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General SENS Submitter Company - Market Consultation 20190131 FTSEJSE Market Index Design

Release Date: 14/12/2018 17:50
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Market Consultation – 20190131 FTSEJSE Market Index Design

                                  Market Consultation: FTSE/JSE Market Index Design
                                                FTSE/JSE Africa Index Series
                                                      14 December 2018




1.   Introduction
     The broad market indices in the FTSE/JSE Africa Index Series have not fundamentally changed since the
     introduction of the Capped and Shareholder Weighted index suites in 2004. The Capped SWIX All Share index
     was introduced in 2016. Market indices are used for a broad range of purposes, including analytics, fund
     benchmarks and index products, such as tracking funds or derivatives. Based on a number of recent discussions
     in the market, FTSE/JSE is considering the value of a detailed review of the current equity market index offering.
     This consultation paper sets out options that may be considered to transform the existing market index
     methodology.

2.   Background
     Over the course of 2018, there has been an increasing amount of dialogue regarding the suitability of the
     current market index design for local equity investors. There have been a number of articles in the financial
     press, and these topics continue to be raised in discussions with issuers, sell-side participants and buy-side
     participants. Many of the discussions have been around the most appropriate way for indices to deal with some
     fundamental market constructs, such as:

         *          Steadily increasing concentration risk from a small number of high weight constituents
         *          Practical implications, and unintended consequences, of capping
         *          Inconsistent treatment of foreign companies (grandfathered vs. more recent listings) in terms of index
                    free float and therefore index weighting
         *          Diminishing differences between All Share weights and SWIX All Share weights after the removal of
                    grandfathered companies such as SAB Miller plc and Old Mutual plc

     In short, the question to be answered is “what would make the best market index for local equity investors?”

     FTSE/JSE suggests a participatory approach with index users to unpack some of these concerns, reach some
     broad consensus on an answer to the market index design question, and potentially implement enhancements
     in the FTSE/JSE Africa Index Series.




     Page 1 of 18
3.    Market Index Selection
      The Capped SWIX All Share (J433) was introduced in November 2016 and the take-up from funds on the index
      has been significant.

      Even though the capping methodology is not always popular with index users, the Capped SWIX All Share index
      has been selected as a benchmark for numerous funds. The index was designed as a solution to address
      concentrated investment exposure to large individual companies and not necessarily to be the market index of
      choice in the longer run. The fact that some significantly sized funds have moved their benchmarks away from
      the SWIX All Share (J403) index to the capped version, confirms that the uncapped SWIX All Share has some
      deficiencies as a broad market index.

4.    Roadmap
      The roadmap followed to review the FTSE/JSE market index offering is set out below.

4.1   Phase 1
      Firstly, FTSE/JSE would raise awareness with the FTSE/JSE Advisory Committee (AC) regarding the intended
      review of the market index design. Secondly, FTSE/JSE had to do some preparatory work that included, but was
      not limited to:

          *          Researched the academic characteristics of an effective modern market index
          *          Provided a critical overview of the current FTSE/JSE market index offering
          *          Appraised the current users of FTSE/JSE market indices, how they are used and why they were
                     selected

      Thirdly, FTSE/JSE would look at how the tools currently available in the index series could be leveraged to design
      more suitable market indices. Examples could include SA Investor weighting, ESG hurdles, Factor Tilts or Equal
      Weighting.

      Fourthly, consideration would be given to how market indices in various global markets have evolved their
      design, with a specific focus on emerging markets.

      Lastly, the South African regulatory framework constraints and its impact on potential improvements to market
      indices would be considered. An example of this is the FSCA Consultation Paper on the Implementation of a
      Financial Benchmark Regulatory Regime issued on 10 September 2018.

4.2   Phase 2
      FTSE/JSE would like to engage with market participants as widely as possible, so gathering information on a
      market consultation and working group basis would be most suitable.

      FTSE/JSE will evaluate the feedback from this market consultation and the working groups and produce a “Next
      Steps” outcome which will inform the third phase of the project. The FTSE Russell Product Governance Board
      would need to approve any proposed changes to the FTSE/JSE market indices before they could be finalised.



      Page 2 of 18
5.   Progress
     Phase 1, as set out in the roadmap has been completed. Awareness was raised with the AC regarding the
     intended review of the market index design at the June and September 2018 meetings. Secondly, FTSE/JSE
     undertook to do some preparatory work to provide a critical overview of the current FTSE/JSE market index
     offering. This work is set out in this consultation paper.

     Thirdly, FTSE/JSE undertook to look at how the tools currently available in the index series could be leveraged to
     design more suitable market indices. Examples could potentially include SA Investor weighting or up-weighting
     foreign companies in the market index. These tools are unpacked further in this consultation paper.

     Fourthly, consideration was given to how market indices in various global markets have evolved their design,
     with a specific focus on emerging markets.

     Phase 2, as set out in the roadmap, is now being launched by engaging market participants as widely as possible.
     A workshop with ASISA members was held during September, where awareness was raised with regards to the
     proposed review of the market indices.         Awareness was also raised with a small pilot group of market
     participants during September.

6.   Emerging Market Indices
     FTSE/JSE researched comparable emerging market indices to determine the characteristics of their indices. The
     countries included in the research were:
          *    Singapore
          *    Turkey
          *    Russia
          *    India
          *    Brazil
          *    China
          *    Australia

     Please refer to Appendix 3 for the full list of emerging market indices characteristics.

     The emerging market indices are aligned to the FTSE/JSE All Share in that they are market cap weighted, some
     by full market cap and others by free float adjusted market cap, have a liquidity screen and a free float
     component. The minimum free float requirement for these indices ranges from 5% to 30%. Most of the
     emerging market indices are not capped, but the Turkey (10%), Russian (15%) and Australian (15%) indices are
     capped.

     For the Russian indices an additional weighting factor is applied, depending on the constituent’s liquidity factor,
     e.g. if the Liquidity factor is smaller than 1.25% a weighting factor of zero is applied and when the liquidity factor
     is larger or equal to 10%, the weighting factor will be one. This effectively acts to down-weight companies that
     are relatively illiquid. For the Singapore and Indian indices no foreign ownership restrictions are applied. In
     Turkey there is only one dual listed company. The Shanghai and Shenzhen exchanges do not allow for the listing
     of foreign companies.




     Page 3 of 18
     Unique characteristics of the emerging market indices include that liquidity may be adjusted up to 0.01% at a
     review for constituents in the Singapore index. For the Russian indices, constituents require a minimum index
     weight of 0.25% for inclusion and when the weight falls below 0.2%, the constituent is removed. In the Indian
     index constituents are selected on average daily total market cap, annualised traded value and trading
     frequency. For the China index companies need to be listed for at least six months, unless full and free float
     market cap is within top 10 of all listed stocks.

     Many of these emerging market index principles are captured by specific rules within the FTS/JSE indices, and
     the market indices are broadly aligned in terms of methodology, despite a range of local nuances.

7.   Current FTSE/JSE Market Index Offering
     Factors impacting on the suitability of the current market index design for local equity investors include steadily
     increasing concentration risk from a small number of high weight constituents and the inconsistent treatment of
     foreign companies (grandfathered vs. more recent listings) in terms of index free float.           There are also
     diminishing differences between the All Share weights and SWIX All Share weights following the removal of
     grandfathered companies such as SAB Miller plc and Old Mutual plc.

     The current FTSE/JSE All Share offering includes the following indices:
      Index Code        Index Name                 Rank            Weight                Capping         Liquidity
      J203              All Share                  Gross Mcap      Net Mcap              No              Yes
      J303              Capped All Share           Gross Mcap      Capped Net Mcap       Yes – 10%       Yes
      J403              SWIX All Share             Gross Mcap      SWIX Mcap
                                                                   Mcap(Capped)          No              Yes
      J433              Capped SWIX All Share      Gross Mcap      Capped SWIX Mcap      Yes – 10%       Yes
     Table 1: FTSE/JSE All Share offering


     All four versions of the All Share indices are ranked by gross market cap and therefore the constituents in these
     indices are the same, the difference is in the weighting of the constituents. The difference between the All
     Share (J203) and SWIX All Share (J403) indices lie in the weighting of the constituents that are done on net
     market cap and SWIX market cap respectively. The SWIX free float represents the proportion of a constituent’s
     share capital that is held in dematerialised form and registered on the South African share register. The SWIX
     free float will not exceed the FTSE/JSE company free float. In both indices companies treated as foreign in the
     Index Series will have a free float that represents the holding on the South African register. The constituents of
     the relevant Top 40 and tradable indices derived from a specific market index will utilise the same free float as
     the market index.

     The free float for grandfathered companies in J203 represents the shareholder breakdown, and the free float in
     the SWIX represents the number of shares on the South African share register. Essentially the only difference
     between the All Share and SWIX All Share is the weight of grandfathered companies and companies with listed
     and sponsored depositary receipt programs. It is important to note that all new companies, classified as foreign
     for index purposes, utilise a SWIX market cap in all indices across the Index Series and this is why foreign
     companies do not contribute to a difference between J203 and J403.




     Page 4 of 18
     The table below provides a list of grandfathered companies in the All Share.
                                         Gross MCap       Free       SWIX Free                              SWIX MCap             Down-weight
      Alpha         Instrument                                                       Net MCap (Rm)
                                         (Rm)             Float      Float                                  (Rm)                  in SWIX
      BIL          BHP Billiton                 601,771      98%              16%              591,942                94,268             15.93%
      CFR          Compagnie                    525,915      98%              16%              513,624                84,410             16.43%
      AGL          Anglo American
                  Financiere                    425,435      70%              37%              298,525               159,313             53.37%
      MNP          Mondi Plc
                  Richemont AG                  120,025     100%              26%              119,633                30,646             25.62%
      INP          Investec PLC                  59,634      96%              52%               57,234                31,246             54.59%
      ITU          Intu Properties Plc           49,323      65%              37%               31,858                18,191             57.10%
      LON          Lonmin PLC                     2,890      94%              38%                2,715                 1,086             40.01%
     Table 2: List of grandfathered companies


     The table below provides a comparison of the current All Share weights on 23 October 2018. The highlighted
     companies represent the five largest weights in each index.

      Alpha              Instrument                       J203 Weight           J303 Weight                J403 Weight            J433 Weight
      NPN              Naspers                                       17.45%                    9.24%                     21.67%           9.17%
      BIL              BHP Billiton                                   9.05%                    9.95%                      1.79%           2.08%
      CFR              Compagnie Fin Richemont AG                     7.85%                    8.64%                      1.60%           1.86%
      AGL              Anglo American                                 4.57%                    5.02%                      3.02%           3.51%
      SOL              Sasol                                          3.90%                    4.29%                      4.85%           5.62%
      SBK              Standard Bank Group                            3.06%                    3.37%                      3.80%           4.41%
      FSR              Firstrand Limited                              2.90%                    3.19%                      3.61%           4.18%
      BTI              British American Tobacco PLC                   2.51%                    2.76%                      3.11%           3.61%
     Table 3: Comparison of All Share weights
     Key: J203 – All Share; J303 – Capped All Share; J403 – SWIX All Share; J433 – Capped SWIX All Share


8.   Available Tools to Leverage
     Two potential tools that could be introduced are SA Investor indices and up-weighting foreign companies in the
     index series. SA Investor is an approach that weights constituents based on local South African resident
     shareholdings, thereby excluding significant foreign-owned holdings from the market index weights. This is
     different to the current SWIX methodology which is based on the South African share register, rather than the
     sub-set of shares held by South African residents.                       The SA Investor index methodology excludes the
     grandfathering of index constituents, thus treating all companies consistently.

     The SWIX All Share index could potentially be replaced by the SA Investor index, thereby creating a market index
     that is reflective of the aggregate holdings of South African equity investors, and therefore suitable as a market
     index for the local investor on their local equity allocation.

     The J203 and J303 could possibly be amended to treat foreign companies consistently, by up-weighting all
     foreign companies and not just the grandfathered companies. “Up-weighting” refers to using the global market
     cap without adjusting for the South African register, i.e. in effect removing the down-weighting of foreign
     companies currently applied in the All Share index. As an example, BTI as a foreign company will be up-weighted
     in the market index by reflecting the global market cap and not the South Africa register adjustment.




     Page 5 of 18
The table below shows the weights of the three proposed approaches, with their capped versions:
     *    SA Investor: All constituents are weighted based on their aggregate SA-resident shareholding, adjusted
          for free float.
     *    All Foreign Up-weight: All constituents have a J203 free float, but all foreign companies are weighted
          consistently at their full global free float, with no register or investor nationality down-weighting.
     *    Current SWIX: All constituents have a J403 free float, with all companies weighted at the minimum
          between their free float and SA register.


The highlighted companies represent the five largest weights in each proposed index, before and after the
application of capping factors (10%). The detail of the constituent weights is available in Appendix 1.

 Alpha         Instrument          SA Investor      Foreign Up-   SWIX        SA Investor     Foreign Up-      SWIX Capped
                                   weight           weight                    weight Capped   weight Capped

 NPN        Naspers                        14.57%       12.52%       23.19%          9.98%*           9.97%*        9.97%*
 SOL        Sasol                           5.53%        2.73%        5.05%           5.83%            3.08%         5.92%
 BTI        British American Tob            4.61%       15.02%        2.87%           4.86%           9.28%*         3.37%
 AGL        Anglo American                  4.42%        3.01%        2.98%           4.66%            3.40%         3.49%
 FSR        Firstrand Limited               4.28%        2.04%        3.78%           4.51%            2.30%         4.43%
 ANH        Anheuser-Busch                  0.50%        9.63%        0.38%           0.52%           9.81%*         0.44%
 GLN        Glencore                        0.66%        7.01%        0.51%           0.70%            7.91%         0.60%
 BIL        BHP Billiton                    2.89%        6.13%        1.81%           3.05%            6.92%         2.12%
 SBK        Standard Bank                   2.92%        2.07%        3.84%           3.08%            2.34%         4.50%
Table 4: Comparison of proposed indices weights
* Capped constituent


The three graphs below depict the weight of three different types of companies in the three proposed indices,
prior to the application of capping.

Naspers is classified as domestic for all index purposes, which is the standard for local domestic listings. There
are thus no additional restrictions on NPN’s index inclusion, other than the normal rules specified in the Index
Ground Rules, and the company is currently included in the index at its full market capitalisation, adjusted for
free float.

British American Tobacco is an inward listing and is classified as a domestic asset, but foreign for index purposes.
BTI is an example of an inward listed company that was classified by SARB as foreign for index purposes. BTI is
currently included in the index series, but at a reduced weight. FTSE/JSE does not use BTI’s total global market
capitalisation in the index series, but rather the market capitalisation of shares registered on the SA share
register, as maintained by Strate.

Anglo American is an example of a grandfathered company and is a seemingly foreign company, but treated as
domestic for all purposes, due to its South African roots.






    The table below shows the split of foreign and local companies in the current All Share and the proposed market
    indices. Local companies in this context have a South African ISIN assigned (“ZAE”).
                                              Sep 2018               Sep 2017              Sep 2016              Sep 2015               Sep 2014

                                           Foreign      Local   Foreign    Local       Foreign    Local      Foreign    Local      Foreign        Local
All Share (J203)                            31.51%     68.49%   34.60%     65.39%       39.98%   60.01%       40.31%    59.68%      41.66%        58.33%
SA Investor weight                          24.40%     75.60%   29.21%     70.79%       32.07%   67.93%       28.40%    71.60%      29.01%        70.99%
Foreign Up-weight                           54.00%     46.00%   58.24%     41.76%       59.37%   40.63%       52.02%    47.98%      54.17%        45.83%
SWIX                                        16.14%     83.86%   21.01%     78.99%       23.64%   76.36%       21.91%    78.09%      23.04%        76.96%
SA Investor weight Capped                   25.71%     74.29%   30.75%     69.25%       32.98%   67.02%       28.40%    71.60%      29.01%        70.99%
Foreign Up-weight Capped                    52.22%     47.78%   53.70%     46.30%       54.39%   45.61%       47.57%    52.43%      51.28%        48.72%
SWIX Capped                                 18.91%     81.09%   23.97%     76.03%       26.14%   73.86%       22.74%    77.26%      23.04%        76.96%
  Table 5: Foreign and Local Split



    The table below shows the SA sector weights breakdown for SA Resources, SA Industrials and SA Financials for
    the current four market indices, the three proposed indices and their capped versions. Further SA sector details
    are provided in Appendix 2.
                                                                                                                            Foreign
                                                                                           Foreign               SA
                                                                                SA                                          Up-         SWIX
                                 J203        J303        J403       J433                   Up-        SWIX       Investor
                                                                                Investor                                    weight      Capped
                                                                                           weight                Capped
                                                                                                                            Capped
    SA Resources                  25.56%      28.29%       17.11%     20.08%     20.39%     25.76%     17.05%      21.48%     29.08%     19.98%
    SA Industrials                49.35%      43.94%       52.92%     44.75%     45.14%     56.36%     53.10%      42.19%      50.74%    45.04%
    SA Financials                 25.08%      27.76%       29.96%     35.16%     34.47%     17.88%     29.85%      36.32%      20.18%    34.98%
  Table 6: SA Sector Weights




    Page 8 of 18
9.   Discussion Points / Questions
     A review of the existing market index design, in collaboration with market participants, would ensure the most
     effective outcome from which the final proposal can be created and would further ensure that the market index
     is aligned with market requirements. The ultimate goal is to provide to local equity investors the most
     appropriate and effective market indices, a fundamental building block of a healthy investment ecosystem.


     FTSE/JSE requests comments from the market regarding concerns with the proposal to improve the market
     index offering. The questions below are provided to guide the discourse:
          *    Details of respondent, including company name and industry or sector.
          *    Which of the existing four market indices do you use currently and for what purpose?
          *    How do you use the current All Share index (J203)?
          *    What criteria do you require from a market index?
          *    What specific concerns impact on your current or potential usage of these indices?
          *    How would changing the existing market index methodology impact on your business model? Should
               there be a fundamental change to the market index methodology, how much advance notice would you
               expect from FTSE/JSE?
          *    Which proposed market index do you prefer as possible replacement for the existing FTSE/JSE All Share
               Index (J203)?
                    o   SA Investor
                    o   All Foreign Up-weight
                    o   Current SWIX
                    o   Unchanged
          *    Which proposed market index do you prefer as possible replacement for the existing FTSE/JSE SWIX All
               Share Index (J403)?
                    o   SA Investor
                    o   All Foreign Up-weight
                    o   Current SWIX (i.e. unchanged)
          *    Would you rather prefer only one main market index, with a capped and uncapped version? This would
               see the All Share methodology and SWIX All Share methodology replaced with a single methodology.
          *    Would you prefer a phased approach for implementing the methodology change? If so, how should the
               transition timelines be determined?
          *    What concerns or recommendations do you have regarding the proposed indices? Do you have
               concerns regarding the enhancements as discussed in this market consultation?
          *    Should foreign companies be treated differently to domestic companies? Please provide reasons.
          *    Do you require any further data to support your decision?




     Page 9 of 18
10.   Responding to the Consultation
      It is important to FTSE/JSE to be aware of the impact on clients as well as any unintended consequences of the
      change. Therefore, FTSE/JSE requests comments on the proposed offering and questions included in this market
      consultation.

      Please provide us with your comments and suggestions by 31 January 2019 to the following email address:
      indices@jse.co.za

      FTSE/JSE would also like to meet with market participants to discuss any further comments, suggestions or
      concerns. Please contact us at the email address provided above, should you wish to arrange a meeting in this
      regard. All feedback received by 31 January 2019 will be carefully considered before making any final decisions,
      and presented to the FTSE/JSE Advisory Committee Meeting.

      When determining the timeline for the implementation of any decision, FTSE/JSE is mindful of the broad usage
      of these indices in the market and the need to provide appropriate notice. This document is not confidential
      and should be distributed as widely as possible to all stakeholders.




      Yours Sincerely,

      Indices Department




      Page 10 of 18
Appendix 1

Comparison of market index weights, on review effective date, for the past five years:
Key: J203 – All Share; J303 – Capped All Share; J403 – SWIX All Share; J433 – Capped SWIX All Share


                                                                                                                                                                    SA Investor   Foreign Up-
                                                                J203           J303            J403            J433        SA Investor    Foreign Up-
 Date           Alpha      Instrument                                                                                                                   SWIX        weight        weight        SWIX Capped
                                                                Weight         Weight          Weight          Weight      weight         weight
                                                                                                                                                                    Capped        Capped
 2018/09/25     NPN        Naspers                                   18.63%          9.94%            23.28%       9.97%         14.57%       12.52%       23.19%         9.98%         9.97%         9.97%
 2018/09/25     BIL        BHP Billiton                               9.13%         10.11%             1.82%       2.13%          2.89%        6.13%        1.81%         3.05%         6.92%         2.12%
 2018/09/25     CFR        Compagnie Fin Richemont AG                 8.35%          9.24%             1.71%       2.01%          2.60%        5.61%        1.71%         2.74%         6.33%         2.00%
 2018/09/25     AGL        Anglo American                             4.49%          4.97%             2.99%       3.51%          4.42%        3.01%        2.98%         4.66%         3.40%         3.49%
 2018/09/25     SOL        Sasol                                      4.06%          4.49%             5.07%       5.95%          5.53%        2.73%        5.05%         5.83%         3.08%         5.92%
 2018/09/25     SBK        Standard Bank Group                        3.09%          3.42%             3.86%       4.53%          2.92%        2.07%        3.84%         3.08%         2.34%         4.50%
 2018/09/25     FSR        Firstrand Limited                          3.04%          3.36%             3.80%       4.46%          4.28%        2.04%        3.78%         4.51%         2.30%         4.43%
 2018/09/25     BTI        British American Tobacco PLC               2.31%          2.56%             2.89%       3.39%          4.61%       15.02%        2.87%         4.86%         9.28%         3.37%
 2018/09/25     MTN        MTN Group                                  2.03%          2.25%             2.54%       2.98%          1.92%        1.36%        2.53%         2.03%         1.54%         2.96%
 2018/09/25     MNP        Mondi Plc                                  2.02%          2.24%             0.65%       0.76%          0.88%        1.36%        0.65%         0.93%         1.53%         0.76%
 2018/09/25     SLM        Sanlam                                     1.90%          2.11%             2.38%       2.79%          2.27%        1.28%        2.37%         2.40%         1.44%         2.77%
 2018/09/25     ABG        Absa Group Limited                         1.49%          1.64%             1.86%       2.18%          1.27%        1.00%        1.85%         1.34%         1.13%         2.17%
 2018/09/25     OMU        Old Mutual Ltd                             2.00%          2.22%             1.84%       2.16%          2.24%        1.34%        1.83%         2.36%         1.52%         2.15%
 2018/09/25     ANH        Anheuser-Busch InBev SA NV                                                                             0.50%        9.63%        0.38%         0.52%         9.81%         0.44%
 2018/09/25     GLN        Glencore                                   0.41%          0.45%             0.51%       0.60%          0.66%        7.01%        0.51%         0.70%         7.91%         0.60%

                                                                                                                                                                    SA Investor   Foreign Up-
                                                                J203           J303            J403            J433        SA Investor    Foreign Up-
 Date           Alpha      Instrument                                                                                                                   SWIX        weight        weight        SWIX Capped
                                                                Weight         Weight          Weight          Weight      weight         weight
                                                                                                                                                                    Capped        Capped
 2017/09/18     NPN        Naspers                                   17.54%         10.28%            21.48%      10.32%         14.79%       11.20%       21.38%        10.30%       10.26%         10.32%
 2017/09/18     CFR        Compagnie Fin Richemont AG                 8.64%          9.40%             1.77%       2.03%          2.57%        5.52%        1.77%         2.70%         6.51%         2.01%
 2017/09/18     BIL        BHP Billiton                               6.96%          7.57%             1.45%       1.65%          2.09%        4.44%        1.44%         2.20%         5.24%         1.64%
 2017/09/18     AGL        Anglo American                             3.63%          3.95%             2.24%       2.56%          3.10%        2.32%        2.23%         3.26%         2.73%         2.55%
 2017/09/18     BTI        British American Tobacco PLC               3.53%          3.85%             4.33%       4.94%          5.61%       18.40%        4.31%         5.90%       10.03%          4.92%
 2017/09/18     SOL        Sasol                                      3.05%          3.32%             3.73%       4.26%          4.10%        1.95%        3.72%         4.32%         2.30%         4.24%
 2017/09/18     MTN        MTN Group                                  3.03%          3.30%             3.71%       4.24%          2.69%        1.93%        3.69%         2.83%         2.28%         4.21%
 2017/09/18     SBK        Standard Bank Group                        2.84%          3.09%             3.48%       3.98%          2.61%        1.82%        3.47%         2.75%         2.14%         3.96%
 2017/09/18     FSR        Firstrand Limited                          2.43%          2.64%             2.98%       3.40%          3.34%        1.55%        2.96%         3.51%         1.83%         3.38%
 2017/09/18     OML        Old Mutual                                 2.37%          2.58%             1.79%       2.04%          2.46%        1.52%        1.78%         2.59%         1.79%         2.03%
 2017/09/18     SNH        Steinhoff Int Holdings N.V.                2.27%          2.46%             2.77%       3.17%          3.31%        1.46%        2.76%         3.49%         1.72%         3.15%
 2017/09/18     SLM        Sanlam                                     1.61%          1.75%             1.97%       2.25%          1.85%        1.03%        1.96%         1.94%         1.21%         2.23%
 2017/09/18     REM        Remgro                                     1.51%          1.64%             1.85%       2.11%          1.96%        0.96%        1.84%         2.06%         1.14%         2.10%
 2017/09/18     ANH        Anheuser-Busch InBev SA NV                                                                             0.53%       11.34%        0.46%         0.56%       10.06%          0.52%
 2017/09/18     GLN        Glencore                                   0.37%          0.41%             0.46%       0.52%          0.72%        6.50%        0.45%         0.75%         7.67%         0.52%




        Page 11 of 18
                                                                                                                                              SA Investor   Foreign Up-
                                                      J203        J303        J403        J433        SA Investor    Foreign Up-
Date          Alpha    Instrument                                                                                                  SWIX       weight        weight        SWIX Capped
                                                      Weight      Weight      Weight      Weight      weight         weight
                                                                                                                                              Capped        Capped
2016/09/19    NPN      Naspers                           14.42%      10.08%      18.73%      10.01%         12.53%        9.76%      18.64%        10.05%       10.04%         10.01%
2016/09/19    SAB      SABMiller                         10.97%       9.89%       2.66%       2.94%          2.89%        7.43%       2.64%         2.97%         8.56%         2.92%
2016/09/19    CFR      Compagnie Fin Richemont AG         5.57%       5.97%       1.36%       1.50%          1.86%        3.77%       1.35%         1.91%         4.34%         1.49%
2016/09/19    BIL      BHP Billiton                       5.39%       5.78%       1.26%       1.40%          1.64%        3.65%       1.25%         1.69%         4.20%         1.39%
2016/09/19    BTI      British American Tobacco PLC       3.38%       3.63%       4.39%       4.87%          5.52%       16.35%       4.37%         5.68%         9.93%         4.84%
2016/09/19    MTN      MTN Group                          2.98%       3.20%       3.87%       4.29%          2.55%        2.02%       3.85%         2.63%         2.33%         4.26%
2016/09/19    SOL      Sasol                              2.86%       3.07%       3.72%       4.11%          3.67%        1.94%       3.70%         3.77%         2.23%         4.09%
2016/09/19    AGL      Anglo American                     2.85%       3.05%       1.65%       1.83%          2.13%        1.93%       1.64%         2.20%         2.22%         1.82%
2016/09/19    SNH      Steinhoff Int Holdings N.V.        2.80%       3.00%       3.64%       4.03%          5.07%        1.72%       3.62%         5.22%         1.99%         4.00%
2016/09/19    SBK      Standard Bank Group                2.32%       2.49%       3.02%       3.34%          2.30%        1.57%       3.00%         2.36%         1.81%         3.32%
2016/09/19    FSR      Firstrand Limited                  2.00%       2.14%       2.59%       2.87%          3.01%        1.35%       2.58%         3.09%         1.56%         2.85%
2016/09/19    REM      Remgro                             1.61%       1.72%       2.09%       2.31%          2.14%        1.09%       2.08%         2.21%         1.25%         2.30%
2016/09/19    SLM      Sanlam                             1.53%       1.65%       1.99%       2.21%          1.86%        1.04%       1.98%         1.92%         1.20%         2.19%
2016/09/19    OML      Old Mutual                         2.29%       2.46%       1.92%       2.13%          2.53%        1.55%       1.91%         2.61%         1.79%         2.12%
2016/09/19    MEI      Mediclinic International plc       0.86%       0.93%       1.12%       1.24%          2.16%        0.62%       1.12%         2.22%         0.71%         1.24%
2016/09/19    ANH      Anheuser-Busch InBev SA NV                                                            0.54%       13.15%       0.50%         0.55%       10.05%          0.56%
2016/09/19    GLN      Glencore                                                                              0.28%        3.94%       0.28%         0.28%         4.54%         0.31%



                                                                                                                                              SA Investor   Foreign Up-
                                                      J203        J303        J403        J433        SA Investor    Foreign Up-
Date          Alpha    Instrument                                                                                                  SWIX       weight        weight        SWIX Capped
                                                      Weight      Weight      Weight      Weight      weight         weight
                                                                                                                                              Capped        Capped
2015/09/21    SAB      SABMiller                         10.77%      10.78%       4.11%       4.11%          3.77%        8.66%       4.10%         3.77%         9.46%         4.25%
2015/09/21    NPN      Naspers                           10.30%      10.21%      13.63%      13.51%          9.05%        8.28%      13.60%         9.05%         9.05%        10.34%
2015/09/21    CFR      Compagnie Fin Richemont AG         7.72%       7.73%       2.34%       2.34%          2.90%        6.21%       2.34%         2.90%         6.78%         2.42%
2015/09/21    BIL      BHP Billiton                       6.95%       6.95%       1.65%       1.66%          2.04%        5.58%       1.65%         2.04%         6.10%         1.71%
2015/09/21    MTN      MTN Group                          4.50%       4.50%       5.95%       5.96%          3.80%        3.62%       5.94%         3.80%         3.95%         6.16%
2015/09/21    BTI      British American Tobacco PLC       3.31%       3.31%       4.38%       4.39%          5.86%       17.74%       4.37%         5.86%       10.12%          4.53%
2015/09/21    SOL      Sasol                              3.27%       3.27%       4.33%       4.33%          4.41%        2.63%       4.32%         4.41%         2.87%         4.48%
2015/09/21    SHF      Steinhoff Int Holdings             2.90%       2.90%       3.83%       3.84%          3.79%        2.33%       3.82%         3.79%         2.54%         3.97%
2015/09/21    AGL      Anglo American                     2.82%       2.82%       1.66%       1.67%          2.15%        2.26%       1.66%         2.15%         2.47%         1.72%
2015/09/21    OML      Old Mutual                         2.74%       2.74%       2.15%       2.15%          2.92%        2.20%       2.14%         2.92%         2.40%         2.22%
2015/09/21    SBK      Standard Bank Group                2.44%       2.44%       3.23%       3.24%          2.57%        1.96%       3.22%         2.57%         2.14%         3.34%
2015/09/21    FSR      Firstrand Limited                  2.30%       2.30%       3.05%       3.05%          3.56%        1.85%       3.04%         3.56%         2.02%         3.15%
2015/09/21    REM      Remgro                             1.75%       1.76%       2.32%       2.33%          2.40%        1.41%       2.32%         2.40%         1.54%         2.40%
2015/09/21    GLN      Glencore Xstrata plc                                                                  0.22%        3.15%       0.19%         0.22%         3.44%         0.20%




       Page 12 of 18
                                                                                                                                              SA Investor   Foreign Up-
                                                      J203        J303        J403        J433        SA Investor    Foreign Up-
Date          Alpha    Instrument                                                                                                  SWIX       weight        weight        SWIX Capped
                                                      Weight      Weight      Weight      Weight      weight         weight
                                                                                                                                              Capped        Capped
2014/09/22    BIL      BHP Billiton                      10.03%       9.64%       2.96%       2.96%          3.36%        7.88%       2.94%         3.36%         8.38%         2.94%
2014/09/22    SAB      SABMiller                          9.28%       9.32%       4.22%       4.22%          3.88%        7.29%       4.20%         3.88%         7.75%         4.20%
2014/09/22    CFR      Compagnie Fin Richemont AG         7.20%       7.23%       2.21%       2.21%          2.84%        5.65%       2.20%         2.84%         6.01%         2.20%
2014/09/22    NPN      Naspers                            6.99%       7.03%       9.38%       9.38%          6.24%        5.50%       9.33%         6.24%         5.84%         9.33%
2014/09/22    MTN      MTN Group                          6.50%       6.52%       8.71%       8.71%          5.93%        5.10%       8.67%         5.93%         5.43%         8.67%
2014/09/22    SOL      Sasol                              5.11%       5.13%       6.85%       6.85%          7.01%        4.01%       6.82%         7.01%         4.27%         6.82%
2014/09/22    AGL      Anglo American                     5.09%       5.11%       3.34%       3.34%          4.34%        4.00%       3.32%         4.34%         4.25%         3.32%
2014/09/22    BTI      British American Tobacco PLC       2.97%       2.99%       3.99%       3.99%          5.51%       15.58%       3.97%         5.51%       10.26%          3.97%
2014/09/22    SBK      Standard Bank Group                2.44%       2.45%       3.27%       3.27%          2.49%        1.92%       3.25%         2.49%         2.04%         3.25%
2014/09/22    OML      Old Mutual                         2.40%       2.41%       1.77%       1.77%          2.23%        1.88%       1.76%         2.23%         2.00%         1.76%
2014/09/22    FSR      Firstrand Limited                  2.11%       2.12%       2.83%       2.83%          3.38%        1.66%       2.82%         3.38%         1.77%         2.82%
2014/09/22    SHF      Steinhoff Intl Holdings            2.03%       2.04%       2.72%       2.72%          2.34%        1.59%       2.70%         2.34%         1.69%         2.70%
2014/09/22    GLN      Glencore Xstrata plc                                                                  0.45%        7.81%       0.49%         0.45%         8.30%         0.49%




       Page 13 of 18
Appendix 2

Comparison of SA Sector weights, on review effective date, for the past five years:

                                                                                                                      SA          Foreign
                                                                                  SA           Foreign                                        SWIX
 Date            SA Sector        J203        J303        J403        J433                                 SWIX       Investor    Up-weight
                                                                                  Investor     Up-weight                                      Capped
                                                                                                                      Capped      Capped
 2018/09/25      SA Resources        25.56%      28.29%      17.11%      20.08%       20.39%      25.76%     17.05%      21.48%      29.08%      19.98%

 2018/09/25      SA Industrials      49.35%      43.94%      52.92%      44.75%       45.14%      56.36%     53.10%      42.19%      50.74%      45.04%

 2018/09/25      SA Financials       25.08%      27.76%      29.96%      35.16%       34.47%      17.88%     29.85%      36.32%      20.18%      34.98%



 2017/09/18      SA Resources        21.19%      23.06%      14.22%      16.24%       15.95%      21.28%     14.15%      16.79%      25.10%      16.15%

 2017/09/18      SA Industrials      54.55%      50.55%      58.01%      52.04%       51.71%      62.39%     58.20%      49.16%      55.64%      52.32%

 2017/09/18      SA Financials       24.25%      26.39%      27.77%      31.72%       32.34%      16.34%     27.64%      34.04%      19.27%      31.54%



 2016/09/19      SA Resources        18.71%      20.07%      13.88%      15.37%       14.27%      17.65%     13.81%      14.68%      20.34%      15.28%

 2016/09/19      SA Industrials      59.59%      56.66%      59.95%      55.65%       54.85%      67.42%     60.15%      53.56%      62.46%      55.92%

 2016/09/19      SA Financials       21.69%      23.27%      26.17%      28.98%       30.88%      14.93%     26.04%      31.76%      17.20%      28.80%


 2015/09/21      SA Resources        18.31%      18.33%      12.60%      13.13%       14.18%      18.74%     12.83%      14.19%      20.48%      13.32%

 2015/09/21      SA Industrials      58.41%      58.36%      59.27%      57.56%       52.00%      62.03%     59.12%      51.99%      58.51%      57.58%

 2015/09/21      SA Financials       23.29%      23.31%      28.13%      29.31%       33.82%      19.22%     28.05%      33.82%      21.01%      29.11%



 2014/09/22      SA Resources        21.64%      26.43%      20.00%      13.15%       22.40%      28.83%     20.39%      22.40%      30.64%      20.39%

 2014/09/22      SA Industrials      58.07%      53.19%      55.34%      62.19%       48.86%      54.85%     55.07%      48.86%      52.00%      55.07%

 2014/09/22      SA Financials       20.29%      20.38%      24.66%      24.66%       28.74%      16.33%     24.54%      28.74%      17.36%      24.54%




        Page 14 of 18
Appendix 3

Emerging Market Index Characteristics


                Country            Index                                     Weighting                                   Constituents                             Review
 Singapore                         FTSE ST All-Share Index                   Market cap weighted                         Plus or minus 132                        Quarterly: Mar + Sept. June + Dec is new issues. Monday after third
                                                                                                                                                                  Friday.
 Turkey (Istanbul)                 BIST 100                                  BIST Indices are calculated as free float                                      100   Quarterly: Nov, Feb, May, August (last trading day)
                                                                             market capitalization weighted.
 Russia (Moscow Exchange MICEX-    MOEX Russia Index (previously MICEX       Market cap weighted                         Varies but can’t be more than 50         Quarterly (third Friday of March, June, Sept and Dec)
 RTS)                              INDEX)
                                   Calculated in RUB
 Russia (Moscow Exchange MICEX-    RTS Index (same as above but              Market cap weighted                         Varies but can’t be more than 50         Quarterly (third Friday of March, June, Sept and Dec)
 RTS)                              calculated in USD)
 India (Bombay Stock exch)         S&P BSE 500                               Market cap weighted                                                            500   Semi-annually in June and December
 Brazil                            Bovespa Index (Ibovespa)                  Market cap weighted                         Plus or minus 60                         4 month cycles: April, August and December
 China (Shenzen Stock Exchange)    SZSE Component Index (not to be           Market cap weighted                                                            40    Semi-annually on first trading day in January and July
                                   confused with SZSE Composite Index
                                   which is an index of all listed
                                   companies, same ground rules but 500
                                   companies)



 China (Shanghai Stock Exchange)   Shanghai Stock Exchange Composite         Category weighted Market cap (Free          Plus or minus 1480                       Semi-annually after second Friday in June and December
                                   Index (very volatile)                     float determines inclusion factor)
                                   There is SSE 180 which is a
                                   continuation of SSE30, this selects the
                                   top 180 constituents by full market
                                   cap, negotiable market cap ratio,
                                   trading values and turnover ratio
 Australia                         All Ordinaries Index (XAO)                Full Market cap                                                                500   Annually after close on the third Friday of March
                                                                                                                                                                  S&P/ASX 300 - every 6 months in March and September)

 Australia                         S&P/ASX 200                               Float adjusted market cap and liquidity                                        200   Quarterly on third Friday of March, June, September and December




          Page 15 of 18
                                                                                                                                                Liquidity
            Country                       Index                                Ranking                                                                                                                            Free Float
                                                                                                                        Constituent                               Non-constituent
Singapore                   FTSE ST All-Share Index            Ranked on Full market cap                 0.04% free float shares for 8/12 months       0.05% free float shares for 10/12        Companies with a free float of 15% or
                                                                                                                                                       months.                                  below are excluded from the index
                                                                                                                                                       New listings: 20 trading days
Turkey (Istanbul)           BIST 100                           Ranked on Free float and liquidity        No Minimum                                    New listings: 60 days as of end of the   As per CMB - Capital Markets Board of
                                                               market cap (dual ranked with market                                                     review period                            Turkey, calculated and announced by CRA.
                                                               cap taking precedence)                                                                                                           Group A minimum is greater than TL 30
                                                                                                                                                                                                million
                                                                                                                                                                                                Group B minimum is greater than TL 10
                                                                                                                                                                                                million but less than TL 30 million

Russia (Moscow Exchange     MOEX Russia Index (previously      Ranked on free float market cap           10% for exclusion                             15% for inclusion                        Its Free Float Factor is at least 10%; if it
MICEX-RTS)                  MICEX INDEX)                                                                 (Annual trading volume/free float             (Annual trading volume/free float        falls to below 5% it will be excluded
                            Calculated in RUB                                                            market cap)                                   market cap)
Russia (Moscow Exchange     RTS Index (same as above, but      Ranked on free float market cap           10% for exclusion                             15% for inclusion                        Its Free Float Factor is at least 10%; if it
MICEX-RTS)                  calculated in USD)                                                           (Annual trading volume/free float             (Annual trading volume/free float        falls to below 5% it will be excluded
                                                                                                         market cap)                                   market cap)
India (Bombay Stock exch)   S&P BSE 500                        Ranked first on liquidity then on total   Annualised traded value > INR 800             Annualised traded value > INR 1          N/A
                                                               market cap                                million                                       billion
                                                                                                         Trading day= 250 days. Stocks to trade        Trading day= 250 days. Stocks to trade
                                                                                                         for at least 80% of trading days              for at least 80% of trading days
Brazil                      Bovespa Index (Ibovespa)           By free float market cap                  The Tradability Ratio cut-off threshold       An eligible stock is required to have    No Minimum
                                                                                                         for a stock to qualify for inclusion is 85%   actively traded in ninety-five percent
                                                                                                                                                       (95%) of the trading sessions
China (Shenzen Stock        SZSE Component Index (not to       1:1:1 ratio of full market cap, free      No Minimum but are monitored by SSI           No Minimum                               No Minimum
Exchange)                   be confused with SZSE              float and liquidity                       (Shenzhen Securities Information Co.,
                            Composite Index which is an                                                  Ltd)
                            index of all listed companies,
                            same ground rules but 500
                            companies)

China (Shanghai Stock       Shanghai Stock Exchange            Ranked on free float (negotiable          No Minimum                                    No Minimum                               25% or 10% if share capital is more than
Exchange)                   Composite Index (very volatile)    shares ratio) and inclusion factor                                                                                               RMB 400 million
                            There is SSE 180 which is a
                            continuation of SSE30, this
                            selects the top 180 constituents
                            by full market cap, negotiable
                            market cap ratio, trading values
                            and turnover ratio
Australia                   All Ordinaries Index (XAO)         Ranked on net market cap (free float -    AOX = no minimum                              AOX = no minimum                         No Minimum
                                                               shares held by public)                                                                  S&P/ASX 300 = 30%
                                                                                                                                                       Relative liquidity = Stock Median
                                                                                                                                                       Liquidity / Market Liquidity
Australia                   S&P/ASX 200                        Ranked on IWF market cap and              S&P/ASX 200 = 0.025%                          S&P/ASX 200 = 0.025%                     Minimum of 30%
                                                               liquidity

         Page 16 of 18
         Country         Index                     Capping                                Foreign companies                                           Unique characteristics
Singapore                FTSE ST All-Share Index   No capping                             Foreign ownership restrictions will not be applied to the   Liquidity may be adjusted by up to 0.01% at a review to better reflect liquid
                                                                                          constituents of the FTSE ST Index Series.                   market of Singapore
                                                                                                                                                      Universe is 98% of SGX Mainboard
                                                                                                                                                      Fast entry market cap is Set in March and September. June and December, it is
                                                                                                                                                      adjusted up to cut date.
                                                                                                                                                      Fast Entry: full market cap of smallest company that falls within the top 68% of
                                                                                                                                                      the universe
Turkey (Istanbul)        BIST 100                  There is the BIST 100 Capped version   Currently, there is only one dual listed company, namely    Only one class of share can be included in the indices. Includes shares of BIST
                                                   capped at 10%                          DO&CO Aktiengesellschaft.                                   Main and BIST All Stars indices, shares in List A or List B.

Russia (Moscow           MOEX Russia Index         15% per individual stock, 55% for 5    An additional weighting factor (Lwi) is applied depending   Stocks need a minimum index weight of 0.25% for inclusion, if that weight falls to
Exchange MICEX-RTS)      (previously MICEX         stocks                                 on a stock's liquidity factor (LCi)                         below 0.2% it will be excluded.
                         INDEX)                                                           LCi               LWi
                         Calculated in RUB                                                <1.25%            0
                                                                                          1.25%-2.50% 0.12
                                                                                          2.5%-5%           0.25
                                                                                          5%-10%            0.5
                                                                                          ?10%              1

Russia (Moscow           RTS Index (same as        15% per individual stock, 55% for 5    An additional weighting factor (Lwi) is applied depending   Stocks need a minimum index weight of 0.25% for inclusion, if that weight falls to
Exchange MICEX-RTS)      above but calculated in   stocks                                 on a stock's liquidity factor (LCi)                         below 0.2% it will be excluded.
                         USD)                                                             LCi                LWi
                                                                                          <1.25%             0
                                                                                          1.25%-2.50%         0.12
                                                                                          2.5%-5%             0.25
                                                                                          5%-10%              0.5
                                                                                          ?10%                1

India (Bombay Stock      S&P BSE 500               No capping                             Foreign investment limits are not applied while             Selected on average daily total market cap, annualised traded value and trading
exch)                                                                                     calculating the IWF for S&P BSE index constituents.         frequency.
                                                                                                                                                      Top 400 are selected then buffer is 401 - 600
                                                                                                                                                      In most cases, Investable Weight Factors (IWFs) are reported to the nearest one
                                                                                                                                                      percentage point
                                                                                                                                                      IWF: Minimum control of 5% except India
                                                                                                                                                      Universe is 93% of BSE Mainboard
                                                                                                                                                      Fast entry of large companies - IPO must be among the top 10 companies, based
                                                                                                                                                      on a respective index’s construction ranking criteria. 5 days’ notice will be given
                                                                                                                                                      and the smallest company will be removed


Brazil                   Bovespa Index             No capping                             Not mentioned in Concepts and Practices Manual              Penny stocks excluded (shares with average weighted price of less than R$1 - one
                         (Ibovespa)                                                                                                                   Brazilian real)
                                                                                                                                                      Liquidity represents about 80% of market liquidity
                                                                                                                                                      Market Cap represents about 70% of all listed companies




         Page 17 of 18
       Country          Index                       Capping                             Foreign companies                                         Unique characteristics
China (Shenzen Stock    SZSE Component Index        The SZSE Component Index Series     The Shanghai and Shenzhen exchanges do not however        Only for A listed shares
Exchange)               (not to be confused with    don’t implement capping             allow the listing of foreign companies. The HKEX does.    Need to be listed for at least 6 months unless total and free float market cap
                        SZSE Composite Index        methodology.                                                                                  comprehensively is within top 10 of all listed stocks.
                        which is an index of all                                                                                                  Represents about 60% of the available market capitalization of Shenzhen equities
                        listed companies, same                                                                                                    Fast entry: If a newly eligible or new company's daily average total market cap
                        ground rules but 500                                                                                                      and free float market cap is within top 10 in the market for the first 5 days, it will
                        companies)                                                                                                                be added and the smallest company deleted.
                                                                                                                                                  Constituents can be removed between reviews due to corporate actions,
                                                                                                                                                  suspensions, termination or if SSI feels it is no longer a viable constituent



China (Shanghai Stock   Shanghai Stock              No capping                          The Shanghai and Shenzhen exchanges do not however        Tracks all listed A and B shares.
Exchange)               Exchange Composite                                              allow the listing of foreign companies. The HKEX does.    Minimum market cap: total share capital of more than RMB (renminbi) 50 million.
                        Index (very volatile)
                        There is SSE 180 which
                        is a continuation of
                        SSE30, this selects the
                        top 180 constituents by
                        full market cap,
                        negotiable market cap
                        ratio, trading values and
                        turnover ratio
Australia               All Ordinaries Index        No capping                          IWF is based on total securities held on the Australian   Market capitalisation is the only eligibility requirement of constituents, as liquidity
                        (XAO)                                                           register                                                  is not considered, with the exception of foreign domiciled companies.

Australia               S&P/ASX 200                                               15%   IWF is based on total securities held on the Australian   Fast entry: 8 weeks trading volume and only if a vacancy exists due to deletion
                                                                                        register




       Page 18 of 18

Date: 14/12/2018 05:50:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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