Recomposition of The Kse-100 Index

KSE-100 INDEX
5.
RECOMPOSITION OF THE KSE-100 INDEX
Maintenance of the index over time will require an on-going semi-annual recomposition process,
internal and external- buffer files of shares that exceed (shares outside the index) or fall below
(shares inside the index) the above criteria will be maintained under the jurisdiction of the Board of
Directors/Management of the Exchange.
Maintaining adequate representation of the under-lying stock market through all of its future
development and changes is dependent upon the establishment of an appropriate recomposition
process. Recomposition rules fall into two general categories:
Sector Rules and Market
Capitalisation Rules.
5.1
Sector Rules
Sector rules govern the selection (or deletion) of companies on the basis of being the top
capitalisation stock in each of the 34 KSE sectors (excluding Open-end Mutual Fund sector). Two
rules are recommended to undertake selection in this area-one, a time based rule and the other is
a value-based rule. Application can be triggered by compliance with either rule.
5.1.1
Time-based rule:
A company (not in the index) which becomes the largest in its sector (by any amount of value) will
enter the index after maintaining its position as largest in the sector for two consecutive recomposition
periods.
5.1.2
Value-based rule:
A company (not in the index) which becomes the largest in its sector by a minimum of 10% greater
in capitalisation value than the present largest in the sector (in the index) will enter the index after
one recomposition period.
KSE-100 INDEX
5.2
Capitalisation Rule
Capitalisation rules govern the selection (or deletion) of companies on the basis of being among
the largest capitalisation companies in the stock market. Only one rule applies here-time based
rule.
5.2.1
Time-based rule:
A company (not in the index) may qualify for entry if it exceeds the market cap value of the last stock
in the index selected on the basis of market cap for two recomposition periods. A qualifying company
automatically pushes out the lowest cap selected stock in the index.
5.3
Rules for new issues
A newly listed company or a privatized company shall qualify to be included in the existing index
(after one recomposition period) if the market capitalisation of the new or privatized company is at
least 2% of the total market capitalization.
KSE-100 INDEX
AN EXAMPLE OF THE RECOMPOSTION OF THE KSE100
The base divisor adjustment process can easily be understood by an example mentioned below. It
is important to understand that all divisor adjustment are made after the close of trading.
DIVISOR CHANGES
KSE-100 Index as on Day 2
Index Market Capitalization on Day 2
Divisor as on Day 2
=
=
=
1100
11,000,000,000.00
10,000,000,000.00
Revised Market Capitalization due to addition and

Delition of companies on the basis of Sector Base
Rule and Market Capitalization Rule.- Say
= Rs. 12,000,000,000.00
As mentioned earlier the Revised Market Capitalization are the market capitalization of those
companies which would constitute the KSE-100 Index on the next day (Day 3). The Revised
Market Capitalization calculated after the end of closing of trading session of Day 2 by using closing
prices of the same day.
The key to making this adjustment, as with any divisor adjustment, is that the index value is
temporarily frozen at the close of trading, while the divisor is adjusted for the increase or decrease
in market value of the numerator in the formula.
As the Formula for KSE-100 Index is:
Market Capitalization
Index = x 1000
Divisor
Therefore, in order to get the new divisor than formula is reframed as:
Revised Market Cap.
New Divisor = x 1000
Index (Day 2)
12,000,000,000
= x 1000
1100
= 10,909,090,909
Note:
The formula for Re-composition of the KSE100 Index is same as mentioned in Table 2, except that the treatment of
Base Divisor changes from Base Period Value to an arbitrary number, set such that there is no break in the index
series. This will be adjusted for any capital changes in indexed stocks.
KSE-100 INDEX
6.
REPLACEMENT OF STOCK IN THE INDEX
In Table 2 the ABC index is calculated for day 2. However, it is assumed that stock D will replace
stock B effective at the opening of trading on day 3. Therefore, the divisor adjustment is made, as
shown, after the close of trading on day 2., stock Ds price, shares outstanding, and resulting
market value are also as of the close of trading on day2.
By adding stock D, a stock twice the market value of B, the new base divisor increases substantially
as the aggregate market value increases proportionately, while the index remains unchanged.
Thus, the impact on the price index of stock D, isnt felt until 3rd days trading begins.
KSE-100 Index as on Day 2
1100
KSE-100 Index Market Cap. of (A.B.&C) on Day 2
11,000,000,000
Divisor as on Day 2
10,000,000,000
Step 1. Replace stock B with stock D after the close of trading on Day 2.
TABLE
3
Stock
Share Price
(in Rs.)
Number of
Shares
Market Value
(in Rs.)
A.
22.00
50,000,000
1,100,000,000.00
D.
40.00
150,000,000
6,000,000,000.00
C.
44.00
150,000,000
6,600,000,000.00
13,700,000,000.00
Revised Market Capitalization of Index
New Divisor = Revised Market Capitalization of Index x 1000

Index
13,700,000,000.00
= x 1000 = 12,454,545,455
1100
The newly adjusted divisor is indeed larger, while the index values remain the same during this
non-trading interval.
9
KSE-100 INDEX
Step 2
Application of new Divisor on Day 3.
Stock
TABLE 4
Share Price
Number of
Market Value
(in Rs.)
Shares
(in Rs.)
22.50
50,000,000
1,125,000,000.00
B.
41.00
150,000,000
6,150,000,000.00
C.
44.50
150,000,000
6,675,000,000.00
Total
13,950,000,000.00
Market Capitalization
Index as on 3rd Day = x 1000
Divisor
13,950,000,000.00
= x 1000 = 1120
12,454,545,455
10

Recomposition of The Kse-100 Index

Uploaded by

Copyright:

Available Formats

Recomposition of The Kse-100 Index

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Recomposition of The Kse-100 Index

Uploaded by

Copyright:

Available Formats

KSE-100 INDEX

RECOMPOSITION OF THE KSE-100 INDEX

Sector Rules and Market

Rules for new issues

Revised Market Capitalization due to addition and

REPLACEMENT OF STOCK IN THE INDEX

KSE-100 Index as on Day 2

KSE-100 Index Market Cap. of (A.B.&C) on Day 2

Revised Market Capitalization of Index

New Divisor = Revised Market Capitalization of Index x 1000

You might also like