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Informative Notice – 20221031 FTSE_JSE Index Harmonisation Market Proposal
To: Market Participants
From: FTSE/JSE Index Team
Date: 23 September 2022
Subject: FTSE/JSE Index Harmonisation Market Proposal
1. Introduction
The observed evolution of the FTSE/JSE benchmark indices has sparked conversation around a view into the
harmonisation of the methodology for their construction. FTSE/JSE believes that a harmonisation of the existing
benchmark index design, in collaboration with market participants, will ensure that the FTSE/JSE Africa Index
Series methodology is aligned with evolving market requirements and continues to be relevant on a forward-
looking basis. The aim of this paper is to present an implementation proposal to the broader market that sets out
the steps, as well as the timelines, that could be followed to harmonise the market indices, and therefore to enable
market participants to provide meaningful feedback.
2. Roadmap
The purpose of Index Harmonisation is two-fold. The first is to have one broad-based market capitalisation
weighted index methodology that treats all companies consistently and appropriately, particularly with regards to
the calculation of free float. The second is to reduce the number of closely similar or overlapping indices in the
series and, if necessary, to introduce new specialist and differentiated indices that are aligned with market
demand. FTSE/JSE anticipates that this project will follow the steps and timelines set out below:
This proposal means that from March 2024, FTSE/JSE will no longer offer any indices with a SWIX label, and all
benchmark indices will use the historic SWIX weighting methodology. Effective June 2023, the vanilla1 indices will
switch to the SWIX Methodology to determine free float and index weight. All indices that currently have two
variants – a Vanilla and SWIX one will harmonise into a single variant that retains the vanilla index code and name,
but references the SWIX methodology.
1
Vanilla means the existing All Share (J203), Top 40 (J200), SA Sector and ICB Indices as well as their capped variants.
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Note that the Responsible Investment and Property indices introduced in 2015 and 2017 respectively will not be
impacted as these indices do not have an equivalent vanilla version – they have always been based on the SWIX
Methodology.
For further clarity, a Capped All Share (J303) and Capped SWIX All Share (J433) Index example will be used. All
clients making use of the Capped All Share Index (J303) will be affected through a methodology change to SWIX
weightings. No changes will be made to the J433 until March 2024 when the SWIX Indices will be decommissioned.
A full list of the indices that would be decommissioned as part of this proposal can be found in Appendix 1 with
the full list of EOD products found in Appendix 2.
3. Rationale for Harmonising
Prior to 25 October 2011, Inward Foreign Listings (IFL) were not eligible for FTSE/JSE index inclusion. This was
because a trade in such a company counted toward an investor’s foreign portfolio allowance in South Africa. After
October 2011, all Inward Listed equities on the JSE traded and settled in Rands (ZAR), were reclassified as domestic
for the purpose of trading on the JSE and its indices. Although these IFL’s were now eligible for inclusion to the
FTSE/JSE indices, they were only included on the condition that their index free float could not exceed the
proportion of their shares held on the South African share register. In other words, they were eligible for inclusion
to the vanilla indices, but only using their SWIX free float. This is still the case today, and the rules covers companies
like British American Tobacco, Anheuser Busch InBev, Glencore, Prosus and others.
When this Inward Listing rule was introduced in 2011, it was agreed that a small number of companies that were
already index constituents would be “Grandfathered” and excluded from the treatment. Therefore some,
seemingly, foreign companies are not deemed as Inward Listings on the JSE for the purposes of free float
determination. Examples of these included Anglo American, BHP Billiton, Reinet, Mondi and Richemont. These
companies, even after 2011, continued to be treated as local for all index purposes, and therefore has a different
free float in the vanilla indices compared to the SWIX indices
In 2004, FTSE/JSE launched the SWIX All Share Index. The SWIX Methodology introduced a free float calculation
based on the minimum between the portion of shares held on the local South African register and the free float
calculated using publicly available information such as annual reports and SENS announcements. For all local
companies and IFL’s listed after October 2011, the free float in the All Share Index (J203) as well as the SWIX All
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Share (J403) was identical. The exception however was with the “Grandfathered” companies as detailed above
where in the J203, the free float is based on the company breakdown and in the J403, this is based on the Strate
Register.
Over the years, the JSE has observed a decline in the number of “Grandfathered” companies in the All Share Index,
with the latest example being BHP Billiton as a result of the unification corporate action. The challenge faced now
is that there are currently two benchmark indices, whose constituent weights have converged over time, with the
difference in constituent weights mainly due to the remaining “Grandfathered” companies.
The table below shows the latest list of companies that are still classified as “Grandfathered”:
Alpha ISIN Instrument J203 FF J403 FF Reason
AGL GB00B1XZS820 Anglo American 90.9% 30.7% Grandfathered
CFR CH0045159024 Compagnie Financiere Richemont AG 97.8% 13.5% Grandfathered
INP GB00B17BBQ50 Investec Plc 95.1% 51.4% Grandfathered
MNP GB00B1CRLC47 Mondi Plc 99.8% 37.7% Grandfathered
Table 1: List of “Grandfathered” companies in the FTSE/JSE Indices
The treatment for grandfathered companies is not consistent with the index treatment for other foreign
companies, and in short these companies are inappropriately upweighted relative to comparable companies. The
table below shows the ten largest differences in weightings between the Top 40 and SWIX 40 indices, due largely
to the impact of these grandfathered companies:
Alpha Instrument Free Float SWIX FF Top 40 Weight SWIX 40 Weight
CFR Compagnie Financiere Richemont AG 97.8% 13.5% 15.95% 2.92%
Weight
AGL Anglo American 90.9% 30.7% 11.47% 5.15%
NPN Naspers 48.7% 48.7% 8.42% 11.19%
FSR Firstrand Limited 88.4% 88.4% 5.23% 6.94%
MTN MTN Group 95.5% 95.5% 3.87% 5.14%
PRX Prosus 10.4% 10.4% 3.66% 4.86%
MNP Mondi Plc 99.8% 37.7% 2.39% 1.20%
SBK Standard Bank Group 79.1% 79.1% 3.21% 4.27%
BTI British American Tobacco PLC 10.5% 10.5% 3.02% 4.01%
SOL Sasol 88.6% 88.6% 2.92% 3.87%
Table 2: List of Top 40 and SWIX Top 40 Weights
Another challenge is the duplication of indices, such as the Technology Index (JI0010) and the SWIX Technology
Index (JW0010), where there are no “Grandfathered” constituents, thus the free floats used as well as weights for
each constituent are identical in both indices.
A final challenge is around complexity of messaging. To maintain two parallel sets of indices (including All Share,
Top 40 and sector indices) that have such similar weightings and methodology creates unnecessary complexity in
index selection and provides almost no meaningful diversification between the two indices in return. This
fragments liquidity, and introduces unnecessary complexity in benchmark selection and analysis.
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4. Proposal
In order to address the above-mentioned challenges, FTSE/JSE sought guidance from the market. In December
2018, a Market Consultation was published to solicit feedback on how index users currently use the J203, the J403
as well as their capped versions. A few other questions were asked, including the appropriate notice period that
would be required to allow index users sufficient time to adjust their mandates, in the event that changes are
made to the benchmark indices. Based on the feedback received from market participants, a large number of
respondents were in favour of the SWIX Methodology as the headline index approach. This is also supported by
surveys done by external parties which found that a large number of fund managers use the J403 as a benchmark,
and in particular, the capped version thereof, the capped SWIX ALSI (J433).
4.1 Methodology change for existing Vanilla indices
With this in mind, the JSE proposes a harmonisation of the J203 and J403 indices such that only one benchmark
index exists. In order to harmonise the two indices and have one benchmark index in future, the first step is as
follows:
Step 1: Change the weighting methodology of the “vanilla” core indices to reference a SWIX weight. The Market
Notice for the methodology change will be published in December 2022 in order to give a six-month notice period
for the implementation to coincide with the June 2023 review. Once this is implemented, the vanilla indices such
as the J203 and J200 will have the same free float and constituent weights as the J403 and J400 respectively.
This methodology change will impact the All Share Index and the Top 40 index, and their capped variants. It will
also impact the existing SA Sector Indices, ICB Industry Indices and ICB Sector Indices, and any tradable variants.
The full list of impacted indices is available in Appendix 1.
4.2 Depositary Receipts adjustment
One of the changes that will be made to the SWIX benchmark index is the removal of the Depositary Receipts
adjustments in the SWIX Free Float calculation. Currently, when performing the Quarterly SWIX Free Float Review,
FTSE/JSE excludes all securities deemed not available to the local register. This includes holdings confirmed to
back a listed, sponsored Depositary Receipt (DR) program. The DR data has previously been sourced from a third
party data vendor. However, in 2021, the data vendor advised that in light of certain POPIA provisions which had
come into effect, they were no longer able to provide this data as it was deemed confidential. Several alternative
avenues were explored to source this data, including requesting the data from the companies directly and
contacting the Exchanges that the DR’s are listed in however none were successful, mainly due to the regulatory
requirement to protect client information. Due to the unavailability of accurate data, and the intention to
harmonise the SWIX and vanilla index methodologies, the proposal is to no longer exclude DR data in the SWIX
Free Float calculation.
4.3 Decommissioning of SWIX Indices
The final step is to decommission all the SWIX Indices. The proposed implementation date is with the March 2024
Review and FTSE/JSE intends to publish the decommission notice in December 2022 thereby giving the market at
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least a one-year notice period. A confirmatory Decommission Notice will be published in September 2023. All
associated EOD products, real-time calculations and tracking mandates will no longer be available to clients with
effect from March 2024.
4.4 Shift to a multi-cap environment
To ensure that capping levels are more precisely aligned with client requirements, FTSE/JSE will shift away from
the current default level approach of 12% for non-property indices. This will see the introduction of a lower
capping level and a higher capping level available to capped index subscribers, since the level of 12% is not optimal
for either preference.
During the first quarter of 2023, FTSE/JSE will launch a 15% capped version of the SWIX All Share Index and of the
SWIX Top 40 Index as new indices in order to meet demand from clients that prefer a higher cap.
There are currently five indices that are subject to the 12% capping level. This will shift to a 10% capping level at
the June 2023 review and also follow the methodology harmonisation approach referenced above.
Alpha Instrument June 2023 March 2024
J141 FTSE/JSE Capped Shariah Top 40 Implement SWIX Free Float and cap at 10%
J300 FTSE/JSE Capped Top 40 Implement SWIX Free Float and cap at 10%
J303 FTSE/JSE Capped All Share Implement SWIX Free Float and cap at 10%
J430 FTSE/JSE Capped Shareholder Weighted Top 40 Index Cap at 10% Decommission
J433 FTSE/JSE Capped Shareholder Weighted All Share Index Cap at 10% Decommission
Table 3: List of FTSE/JSE Indices to have capping level changes
4.5 Introduction of new specialist Indices
Market consultation has confirmed that there is some demand for more specialist market indices that deviate
from the broadly used SWIX methodology. Two approaches have emerged that appear to have support from
several market participants:
? The Global Investor Index is based on the principle that all dual listed shares are fungible and therefore
a down-weighting based on local register holdings is inappropriate. The approach makes no adjustment
for the Strate register and weights all dual listed companies on their global free float.
? The SA Investor Index is based on the concern that foreign holdings are excluded for dual listed
companies but included for domestic-only companies, resulting in domestic companies being overweight
relative to their dual listed peers. The approach excludes foreign holdings for all constituents regardless
of register. In addition to the consistency, it is also a better match to the “typical” South African portfolio
and therefore has parallels to a peer-based approach
Both variants will be introduced as specialist indices rather than broad country benchmarks and will be released
with a weighting cap and a fixed number of constituents.
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5. Next Steps
The implementation plan above, including any indicative dates, is presented as a proposal and all market
participants are invited to comment before a final approach can be agreed. Following the publication of this note,
the FTSE/JSE would like to meet with any interested index client or other market participant to work through the
detail of the proposal, provide any required supporting information, or discuss alternative approaches. Should it
be necessary to perform a more structured polling process after these engagements to tackle specific preferences,
a targeted questionnaire will be used to solicit this feedback.
The FTSE/JSE team will engage directly with a selection of existing index clients to invite discussion on the topic.
However, any interested party is invited to request a meeting in this regard, or to provide any written submission
by e-mail on or before 31 October 2022 to indices@jse.co.za.
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*Appendix 1: List of Indices to be decommissioned
Index Code Index Name Proposal
J400 Shareholder Weighted Top 40 Decommission
J403 Shareholder Weighted All Share Decommission
J430 Capped Shareholder Weighted Top 40 Index Decommission
J433 Capped Shareholder Weighted All Share Index Decommission
JN43 Shareholder Weighted All Share Net TRI Decommission
JN430 Capped Shareholder Weighted Top 40 Net TRI Decommission
JN433 Capped Shareholder Weighted All Share Net TRI Decommission
JNX4 SWIX 40 Net TRI Decommission
JSZ0 SWIX Resource 10 Decommission
JSZ1 SWIX Industrial 25 Decommission
JSZ2 SWIX Financial 15 Decommission
JSZ3 SWIX Financial and Industrial 30 Decommission
JSZ4 SWIX SA Resources Decommission
JSZ5 SWIX SA Industrials Decommission
JSZ6 SWIX SA Financials Decommission
JSZ7 SWIX SA Financials and Industrials Decommission
JW0010 SWIX Technology Decommission
JW0015 SWIX Telecommunications Decommission
JW0020 SWIX Health Care Decommission
JW0030 SWIX Financials Decommission
JW0035 SWIX Real Estate Decommission
JW0040 SWIX Consumer Discretionary Decommission
JW0045 SWIX Consumer Staples Decommission
JW0050 SWIX Industrials Decommission
JW0055 SWIX Basic Materials Decommission
JW0060 SWIX Energy Decommission
JW0065 SWIX Utilities Decommission
JX1011 SWIX Software and Computer Services Decommission
JX1012 SWIX Technology Hardware and Equipment Decommission
JX1511 SWIX Telecommunications Equipment Decommission
JX1512 SWIX Telecommunications Service Providers Decommission
JX2011 SWIX Health Care Providers Decommission
JX2012 SWIX Medical Equipment and Services Decommission
JX2013 SWIX Pharmaceuticals and Biotechnology Decommission
JX3011 SWIX Banks Decommission
JX3021 SWIX Finance and Credit Services Decommission
JX3022 SWIX Investment Banking and Brokerage Services Decommission
JX3023 SWIX Mortgage Real Estate Investment Trusts Decommission
JX3024 SWIX Closed End Investments Decommission
JX3031 SWIX Life Insurance Decommission
JX3032 SWIX Non-life Insurance Decommission
JX3511 SWIX Real Estate Investment and Services Decommission
JX3512 SWIX Real Estate Investment Trusts Decommission
JX4011 SWIX Automobiles and Parts Decommission
JX4021 SWIX Consumer Services Decommission
JX4022 SWIX Household Goods and Home Construction Decommission
JX4023 SWIX Leisure Goods Decommission
JX4024 SWIX Personal Goods Decommission
JX4031 SWIX Media Decommission
JX4041 SWIX Retailers Decommission
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Index Code Index Name Proposal
JX4051 SWIX Travel and Leisure Decommission
JX4511 SWIX Beverages Decommission
JX4512 SWIX Food Producers Decommission
JX4513 SWIX Tobacco Decommission
JX4521 SWIX Personal Care, Drug and Grocery Stores Decommission
JX5011 SWIX Construction and Materials Decommission
JX5021 SWIX Aerospace and Defense Decommission
JX5022 SWIX Electronic and Electrical Equipment Decommission
JX5023 SWIX General Industrials Decommission
JX5024 SWIX Industrial Engineering Decommission
JX5025 SWIX Industrial Support Services Decommission
JX5026 SWIX Industrial Transportation Decommission
JX5511 SWIX Industrial Materials Decommission
JX5512 SWIX Industrial Metals and Mining Decommission
JX5513 SWIX Precious Metals and Mining Decommission
JX5521 SWIX Chemicals Decommission
JX6011 SWIX Oil, Gas and Coal Decommission
JX6012 SWIX Alternative Energy Decommission
JX6511 SWIX Electricity Decommission
JX6512 SWIX Gas, Water and Multi-utilities Decommission
JX6513 SWIX Waste and Disposal Services Decommission
Table 4: List of Indices to be decommissioned
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*Appendix 2: List of affected Index products
Index Index Name Tracker 5dayTracker OpenConstituent Constituent IndicReview Valuation
J400
Code SWIX Top 40 jstd js3f js3o js3c js3r js3v
J403 SWIX All Share jstd js4f js4o js4c js4r js4v
JN43 SWIX All Share Net TRI yobht js4f js4o js4c js4r js4v
J430 Capped SWIX Top 40 Index js3ct js3cf js3co js3cc js3cr js3cv
J433 Capped SWIX All Share Index js4ct js4cf js4co js4cc js4cr js4cv
JN430 Capped SWIX Top 40 Net TRI js3cnt
JN433 Capped SWIX All Share Net TRI js4cnt
JNX4 SWIX 40 Net TRI yobit js3v
JSZ0 SWIX Resource 10 js6t js6f js6o js6c js6r js6v
JSZ1 SWIX Industrial 25 js6t js6f js6o js6c js6r js6v
JSZ2 SWIX Financial 15 js6t js6f js6o js6c js6r js6v
JSZ3 SWIX Financial and Industrial 30 js6t js6f js6o js6c js6r js6v
JSZ4 SWIX SA Resources js6t js6f js6o js6c js6r js6v
JSZ5 SWIX SA Industrials js6t js6f js6o js6c js6r js6v
JSZ6 SWIX SA Financials js6t js6f js6o js6c js6r js6v
JSZ7 SWIX SA Financials and Industrials js6t js6f js6o js6c js6r js6v
JW0010 SWIX Technology js6t js6f js6o js6c js6r js6v
JW0015 SWIX Telecommunications js6t js6f js6o js6c js6r js6v
JW0020 SWIX Health Care js6t js6f js6o js6c js6r js6v
JW0030 SWIX Financials js6t js6f js6o js6c js6r js6v
JW0035 SWIX Real Estate js6t js6f js6o js6c js6r js6v
JW0040 SWIX Consumer Discretionary js6t js6f js6o js6c js6r js6v
JW0045 SWIX Consumer Staples js6t js6f js6o js6c js6r js6v
JW0050 SWIX Industrials js6t js6f js6o js6c js6r js6v
JW0055 SWIX Basic Materials js6t js6f js6o js6c js6r js6v
JW0060 SWIX Energy js6t js6f js6o js6c js6r js6v
JW0065 SWIX Utilities js6t js6f js6o js6c js6r js6v
JX1011 SWIX Software and Computer js6t js6f js6o js6c js6r js6v
Services
JX1012 SWIX Technology Hardware and js6t js6f js6o js6c js6r js6v
Equipment
JX1511 SWIX Telecommunications js6t js6f js6o js6c js6r js6v
Equipment
JX1512 SWIX Telecommunications Service js6t js6f js6o js6c js6r js6v
Providers
JX2011 SWIX Health Care Providers js6t js6f js6o js6c js6r js6v
JX2012 SWIX Medical Equipment and js6t js6f js6o js6c js6r js6v
Services
JX2013 SWIX Pharmaceuticals and js6t js6f js6o js6c js6r js6v
Biotechnology
JX3011 SWIX Banks js6t js6f js6o js6c js6r js6v
JX3021 SWIX Finance and Credit Services js6t js6f js6o js6c js6r js6v
JX3022 SWIX Investment Banking and js6t js6f js6o js6c js6r js6v
Brokerage Services
JX3023 SWIX Mortgage Real Estate js6t js6f js6o js6c js6r js6v
Investment Trusts
JX3024 SWIX Closed End Investments js6t js6f js6o js6c js6r js6v
JX3031 SWIX Life Insurance js6t js6f js6o js6c js6r js6v
JX3032 SWIX Non-life Insurance js6t js6f js6o js6c js6r js6v
JX3511 SWIX Real Estate Investment and js6t js6f js6o js6c js6r js6v
Services
JX3512 SWIX Real Estate Investment Trusts js6t js6f js6o js6c js6r js6v
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Index Index Name Tracker 5dayTracker OpenConstituent Constituent IndicReview Valuation
JX4011
Code SWIX Automobiles and Parts js6t js6f js6o js6c js6r js6v
JX4021 SWIX Consumer Services js6t js6f js6o js6c js6r js6v
JX4022 SWIX Household Goods and Home js6t js6f js6o js6c js6r js6v
Construction
JX4023 SWIX Leisure Goods js6t js6f js6o js6c js6r js6v
JX4024 SWIX Personal Goods js6t js6f js6o js6c js6r js6v
JX4031 SWIX Media js6t js6f js6o js6c js6r js6v
JX4041 SWIX Retailers js6t js6f js6o js6c js6r js6v
JX4051 SWIX Travel and Leisure js6t js6f js6o js6c js6r js6v
JX4511 SWIX Beverages js6t js6f js6o js6c js6r js6v
JX4512 SWIX Food Producers js6t js6f js6o js6c js6r js6v
JX4513 SWIX Tobacco js6t js6f js6o js6c js6r js6v
JX4521 SWIX Personal Care, Drug and js6t js6f js6o js6c js6r js6v
Grocery Stores
JX5011 SWIX Construction and Materials js6t js6f js6o js6c js6r js6v
JX5021 SWIX Aerospace and Defense js6t js6f js6o js6c js6r js6v
JX5022 SWIX Electronic and Electrical js6t js6f js6o js6c js6r js6v
Equipment
JX5023 SWIX General Industrials js6t js6f js6o js6c js6r js6v
JX5024 SWIX Industrial Engineering js6t js6f js6o js6c js6r js6v
JX5025 SWIX Industrial Support Services js6t js6f js6o js6c js6r js6v
JX5026 SWIX Industrial Transportation js6t js6f js6o js6c js6r js6v
JX5511 SWIX Industrial Materials js6t js6f js6o js6c js6r js6v
JX5512 SWIX Industrial Metals and Mining js6t js6f js6o js6c js6r js6v
JX5513 SWIX Precious Metals and Mining js6t js6f js6o js6c js6r js6v
JX5521 SWIX Chemicals js6t js6f js6o js6c js6r js6v
JX6011 SWIX Oil, Gas and Coal js6t js6f js6o js6c js6r js6v
JX6012 SWIX Alternative Energy js6t js6f js6o js6c js6r js6v
JX6511 SWIX Electricity js6t js6f js6o js6c js6r js6v
JX6512 SWIX Gas, Water and Multi-utilities js6t js6f js6o js6c js6r js6v
JX6513 SWIX Waste and Disposal Services js6t js6f js6o js6c js6r js6v
Table 5: List of EOD products to be discontinued
*Both Appendices are indicative and subject to formal notification
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Date: 23-09-2022 05:45:00
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