NZSE delays introduction of new indices

By NZPA

Wednesday 18th December 2002

The Stock Exchange has delayed the introduction of its proposed new indices to February from the earlier proposed date of December 31.

The exchange acknowledged after having received "a significant amount of feedback", the new indices and how stocks are weighted within them need further tweaking.

The exchange plans to abandon its NZSE-40 and NZSE-30 capital indexes, replacing them with a free-float-based and expanded NZSE-50 index.

It plans to also present its main indices in gross rather than capital terms. Gross indices include dividends and, in a country where companies regularly make healthy returns to shareholders, are aimed at making the indices more attractive overseas.

Under the current proposal, a number of companies have been identified with the requisite free float allocation but with low "investibility" due to infrequent trading. This is mainly due to major strategic stakeholdings.

"As a consequence, we will be reviewing the parameters for our liquidity criteria further," NZSE market & relationships manager Geoff Brown said.

He said there may be adjustments needed to the free-float proposal to create flexibility for certain companies which have sufficient liquidity, but which don't quite reach the proposed $1 billion free float.

"Considerable deliberation is still needed to resolve these important market concerns. The NZSE also recognises the disruption that might be created for brokers and major institutions at the end of the quarter, when the rebalancing of portfolios may be required, if the new indices are introduced as proposed on December 31".

He said it was not satisfactory to make major changes to the indices over the holiday period when the market was thin.

The exchange would further review the feedback and announce the new composition and rules early in the New Year.

"It is currently the NZSE's intention to adopt the recalculation policy from February 2003."

Weightings in an index can have a significant impact on a stock's price. Passive and many other funds simply buy stocks in a portfolio according to their weighting in the index.

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