoid supply and demand distortion of share prices. As passive funds have increased in number recently, there is a possibility that supply and demand will be unbalanced in share prices if indices continue to be calculated based on listed shares that include portions of shares deemed not to be available for trading in the market.
An outline of the introduction of free-float adjusted indices follows. Please refer to the Appendix for more details
1. Method of Introduction
TSE will calculate and publish free-float adjusted indices as well as the existing total market capitalization-weighted index. This enables investors to have the option of selecting indices suited to different uses, such as a benchmark for financial products or economic indicator.
(1) Introduction of TOPIX Free-Float Weight (FFW)
In order to minimize the adjustment's market impact in passive funds, TOPIX Free-Float Weight (FFW) will be introduced in three phases. The first and second phases will start after the close of trading one business day before the last business day of October 2005 and February 2006 respectively, and the introduction of free-float adjustment will be completed after the close of trading one business day before the last business day of June 2006.
(2) Calculation and Publication of Provisional TOPIX and Existing TOPIX
To provide a view of market movements by the fully free-float adjusted index in advance, TSE will calculate and publish "Provisional TOPIX" (fully free-float adjusted TOPIX) from the last business day of April 2005 to the last business day of June 2006, when the introduction of TOPIX FFW will be complete.
In addition to the provisional index, TSE will begin calculation and publication of existing TOPIX (total market capitalization-weighted index), from last business day of October 2005 as "Ex-TOPIX" considering its role as an economic indicator in the past.
Calculation and publication of both types of the index enable fund managers to adjust their portfolios at their convenience, even before or after the three adjustments set by TSE, and thus further contribute to mitigating the market impact of the adjustment in passive funds.
(Introduction in phases, as well as the calculation and publication of Provisional TOPIX and Ex-TOPIX, provide fund managers with many opportunities to adjust their portfolios.)
| Note: | If the TOPIX FFW of a company is calculated to be 0.70, for example, 0.90 and 0.80 will be used for calculating indices in the first and second phases respectively, and 0.70 will be used after the final phase. |
2. Publication of TOPIX FFW
TSE plans to publish TOPIX FFW for each company through TSE's website at the end of April 2005, when calculation and publication of provisional TOPIX starts. TSE will review TOPIX FFW based on companies' latest Securities Reports and publicly available documents. (For example, TOPIX FFW of a company with a settlement term in March will be reviewed after the close of trading one business day before the last business day of October 2005, based on the report for the fiscal year ending March 2005.)
