Calculating Shares' Weights in the Index
A share's weight is calculated on each trading day and expresses the ratio between a share's free float value to the total free float value of the constituents comprising the index.
Free float value for the purposes of calculating a share's weight in the indices, is calculated in a manner customized to the needs of investment management.
A share's weight is the product of multiplying the following four parameters:
- Base price of the share
- IANS (Index Adjusted Number of Shares) - capital listed for trading, fixed once a month
- Free Float Rate bracket
- Weight Limit Factor
Out of four parameters that affect the calculation of a share's weight in the index, only one is a dynamic parameter (the Base price of the share, which changes daily and intraday). All other parameters (IANS, Free Float Rate bracket and Weight Limitation Factor) remain constant and are updated on a monthly basis only, at the monthly parameters update date.
Monthly Parameters Update Date
The three fixed parameters are updated at the end of the trading session on the first Thursday each month. If no trading takes place in Tel Aviv or New-York at that time, the update date is postponed to the first date on which trading takes place in Tel-Aviv and New-York.
The fixed parameters are set according to the share's data on the record date, three weeks prior to the update date and are published on TASE website two weeks before the update.
The fixed parameters for calculating a share's weight in the index
IANS – Index Adjusted Number of Shares
A share's IANS is capital listed for trading on the fixed parameters update record date and becomes effective on the fixed parameters update date.
Out of the ordinary IANS updates will only be allowed in special cases where the required update is due to a corporate action event such as reverse stock split, rights subscription, spin-off etc.
Free Float Rate Brackets
Free Float rate brackets are determined by the Free Float rate on the parameters update record date and become effective on the update date. Shares traded on TASE are classified in eight classes (brackets) based on their Free Float rate.
The following table outlines the classes and rules for entry and exit into a Free Float class:
Free Float Rate Range
Index adjusted Free Float Rate
Lower than 20%
For example, a share's weight in the index, whose Free Float rate was 29% on the fixed parameters update record date, will be calculated based on 25% starting the next index update date.
Weight Limit Factor
Weight Limit Factor is a mechanism that adjusts the weight of the most highly capitalized shares in an index to the weight cap set for the index. In order to reduce dependency on a limited number of large shares, each index has a different weight limit, based on market conditions.
How is the Weight Limitation Factor determined?
The factor is calculated based on a share's data on the monthly parameters update record date and it becomes effective on the monthly update date.
- If a share's weight exceeds the weight limit of the index – the factor will be less than 1. The factor reduces the Free Float value of a share until it reaches the maximum weight.
- If a share's weight is less than the weight limit set in the index than the factor will equal 1 because there is no need to reduce the weight. The weight of most shares in the indices are less than the weight cap and, therefore, most shares' factor will equal 1.
Why is the weight of a large cap share different from the maximum weight?
The factor is calculated based on a share's data held on the record date, which occurs three weeks prior to the update date. Over the three weeks, share prices fluctuate and therefore largest cap shares might reach the maximum weight cap and a factor less than 1 will apply. In other words:
Large cap shares whose prices increased significantly relative to other constituents in the index - will be higher than the weight cap.
Large cap shares whose prices decreased or increased less relative to other constituents in the index - will be lower than the weight cap.
Special Factor Update
The weight limit factor will be updated under special circumstances during the month, only in special events such a merger/take-over, split, complex rights issue etc.
Some events do not allow tracking managers to track financial instrument performance accurately and create risk exposure. In these cases, the Index Manager or the Index Committee, as applicable, have the authority to reduce the factor of the share to zero, and where applicable, to increase back the original factor of the share in the indices after the corporate action event is considered closed.