Change in free float calculation for FTSE ST Indexes

SINGAPORE - Some technical tweaks have been made to the way stock market indexes such as the widely watched blue-chip Straits Times Index are calculated.

The changes, which involve a more accurate way to reflect the free float for each company on the indexes, were made to the FTSE ST index series in a review last month. The free float is the percentage of stock not held by controlling shareholders - and available for the public to trade.

About 600 Singapore-listed counters are on the index series, owned by FTSE Group, the Singapore Exchange and Singapore Press Holdings. Many counters appear on more than one index, as there are indexes for specific industries and market segments.

All counters are affected by the changes. Previously, a company's free float was grouped into bands. Firms with free floats from 15 to 20 per cent were counted as having a 20 per cent float, those from 20 to 30 per cent as having a 30 per cent float, and so on. There were bands for 20 per cent, 30 per cent, 40 per cent, 50 per cent, 75 per cent and 100 per cent. Firms with free floats below 15 per cent are not eligible for the indexes.

Buffers were put around these bands to prevent unnecessary changes to the indexes from small share purchases or sales by the main shareholder, for instance.

A company's free float had to change by a certain percentage before it could move on to the next higher or lower band.

"An undesired (effect) of the bands was that a relatively small change in free float could sometimes result in a change in the effective weight from 50 per cent to 75 per cent (when a firm moves from one band to the next) or from 75 per cent to 100 per cent," said FTSE in a note.

Now, the actual free float (rounded up to the nearest percentage point) will be used. There is a buffer so a company's free float has to change by a certain amount before the percentage is changed. The more accurate free float calculation will affect the weights of companies on the indexes. These are assigned according to a firm's shares in issue, free float percentage and share price.

Investors will see little difference, though the impact of some counters on index movements may be slightly smaller or bigger.

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