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PSE rebrands index to ‘PSEi’ for shift to free float


By RUBY ANNE M. RUBIO, BusinessWorld Reporter The Philippine Stock Exchange (PSE) will shift next month to a free float market capitalization and change the name of the PSE Composite Index to PSEi. In a statement, PSE President and Chief Executive Francis Lim said the new index name will be implemented on the first trading day of April simultaneous with the free float index. Free float market capitalization is a new scheme to determine which companies will comprise the PSE Composite Index, currently known as the Phisix. It is meant to encourage listed firms aspiring for inclusion in the composite index to increase shares available to the investing public. This is meant to encourage the public to invest in the stock market. The PSE board of directors agreed to rename the main index as part of the brand recognition that management is trying to do for the owner and operator of the only stock exchange in the country. Under the approved proposal, the PSE Composite Index will be dropped and renamed simply as the PSEi. The Phisix is an aggregate measure of relative changes in the market capitalization of common stocks that provides a picture of market trends. It is composed of a fixed basket of 30 listed companies carefully selected to represent the general movement of market prices. It serves as a barometer of stock price movement in the local bourse, similar to New York’s Dow Jones Index. "We want to highlight the reforms we have put in place at the PSE, and we want investors to know that the brand ‘PSEi’ is associated with these reforms. We believe there is added value in those reforms, and we want investors to get an instant recall of the changes, which are beneficial to them, with the help of a recognizable brand," he added. An earlier attempt to create a recognizable brand for the PSE turned out to be unwieldy, he said, because media organizations have used "confusing" acronyms for the PSE Composite Index. "Some media groups called it the ’Phisix,’ while others used ’Pcomp,’ or ’PCI.’ To resolve once and for all the use of the different acronyms, management decided to rename the PSE Composite Index," he added. Free float refers to the issued and outstanding shares of a listed company that are not held by strategic partners and owners. To determine the composition of the index, the PSE right now uses the following criteria: full market capitalization, liquidity, tradability, and sector representation. In the new formula, a listed company must satisfy three additional criteria -- free float shares, free float market capitalization and volume turnover ratio -- to qualify for inclusion or retention in the prestigious list of PSEi companies. Under the free float market capitalization index, the number of free float shares must be at least 10% of the total issued and outstanding shares; average daily turnover should be not less than P5 million; shares traded must be at least 10% of the average outstanding shares for the period; and tradable at least 95% of the total trading days. Only big companies ranked in accordance to the free float market capitalization are considered for the inclusion in the index. PSE will hold a parallel run for a week before the new index computation will be implemented. The new index will put the local stock market at par with Hong Kong, New York, Canada, Japan, Singapore and Germany. The current index based on full market capitalization renders some distortion as stocks with larger capitalization would have an overriding influence on the index even when a considerable percentage of shares are not being traded. Mr. Lim said investors will benefit from the new index computation as the revised criteria encourage listed companies to widen their investor base. "The new computation, which we intend to review every six months, will promote more stock market growth and, in turn, enhance the value of the stocks," he added. Under the PSE’s prevailing guidelines, companies do not qualify for index inclusion if they fail to meet the liquidity and tradability criteria. Those that hurdle this initial elimination stage go through a second screening process, where they are grouped according to sector and then ranked based on the full market capitalization of each company. The two top firms in each of the six sectors under the PSE’s classification standard occupy the first 12 slots in the 30-company index.