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  • www.msci.com

    MSCI Global Investable Market Indices Methodology

    Index Construction Objectives, Guiding Principles and Methodology for the MSCI Global Investable Market Indices

    November 2010

  • MSCI Global Investable Market Indices Methodology | November 2010

    MSCI Index Research 2010 MSCI. All rights reserved. 2 of 118 Please refer to the disclaimer at the end of this document.

    Table of Contents Outline of the Methodology Book ......................................................................................................... 5 Section 1: Introduction to the MSCI Global Investable Market Indices ............................................... 6 Section 2: Constructing the MSCI Global Investable Market Indices................................................... 8 2.1 DEFINING THE EQUITY UNIVERSE .................................................................................................................... 8

    2.1.1 Identifying Eligible Equity Securities ............................................................................................................ 8 2.1.2 Country Classification of Eligible Securities .................................................................................................. 8

    2.2 DETERMINING THE MARKET INVESTABLE EQUITY UNIVERSES ........................................................................ 9 2.2.1 Equity Universe Minimum Size Requirement ............................................................................................... 9 2.2.2 Equity Universe Minimum Float-Adjusted Market Capitalization Requirement ......................................... 10 2.2.3 DM and EM Minimum Liquidity Requirement ............................................................................................ 10 2.2.4 Global Minimum Foreign Inclusion Factor Requirement ............................................................................ 12 2.2.5 Minimum Length of Trading Requirement .................................................................................................. 12

    2.3 DEFINING MARKET CAPITALIZATION SIZE-SEGMENTS FOR EACH MARKET .................................................... 13 2.3.1 Defining the Market Coverage Target Range for Each Size-Segment .......................................................... 14 2.3.2 Determining the Global Minimum Size Range for Each Size-Segment ....................................................... 15

    2.3.2.1 Defining the Global Minimum Size Reference................................................................................................................................. 15 2.3.3 Determining the Segment Number of Companies and Associated Market Size-Segment Cutoffs............... 16 2.3.4 Assigning Companies to the Size-Segments ................................................................................................. 17 2.3.5 Applying Final Size-Segment Investability Requirements and Index Continuity Rules ............................... 18

    2.3.5.1 Minimum Free Float Market Capitalization Requirement .............................................................................................................. 18 2.3.5.2 Minimum Liquidity Requirement for the Standard Indices ............................................................................................................ 19 2.3.5.3 Minimum Foreign Room Requirement for the Standard Indices .................................................................................................. 19

    2.4 INDEX CONTINUITY RULES FOR THE STANDARD INDICES ............................................................................... 20 2.5 CREATING STYLE INDICES WITHIN EACH SIZE-SEGMENT ............................................................................... 20 2.6 CLASSIFYING SECURITIES UNDER THE GLOBAL INDUSTRY CLASSIFICATION STANDARD ................................. 21 2.7 CREATING SIZE-SEGMENT INDICES: EXAMPLES .............................................................................................. 22

    2.7.1 Determining Market Size-Segment Cutoffs and Assigning Companies to the Size-Segments ..................... 22 Section 3: Maintaining the MSCI Global Investable Market Indices .................................................. 25 3.1 SEMI-ANNUAL INDEX REVIEWS IN MAY AND NOVEMBER ................................................................................ 25

    3.1.1 Updating the Equity Universe ....................................................................................................................... 26 3.1.2 Updating the Market Investable Equity Universes ....................................................................................... 26

    3.1.2.1 Updating the Equity Universe Minimum Size Requirement .......................................................................................................... 26 3.1.2.2 Updating the Equity Universe Minimum Free FloatAdjusted Market Capitalization .............................................................. 27 3.1.2.3 Minimum Liquidity Requirement for Existing Constituents .......................................................................................................... 27 3.1.2.4 Global Minimum Foreign Inclusion Factor Requirement .............................................................................................................. 28

    3.1.3 Recalculating the Global Minimum Size References and Global Minimum Size Ranges ............................ 28 3.1.4 Reassessing the Segment Number of Companies and the Market Size-Segment Cutoffs ............................ 28

    3.1.4.1 Determining Initial Segment Number of Companies ...................................................................................................................... 28 3.1.4.2 Changes in the Segment Number of Companies ............................................................................................................................. 29

    3.1.5 Assigning Companies to Appropriate Size-Segments ................................................................................... 31 3.1.5.1 Using Buffer Zones to Manage the Migration of Companies between Size-Segment Indices ................................................. 31

    3.1.6 Assessing Conformity with Final Size-Segment Investability Requirements ................................................ 32 3.1.6.1 For New Constituents .......................................................................................................................................................................... 32 3.1.6.2 For Existing Constituents .................................................................................................................................................................... 33

    3.1.7 Semi-Annual Index Review of Changes in Foreign Inclusion Factors (FIFs) .............................................. 34 3.1.8 Semi-Annual Index Review of Changes in Number of Shares (NOS) .......................................................... 34 3.1.9 Date of Data Used for Semi-Annual Index Review ....................................................................................... 34

    3.2 QUARTERLY INDEX REVIEWS IN FEBRUARY AND AUGUST ............................................................................... 35 3.2.1 Quarterly Index Review of Size-Segment Migrations ................................................................................... 35

    3.2.1.1 Updating the Global Minimum Size References and Global Minimum Size Ranges ................................................................. 35 3.2.1.2 Reassessing the Market Size-Segment Cutoffs ................................................................................................................................. 35 3.2.1.3 Assigning Companies to the Size-Segment Indices ......................................................................................................................... 35 3.2.1.4 Assessing Conformity with Final Size-Segment Investability Requirements ............................................................................... 36

  • MSCI Global Investable Market Indices Methodology | November 2010

    MSCI Index Research 2010 MSCI. All rights reserved. 3 of 118 Please refer to the disclaimer at the end of this document.

    3.2.2 Quarterly Index Review of Addition of Companies Currently not Constituents of the Investable Market Indices ........................................................................................................................................................... 37

    3.2.3 Quarterly Index Review of Changes in FIFs ................................................................................................. 38 3.2.4 Quarterly Index Review of Changes in Number of Shares (NOS) ................................................................ 38 3.2.5 Date of Data Used for Quarterly Index Review: .................................................................................................. 39

    3.3 ONGOING EVENT-RELATED CHANGES ............................................................................................................ 39 3.3.1 Determining the Interim Market Size-Segment Cutoffs for Daily Maintenance ........................................... 40 3.3.2 Updating the Segment Number of Companies ............................................................................................. 40 3.3.3 Corporate Events Affecting Existing Index Constituents ............................................................................. 41

    3.3.3.1 Changes in FIF, Number of Shares or Industry Classification for Existing Constituents ............................................

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