By Alexandria Grace C. Magno, Reporter
THE Philippine Stock Exchange (PSE) has overhauled its index management policy, introducing recent liquidity tests, a market capitalization screen, and revised public float rules for corporations in search of inclusion in its benchmark indices starting with the February 2027 rebalancing.
“The changes are a part of the Exchange’s initiatives to be sure that the PSE indices remain aligned with global standards and aware of evolving market needs,” the PSE said in a circular released on Tuesday.
The move updates the Exchange’s policy governing the PSE Index Series, which was last revised in April 2011.
The revised framework changes how corporations qualify for inclusion within the PSE index (PSEi), PSE MidCap Index, PSE Dividend Yield Index, and the exchange’s six sector indices.
Under the brand new policy, only corporations throughout the top 98% of the cumulative total market capitalization of eligible securities may qualify for inclusion within the PSEi, PSE MidCap Index, PSE Dividend Yield Index, and sector indices. Previously, index eligibility didn’t include a separate cumulative market capitalization threshold.
The PSE also overhauled its liquidity screening process by replacing its previous liquidity criterion with two recent measures: the Median Trading Activity Ratio (MTAR) and the Monthly Average Each day Value Turnover (MADV).
Firms in search of inclusion within the PSEi, PSE MidCap Index, and PSE Dividend Yield Index will need to have an MTAR of no less than 15%, while existing index constituents must maintain an MTAR of no less than 10%. They have to also rank among the many top 25% in monthly average every day value traded for no less than nine of the 12 months under review.
For sector indices, corporations will need to have an MTAR of no less than 7% and rank among the many top 50% in monthly average every day value traded for no less than eight of the 12 months under review.
The policy also allows the PSE Management Committee to lower the MTAR threshold or broaden the MADV cutoff if the brand new liquidity requirements lead to too few eligible index constituents.
The revised policy also introduces an exception to the minimum public float requirement. While listed corporations are generally required to keep up a public float of no less than 20% to qualify for index membership, corporations with a market capitalization of no less than P250 billion may qualify with a minimum public float of no less than 15% of outstanding shares, provided they satisfy the opposite eligibility requirements.
The revision also aligns the Exchange’s public float requirement for index inclusion with the Securities and Exchange Commission’s (SEC) tiered minimum public ownership framework for initial public offerings, which allows the biggest listed corporations to keep up a 15% public float as a substitute of the usual 20%.
BDO Securities Corp. said its latest simulation under the revised methodology points to changes within the composition of the benchmark PSEi.
“Based on our latest simulation under the brand new rules, Aboitiz Power Corp. (AP) and Synergy Grid & Development Phils., Inc. (SGP) are likely inclusions, while China Banking Corp. (CBC) and DigiPlus Interactive Corp. (PLUS) are likely deletions,” it said in a research note on Tuesday.
Ahead of the PSE’s announcement, COL Financial Group, Inc. said during a briefing on Monday that the August index rebalancing appeared largely set, while the consequence of the February 2027 review would depend upon whether the Exchange revised its index methodology.
The brokerage had also outlined a scenario under which the PSE would lower the minimum public float requirement and implement a brand new liquidity criterion. Under that scenario, SGP and AP were seen as potential additions to the benchmark index, while CBC and PLUS were seen as potential deletions.
For final selection, corporations that pass the applicable eligibility requirements are ranked by full market capitalization. The 30 largest corporations qualify for the PSEi, while the 20 largest corporations outside the PSEi qualify for the PSE MidCap Index. Firms eligible for the PSE Dividend Yield Index are ranked based on their three-year average dividend yield, with the highest 20 chosen.
The PSEi measures changes within the free float-adjusted market capitalization of the 30 largest and most actively traded common stocks listed on the exchange. The PSE MidCap Index tracks 20 high-liquidity corporations outside the PSEi, while the PSE Dividend Yield Index measures the performance of the 20 corporations with the very best three-year average dividend yields.