Corporate actions and events guide

CorporateActionsandEventsGuide
forthepurposesofEuromoneyIndices
indexcalculations
September2014

Euromoney Indices
Corporate Actions and Events Guide
10 September 2014
Contents
1. Introduction 1
1.1. Aims of the Guide     1
1.2. Guide Upkeep     1
1.3. Disclaimer 1
1.4. Expert Judgement     1
2. Index Calculation 2
2.1. Index Calculation Formula    2
2.2. Market Capitalisation Calculation Formula 2
2.3. Divisor Adjustments    3
2.4. Total Return Index Calculation Formula 3
3. Corporate Actions and Adjustments 5
3.1. Scrip Issues     5
3.2. Splits   9
3.3. Write‐Up/Off of Capital    10
3.4. Redenomination    11
3.5. Renominalisation    11
3.6. Special Dividends 12
3.7. Rights Issues 13
4. Index Shares and Index Factor 18
4.1. Total Outstanding Shares (TOS) Update 18
4.2. Index Factor Update 19
5. Additions, Deletions and Suspensions 22
5.1. Additions 22
5.2. Deletions 23
5.3. Suspensions 23
5.4. Mergers and Acquisitions (M&A) 26
6. Dividends 30
6.1. Dividend Types 30
6.2. Withholding Tax 31
6.3. Gross Income Capital 32
6.4. Net Income Calculation 32
6.5. Net Income Calculation using Withholding Tax Rates 32
6.6. Late Dividends 32
Appendix A : Worked Example 33
Appendix B : Revision History 41
Disclosure & Disclaimer 42

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1. Introduction
1.1 Aims of the Guide
This document outlines the treatment of corporate actions and events by Euromoney Indices
(hereafter ‘EI’) in the calculation of market capitalisation weighted indices.
A corporate action is defined by EI as an event that affects a company’s number of shares in issue
and/or the share price.
Other specific index actions taken by EI are addressed in this guide.  This includes changes to index
shares, constituent changes (additions, deletions, suspensions) and also the treatment of dividends.
Appendix A provides a worked example for an index simulating multiple corporate actions and
events occurring on a single day and detailing the calculations in line with the Index Calculation
Formula in section 2.
1.2 Guide Upkeep
EI will review its Corporate Actions and Events Guide at least once a year.  Any changes will result in
an ‘Updates’ section in the revised addition.  Appendix B has a revision history of any amendments
made.
1.3 Disclaimer
This document should be read in conjunction with ‘EI Ground Rules’ for specific indices.  These
documents outline the index methodology for inclusion in the index.  This document solely discusses
corporate actions and events.
EI strives to cover all corporate actions and events in this document.  However, sometimes an
undefined corporate action may take place.  Undefined events will usually be treated in a way
defined in this document.  If this is not the case, then EI will apply Expert Judgement to deal with this
event in the most appropriate way.
1.4 Expert Judgement
As defined in the “Expert Judgement” Policy, available on the Euromoney Indices website,
www.euromoneyindices.com.

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2. Index Calculation
2.1 Price Index Calculation Formula
The Price Index return is a weighted average return of its constituent companies, where the weights
are the market capitalisations. The weights are adjusted to accommodate capitalisation issues and
corporate actions; this is the same method of calculation as that used for many equity indices. The
Price Index calculation formula is:

Mt
PRIndext = PRIndex0 x
Dt

Where:
PRIndext = Price Index value at time t
PRIndex0 = Price Index value as at the inception date of the Index
Mt = Market Capitalisation at time t, defined in Section 2.2
Dt = Divisor at time t, defined in Section 2.3
The Divisor is a figure that represents the total market capitalisation at the base date of the Index. It
is only adjusted (formula below) to accommodate changes to constituents and changes in the
constituents’ share capital, thus avoiding distortions in the Index.
2.2 Market Capitalisation Calculation Formula
The Market Capitalisation formula is:
Mt =  (Pit Nit Fit Xit)
Where:
Pit = Closing price of constituent i at time t
Nit = Number of shares of constituent i at time t
Fit = Weighting factor of constituent i at time t
Xit = Exchange rate for Pit into the currency of the index

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2.3 Divisor Adjustments
The Divisor adjustment formula is:

 CAit
Dt = Dt‐1   x      1 +
Mt‐1

Where:
Dt = Divisor at time t
Dt‐1 = Divisor at time t minus 1 day
CAit = Capital adjustment of constituent i between time t‐1 and t
M t‐1 = Market Capitalisation of the Index at time t minus 1 day
Note: The calculation of CAit is outlined in sections 3, 4, and 5 (page 5 to page 29)
2.4 Total Return Index Calculation Formula
(applies to both Net and Gross Total Return Indices)
The Total Return Index calculation formula is:
Mt + Inct
TRIndext  =  TRIndex(t‐1)   x
MOt
Where:
TRIndext = Total Return Index value at time t
TRIndext‐1 = Total Return Index value at time (t‐1), i.e. the previous day
and
Inct =  (Divit Nit Fit Xit)
Where:
Divit = Dividend per share of constituent i at time t
Nit = Number of shares of constituent i at time t
Fit = Weighting factor of constituent i at time t
Xit       =   Exchange rate for Divit into the currency of the index at time t
and
PRIndex(t‐1)
MOt   =  Mt  x
PRIndext

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The same formula is used for both Net Total Return Indices and Gross Total Return Indices.
For Net Total Return Indices, the dividends, Divit, are net of withholding tax.
For Gross Total Return Indices, the dividends, Divit, are gross of withholding tax.
Withholding tax rates used in Euromoney Indices index calculations are maintained by Euromoney
Indices using a variety of publicly available sources. Please contact Euromoney Indices for more
information on the rates or refer to the specific Index Ground Rules.

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3. Corporate Actions and Adjustments
The corporate actions are described using ratios (e.g. for every 1 share held shareholders receive 2
new shares).  For the purposes of this guide, the subsequent assumptions apply:
 X represents the current shares
 Y represents the new shares
For each event type, we provide worked examples to illustrate the treatment within an index.  The
capital adjustment (which could be 0) is computed and it is this value which impacts the index divisor
outlined in section 2.3.
Each corporate action is assumed to be in the same currency as the company impacted by the event.
In practice, where a corporate action does involve a different currency, the price adjustment and
capital changes are made using the exchange rates on the Effective Date.  Each index Ground Rules
document will specify the data source of the exchange rates to be used.
3.1 Scrip Issues (Bonus Issues)
In general, EI separate scrip issues into three separate sub‐sections:
 Regular Scrip Issue
 Scrip Issue in Other Eligible Stock
 Scrip Issue in Other Ineligible Stock

3.1.1 REGULAR SCRIP ISSUE (STOCK DIVIDEND)
A regular scrip issue is a form of secondary issue where a company's cash reserves are converted
into new shares and given to existing shareholders in the same class of equity already held.
Alternatively, this is referred to as a ‘stock dividend’ and is processed by EI as a ‘Regular Scrip Issue’.
Divisor Change:
No change – the capital change (CAit) is zero and therefore the divisor does not change.
Share Adjustment Price Adjustment Timing of application
New number of shares = Old number of
shares * [(X+Y)/X]
Adjusted price = Original Share Price *
[X/(X+Y)]
Ex date

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Example: Regular Scrip Issue
Company K offers new shares under the terms: 1 new share for every 5 shares already held (X=5, Y=1)
Original price = 1200p
Original shares in issue = 100
Original market capitalisation = 100*1200p = £1200
New number of shares in issue = 100*[(5+1)/5] = 120
New price of shares = 1200p*[5/(5+1)] = 1000p
New market capitalisation = 120*1000p = £1200 = Original market capitalisation
Capital adjustment = 0
3.1.2 SCRIP ISSUE IN OTHER ELIGIBLE STOCK (SPIN-OFF)
A scrip issue in other stock is a form of secondary issue where a company's cash reserves are
converted into new shares and given to existing shareholders, but not the same class of equity held
before.
This event covers spin‐offs, where a newly created independent company is formed through the sale
or distribution of new shares, from an existing business or division in a parent company.  The new
shares become eligible for inclusion in the index.  Each index series has specific rules governing the
treatment of spin‐offs and these are documented in the relevant Ground Rules.
The eligible scrip issue shares will be processed as either:
Total Outstanding Shares (TOS) Increase (section 4.1.1)
TOS Increase occurs when the other eligible stock is already an index constituent.
or
Addition (section 5.1)
An addition occurs when the other eligible stock becomes an index constituent following a spin‐off.
The adjustments below are applied to the stock having the scrip issue:
Divisor Change:
No change – a negative capital change (CAit) is applied to the original line of stock and a positive
capital change is applied to the other eligible stock.  The net effect is zero, as the capital changes
cancel one another out.
No change
Adjusted price = [(X*Original Common
Share Price)‐(Y*Original Price offering of
Other Stock)]/X
Ex date

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Example:   Scrip Issue in Other Eligible Stock (existing constituent)
Company K offer new shares under the terms:  4 new preference shares for every 10 existing
common shares already held (X = 10, Y = 4).  The preference shares are an existing index constituent.
Original common share price = 1200p
Original common shares in issue = 100
Original common market capitalisation = 100*1200p = £1200
Original price of preference shares = 480p
Original preference shares in issue = 60
Original preference shares market capitalisation = £288
Original total market capitalisation of Company K (common and preference shares) = £1488
Market price of preference shares = 480p
Additional preference shares being issued = 40
New price of common shares = [(10*1200p) ‐ (4*480p)]/10 = 1008p
New market capitalisation of common shares = 100*1008p = £1008
New market capitalisation of preference shares = £288 + (40*480p) = £480
New total market capitalisation of Company K = (100*1008p) + (£300 + (40*480p) = £1488 = Original
market capitalisation
Capital adjustment of common shares = ‐480p*(4/10)*100 = ‐£192
Capital adjustment of preference shares = 480p*40 = £192
Total capital adjustment to index = ‐£192+£192 = £0
Example:   Scrip Issue in Other Eligible Stock (spin‐off added to index)
Company K spins off one of its divisions, creating independent Company J.  Company J meets the
index requirements and is added to the index.  For every 10 shares held in Company K, shareholders
receive 4 new Company J shares (X = 10, Y = 4).
Original share price of Company K = 1200p
Original shares in issue of Company K = 100
Original market capitalisation of Company K = 100*1200p = £1200
Initial price1
offering of Company J = 200p2

Initial share offering of Company J = 100*(4/10) = 40
Initial market capitalisation of Company J = 40*200p = £80
New price of Company K shares post‐spin‐off = [(10*1200p)‐(4*200p)]/10 = 1120p
New market capitalisation of Company K = 100*1120p = £1120

1
Note: If price of other stock is unknown, then EI calculates it using the adjustment in the price of the parent company.
2
Note: If the price spin‐off does not trade on the ex‐date, it is unlikely EI would add the spin‐off, unless an explicit
statement of trading is made in the immediate short‐term by the exchange it trades on or the company itself.

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Total market capitalisation of Company K and Company J (once added to index) = £1120+£80 =
£1200
Capital adjustment of Company K = ‐200p*(4/10)*100 = ‐£80
Capital adjustment of Company J = 200p*40 = £80
Total capital adjustment to index = ‐£80+£80 = £0
3.1.3 SCRIP ISSUE IN OTHER INELIGIBLE STOCK
A scrip issue in other ineligible stock is a form of secondary issue where a company's cash reserves
are converted into new shares and given to existing shareholders, but not the same class of equity
held before.  This other stock may be ‘B’ shares, warrants, options, convertible bonds or other
ineligible lines of stock.  They are not eligible for inclusion into the index.
The adjustments below are applied to the stock having the scrip issue:

Divisor Change:
Negative – a negative capital change (CAit) is applied to the original line of stock.
Example:   Scrip Issue in Other Ineligible Stock
Company K offers new ‘B’ shares under the terms: 4 new ‘B’ shares for every 10 existing common
shares already held (X = 10, Y = 4).  The ‘B’ shares are redeemable for cash at 120p per share.
Original common share price = 1200p
Original common shares in issue = 100
Original common market capitalisation = 100*1200p = £1200
Original price of ‘B’ shares = 120p
Original ‘B’ shares in issue = 60
Original ‘B’ shares market capitalisation = £72
New price of common shares = [(10*1200p) ‐ (4*120p)]/10 = 1152p
New market capitalisation of common shares = 100*1152p = £1152
Capital adjustment to index = ‐120p*(4/10)*100 = ‐£48
No change
Adjusted price = [(X*Original Common
Share Price)‐(Y*Original Price offering of
Other Stock)]/X
Ex date

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3.2 Splits
Splits can be separated into two sub‐sections:
 Stock Split/Subdivision
 Stock Consolidation
3.2.1 STOCK SPLIT / SUBDIVISION
A stock subdivision is the division of the nominal value by a company.  Shareholders receive a ratio
of new shares for the amount of shares already held.  This results in an increase in the number of
shares but a decrease in price.  Shareholders’ investment is worth the same as before.

Divisor Change:
Example:   Stock Subdivision
Company K shareholders will receive 5 new shares for every 1 share held currently (X = 1, Y = 5).
Original market share price = 1200p
New number of shares in issue = 100*(5/1) = 500
New share price = 1200p*(1/5) = 240p
New market capitalisation = 500*240p = £1200
Capital adjustment to Company K and index = £0

New number of shares = Current number
of shares*(Y/X)
Adjusted Price = Current Price*(X/Y) Ex‐date

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3.2.2 STOCK CONSOLIDATION
A stock consolidation is a consolidation of the nominal value of a company, implemented by issuing
shares to holders each of which replaces more than one existing share.  This mechanism is also used
to increase the share price.

Divisor Change:
Example:   Stock Consolidation
Company K shareholders will receive 1 new share for every 5 shares currently held (X=5, Y=1).
New shares in issue = 100*(1/5) = 20
3.3. Write-Up/Off of Capital
3.3.1 WRITE-UP OF CAPITAL
A write‐up of capital is an increase in a company’s capital by virtue to the change to the nominal
value.  Essentially a write‐up of book value to a fair market value; as is common during M&A deals.

Divisor Change:
No change – no capital is being raised or distributed so the capital change (CAit) is zero and the
divisor does not change.
New number of shares = Current number
of shares*(Y/X)
Adjusted Price = Current Price*(X/Y) Ex‐date

No change

No change N/A

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3.3.2 WRITE-OFF OF CAPITAL
A write‐off of capital is a decrease in a company’s capital by virtue to the change to the nominal
value. Essentially a write‐off of book value to a fair market value; as is common during M&A deals.

Divisor Change:
3.4. Redenomination
A redenomination is a change in the nominal currency of the shares of the company. This is on a 1
for 1 basis (X:Y)

Divisor Change:
3.5. Renominalisation

A renominalisation is a change in the nominal value of a security which changes the shareholding.

No change

No change N/A

No change

No change N/A

New number of shares = Original number
of shares*(Y/X)
Adjusted Price = Original Price*(X/Y) Ex‐date

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Divisor Change:
Example:    Renominalisation
Company K shareholders will receive 4 new shares for every 2 shares held (X = 2, Y = 4).
New shares in issue = 100*(4/2) = 200
3.6 Special Dividends
In general, dividends are treated as income and there is no adjustment made to the divisor of an
index.  However, where a dividend is defined as ‘special’ or is an irregular payment, then EI treats
these dividends as a capital event and applies a corporate action in this case.
In general, EI separate corporate actions for dividends into two separate sub‐sections:
 Special Cash Dividend
 Stock Dividend (see section 3.1.1.)
Section 6.1 outlines the dividend types and corresponding treatment of them within an index.  This
section covers payments received in cash and payments treated as ‘special’.
3.6.1 SPECIAL CASH DIVIDEND (CAPITAL REPAYMENT)

A special cash dividend is a non‐recurring distribution of company assets that is outside the scope of
the regular dividend policy, usually distributed in the form of cash to shareholders.  This also
includes regular dividends where the dividend amount is greater than 15% of the company’s share
price.

No change
Original Share Price – Special Cash Dividend
Ex‐date

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Divisor Change:
Negative – EI apply a negative capital change (CAit) as the base market capitalisation decreases
following the decrease in price.  The value of the capital change is equivalent to the dividend paid
multiplied by the shares in issue.  Therefore, the divisor change is negative.
Example:   Special Cash Dividend
Company K issues a dividend outside the scope of its usual dividend policy to the amount of 60p per
share.
Dividend amount per share = 60p
New share price = 1200p*[1‐(60/1200)] = 1140p
Capital adjustment to Company K and index = 100*‐60p = ‐£60
3.7. Rights Issues
A rights issue is an offering by a company for existing shareholders to purchase additional shares at a
subscription price which is usually at a discount to the current share price of the company.
Rights issues can be processed in three separate ways according to the subscription price:
 Rights issue equal to or at discount
 Rights issue at premium
 Rights issue where the subscription price is unknown
The types of rights issues separated into these sections are as follows:
 Regular rights issue
 Non‐renounceable rights issue
 Rights issue in other stock

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3.7.1 PROCESSING RIGHTS ISSUES
3.7.1.1 Rights Issue equal to or at a discount

In the case of a rights issue at a discount, the subscription price for new shares is less than the
market price (minus any dividend).  The price and shares adjust to take into account the uptake of
new shares.
New number of shares = Original number
of shares*[(X+Y)/X)]
Adjusted price = [(Y*Subscription
Price)+(X*Original Share Price)]/(X+Y)
Ex‐date

Divisor Change:
Increases – EI apply a positive capital change (CAit) as the base market capitalisation increases
following the uptake of new rights issued shares.  The value of the capital change is the value of the
rights issue.  Therefore, the divisor change is positive.
Example:   Rights Issue equal to or at a discount
Company K declares a Rights Issue at a discount.  For every 4 share held in Company K, shareholders
can purchase 1 further share at 600p (X = 4, Y = 1).3

Subscription price = 600p
New number of shares = 100*[(4+1)/4] = 125
New price of shares = [(1*600) + (4*1200)] / (1+4) = 1080p
Capital adjustment to Company K and index = 100*(1/4)*600p = £150
3.7.1.2 Rights Issue at premium

In the case of a rights issue at a premium, the subscription price is greater than the market price
(minus any dividend).  In this case, the price and shares are not adjusted to take into account the
premium because there is no incentive for shareholders to pay over the market price for new shares.
No change

No change

Date when new shares
are listed

3
Note: New shares are eligible for next dividend

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Divisor Change:
No change – EI do not apply a capital change (CAit) as the base market capitalisation does not
change.
3.7.1.3 Rights Issue where the subscription price is unknown
In the case of a rights issue where the subscription price is unknown, then no action will be taken.
Even in the event that the subscription price becomes known, the price will be noted by EI, but they
will not act to historically change the price.

No change No change Ex‐date

Divisor Change:
No change – EI do not apply a capital change (CAit) as the base market capitalisation does not
change.
Where the parent company share price adjusts, EI will apply Expert Judgement and process as a spin‐
off receiving the rights, see 3.1.3.

3.7.2 TYPES OF RIGHTS ISSUES (ENTITLEMENT OFFERS)

3.7.2.1 Renounceable Rights Issue

A renouceable rights issue is a form of secondary issue that allows a company's existing shareholders
to buy a proportional number of additional shares at a given price within a fixed period.  In a
renouceable rights issue, the issue is in the same class of shares as those already held.
When a rights issue is declared, shareholders are issued with nil paid rights.  In a renouceable rights
issue, there are three options for the shareholder here:
 Take the option and buy all the shares offered
 Take the option but buy a proportion of the shares offered – buying some shares for cash
and selling the opposite proportion of the nil paid rights for cash also (perhaps funding new
shares with the nil paid rights sale)
 Do not take the option and sell the nil paid rights for cash in full
Nil paid rights are deleted once they trade on an equivalent basis with the existing shares.
Renouceable rights issues are processed according to the subscription price, see 3.7.1.

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3.7.2.2 Non‐renounceable Rights Issue

A non‐renounceable rights issue is the same as a regular rights issue except shareholders are denied
the option of selling any of the nil paid rights offered to them.  Therefore, if a shareholder decides
not to fully exercise their right to buy new shares; they will lose value on their investment.
Non‐renounceable rights issues are processed according to the subscription price, see 3.7.1.
The exception is for UK non‐renounceable rights issue.  These issues are classed as ‘open offers’, i.e.
there is no additional benefit to holding the stock before the issue as opposed to after it.  In this
case, no capital adjustment is made at the time.  Any share changes will result in a total shares
outstanding update (see section 4.1.) once the number of rights taken up has been announced by
the company.
3.7.2.3 Rights Issue in Other Stock

A rights issue in other stock is a form of secondary issue that allows company's existing shareholders
to buy a proportional number of additional shares in a different stock to the one already held.
Share adjustment takes place in other
stock but not in existing stock
Adjusted Price = Share Price of Existing
Shares*{1‐[[Y*(Share Price of Other Stock ‐
Subscription Price of Other
Stock)]/(X*Market Price of Existing
Shares)]}
Ex‐date

Capital Change:
following the price change in the original line of shares.  The value of the capital change is the value
of the rights issue in the other line.  Therefore, the divisor change is negative.
Example:   Rights Issue in Other Stock 4

Company K declares shareholders in the company have the right to purchase 2 preference shares for
every 4 common shares held (X = 4, Y = 2).
Market share price of common shares = 1200p
Market shares in issue of common shares = 100

4
Note: For the purposes of this example, the rights issue in other stock is at a discount.  Where there is no
discount, a capital adjustment is not applied.

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Market share price of preference shares = 300p
Subscription price of preference shares = 250p
New price of common shares = 1200p*{1‐[[2*(300p‐250p)]/(4*1200p)]} = 1175p
New market capitalisation of common shares= 100*1175p = £1175
Capital adjustment to common shares = 100*(2/4)*(250p‐300p) = ‐£25

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4. Index Shares and Index Factor
This section covers the ‘Shares in Issue’ included in an index and also the index factor which
determines the proportion of the shares which are included in an Index.
4.1 Total Outstanding Shares (TOS) Update
The TOS amount is the total number of shares authorized and issued by a company.  The figure for
TOS is regularly monitored through a variety of data sources and is used in calculating the Free Float
(see 4.2.1) of a company.
As well as through corporate actions (section 3), changes (increases or decreases) to the TOS amount
are made for a variety of reasons including:
 Placing of new shares
 Company buy‐back
 Acquisition
The timing of the implementation of updates to the TOS amount is specified in the Ground Rule
document for the relevant index.  This section concerns changes to TOS which are not the direct
consequence of corporate actions described in section 3.
4.1.1 TOS INCREASE
Increases in TOS are made following receipt of updated information from the company for example
as a result of an open offer, private placing, exercise of executive share options or through the listing
of new shares following an acquisition.

Divisor Change:
Positive – EI apply a positive capital change (CAit) as the base market capitalisation increases
following the increase in TOS.  The value of the capital change is equivalent to the new TOS figure
minus the old TOS figure multiplied by the previous price.  Therefore, the divisor change is positive.
Example:   TOS Increase
Company K with 100 issued shares lists an additional 20 shares via an open offer.
New TOS  = Original TOS + New shares

No change Ex‐date

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New TOS = 100 + 20 = 120
Capital adjustment to Company K and index = 20*1200p = £240
4.1.2 TOS DECREASE
Decreases in TOS are made following receipt of updated information from the company for example
as a result of a share buyback, share delisting or through the cancellation of shares following a
partial acquisition.
Divisor Change:
following the decrease in TOS.  The value of the capital change is equivalent to the new TOS figure
minus the old TOS figure multiplied by the previous price.  Therefore, the divisor change is negative.
Example:   TOS decrease
Company K with 100 shares repurchases 10 shares from shareholders at market price.
New TOS = 100 ‐ 10 = 90
Capital adjustment to Company K and index = ‐10*1200p = ‐£120
4.2. Index Factor Update
The Index Factor is a percentage value which restricts the TOS used in an index.  The Index Factor is
most commonly used to represent the available free float (see 4.2.1 below) but can also be used to
represent the Foreign Investor Limit or to constrain the weight of a stock within an index based on
New TOS  = Original TOS ‐ Shares removed No change Ex‐date

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the underlying Index Ground Rules.   The examples provided below relate to Free‐Float changes;
however the treatment is the same for other Index Factor changes.
4.2.1 FREE-FLOAT FACTOR
For EI Indices that are based on free‐float, a Free Float Factor is calculated and periodically reviewed
by analysing the number of shares available for investment.  This means ‘locked in’ shares held by
company management or major shareholders are not counted towards the free float market
capitalisation.  These tightly held shares are aggregated and the total percentage of the TOS is then
rounded down to the nearest multiple of 20%. The Free Float Factor is 100% minus this number.
Consequently, Free Float Factors are 20%, 40%, 60%, 80%, or 100%. In addition, the free float
bandings have tolerance levels.  A movement must be 5% beyond the threshold for EI to adjust the
Free Float Factor.
Other EI calculated Index Series apply alternative free float methodologies, for example, factors that
are based on exact rather than banded free floats.  However any change to the free float factor
applies the same treatment as outlined in the examples below.

4.2.2 FREE FLOAT INCREASE
Divisor Change:
Positive – EI apply a positive capital change (CAit) as the base market capitalisation increases
following the increase in the free float.  The value of the capital change is equivalent to the new free
float adjusted TOS minus the old free float adjusted TOS multiplied by the closing share price on the
business day prior to the free float change.  Therefore, the divisor change is positive.
Example:   Flee Float Increase (beyond tolerance level)
Company K’s free float is 20% (20% of shares available are traded).  ‘J Corporation’ decides to sell an
additional 25% of Company K to the market.  There are now 45% of the TOS generally available to
trade and round down to the nearest 20%, so the free float factor increases to 40%.
Original TOS = 100
Original Free Float = 20%
Original free float market capitalisation = 100*1200p*20% = £240
New Free Float = 40%
New market capitalisation = 100*1200p*40% = £480
Capital adjustment to Company K and index = 1200p*(100*40% ‐ 100*20%) = £240

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4.2.3 FREE FLOAT DECREASE
Divisor Change:
following the decrease in the free float.  The value of the capital change is equivalent to the new free
float adjusted TOS minus the old free float adjusted TOS multiplied by the existing price before the
free float change.  Therefore, the divisor change is negative.
Example:   Flee Float Decrease (beyond tolerance level)
Company K’s free float is 100% (all shares are traded).  ‘J Corporation’ decides to buy a 45% stake in
Company K.  The Free Float Factor is rounded down to 40% and the overall Free Float is 60%.  The
company has also simultaneously announced an increase in TOS of 5%.
Original Free Float = 100%
Original free float market capitalisation = 100*1200p*100% = £1200
New TOS = 105
New Free Float = 60%
New free float market capitalisation = 105*1200p*60% = £756
Capital adjustment to Company K and index = ‐1*1200p*[(100*100%)‐(105*60%)] = ‐£444

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5. Additions, Deletions and Suspensions

The maintenance of an Index requires that constituent stocks be added or deleted in accordance
with the underlying Ground Rules.  Special treatment is required to cater for index constituents that
have suspended trading and also previously suspended stocks that have resumed trading.
5.1 Additions
Additions to an Index follow the application of the Index Ground Rules and are usually caused by:
 Periodic index review (Quarterly Review)
 Spin‐offs
 Initial Public Offering (IPO)
 Replacement following a deletion to  an Index with a fixed number of stocks
When an addition is processed, it is done using the latest closing price (normally the previous day’s
close) and the previous day’s closing TOS before its entry into the index the following day.

Divisor Change:
Positive – the capital change (CAit) applied to the index is equivalent to the market capitalisation of
the new constituent.  Therefore the divisor will have a positive adjustment.
Example:   Addition to index
Company K is added into the index following a quarterly index review.
Previous day’s closing price of Company K = 1200p
Previous day’s closing TOS amount of Company K = 100
Previous day’s closing market capitalisation of Company K = 100*1200p = £1200
Previous day’s closing market capitalisation of index = £15000
New market capitalisation of index = £15000 + £1200 = £16200
Capital adjustment to index = 100*1200p = £1200

Addition TOS amount
used
Addition share price
used
Capital Change
Timing of
application
Previous day’s closing
TOS amount
Previous day’s closing
share price
Change = TOS of New Constituent
*Share Price of New Constituent
Ex‐date

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5.2 Deletions

Deletions from an Index follow the application of the Index Ground Rules and are usually caused by:
 Periodic Index review (Quarterly Review)
 Merger
 Acquisition
 Delisting
When a deletion is processed, it is done using the closing price on the effective date and the TOS on
the effective date.

Divisor Change:
Negative – a negative capital change (CAit) to the index is the equivalent to the market capitalisation
of the deleted constituent multiplied by ‐1.  Therefore a negative adjustment to the divisor is made.
Example:   Deletion at full price
Company K is removed from the index.
Closing price of Company K on the effective Date = 1200p
TOS amount of Company K = 100
Closing market capitalisation of Company K = 100*1200p = £1200
Closing market capitalisation of index = £15000
New market capitalisation of index = £15000 – (100*1200p) = £13800
Capital adjustment = 100*1200p*‐1 = ‐£1200
5.3 Suspensions
Suspensions to an index or stock exchange can occur at any time, subject to a company or stock
exchange announcement.  Suspension may occur for a number of reasons including:
 Bankruptcy
 Files for bankruptcy protection
 Insolvency
 Breach of stock exchange rules
 Temporary suspension following or preceding a corporate action/reconstruction
Deletion TOS amount
used
Deletion share price
used
Capital Change
Timing of
application
Effective date TOS
amount
Effective Date closing
share price
Capital Change = TOS of Existing
Constituent*Share Price of Existing
Constituent*‐1
Effective
Date

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10 September 2014
Suspension period
If a company is suspended on its exchange, it will normally remain in an Index for a period of 10
business days.  If it remains suspended after this time, EI may delete the company.  Each index series
will have specific rules covering ‘Stock Suspension’ in terms of timing, replacement stocks, etc., and
will generally allow for Expert Judgement to be applied as each case may require a slightly different
treatment depending on the particular issue.
For example, EI may change this suspension period at their discretion.  If it is decided that the
suspended constituent’s immediate future is negative (and will remain so in the near future) then EI
may delete the constituent before the 10 day period is over.  Similarly, if it is decided that the
constituent’s immediate future is positive (and will remain so in the near future), it may be allowed
to remain suspended for a longer period of time without deletion from the index.
5.3.1 SUSPENSION (constituent removal)
In the event a constituent is suspended and deleted from an index (usually because of bankruptcy
and liquidation proceedings), the constituent is suspended at the previous day’s closing price and
TOS amount prior to the announcement of the suspension.
When the constituent is deleted, it is deleted at the price of zero.  This represents the loss on the
investment as the shares originally held in the constituent are deemed worthless as they no longer
traded.
Divisor Change:
No change – no capital change (CAit) is applied and therefore no division change occurs.  This is to
take into account the loss in value of the index and any original investment in the deleted company.
Example:   Suspension (constituent removal)
Company K becomes suspended on its stock exchange due to filing for bankruptcy.  5 days later it is
liquidated and no longer exists as a business.
Closing price of Company K before suspension = 1200p
Closing TOS amount of Company K before suspension = 100
Closing market capitalisation of Company K before suspension = 100*1200p = £1200
New market capitalisation of Company K following deletion = 100*0p =£0
Capital adjustment to Company K and the index = £0

Suspended (is deleted)
TOS amount used
Suspension (is deleted)
share price used
Capital Change
Timing of
application
Closing TOS amount day
before announcement
of suspension
0

No change

Effective
Date

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5.3.2 SUSPENSION (constituent addition following stock resuming trading)
In some cases, a company will be deleted following a period of suspension, but the company will
resume trading after its suspension.  In this event, the eligible company will be re‐added to the index
at zero (the price at which it is deleted).

Divisor Change:
No change – no capital change (CAit) is applied and therefore no divisor change occurs.  This is to
take into account the gain in value of the index and any original investment in the deleted company.
An investor will have not gained the re‐added constituent’s value, merely recouped the investment
previously lost through deletion.
Example:   Suspension (constituent removal but re‐addition)
Company K becomes suspended on its stock exchange due to filing for bankruptcy, it is deleted from
the index.  However, it resumes trading following its deletion from the index, and is re‐added.
Closing price of Company K before suspension = 1200p
Closing TOS amount of Company K before suspension = 100
Closing market capitalisation of Company K before suspension = 100*1200p = £1200
Closing market capitalisation of index (excl. Company K) = £13800
Closing market capitalisation of index before Company K suspension = £13800 + £1200 = £15000
Market capitalisation of Company K following deletion = 100*0p =£0
Market capitalisation of index following deletion = £13800 + (100*0p) = £13800
Company K re‐added:
Market capitalisation of index following re‐adding = £13800 + (100*1200p) = £15000
Capital adjustment to Company K and the index = £0
Suspended (is deleted
but re‐added later) TOS
amount used
Suspension (is deleted
but re‐added later)
share price used
Capital Change
Timing of
application
Closing TOS amount day
before announcement
of suspension
0 No change
Effective
Date

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5.4 Mergers and Acquisitions (M&A)

This section focuses on the administration of mergers and acquisitions.  Specific Index Ground Rules
documents will outline the application of mergers and acquisitions in terms of timing, replacement
stocks etc.  The application of the rules will result in the processing of changes specified within this
document, for example shares increase, stock addition, stock deletion.
An acquisition is an event in which a company (acquirer) buys most, if not all, of another company
(target).
M&A events can be divided into three separate methods 5
:
 Acquisitions funded by cash
 Acquisitions funded by stock and cash
 Acquisitions funded by stock only
Furthermore, these acquisition methods can be separated into three further subsections based on
the source of acquiring/target company:
(a) Acquiring company and target company are in the same index
(b) Only target company is in the index
(c) Only acquiring company is in the index
For EI, the processing of M&A deals depends on the index type.  The different types of index
methodology can be generally divided into:
 Fixed number of constituent indices
 Floating number of constituent indices
The sub‐sections below outline the treatment for each combination of acquisition method (cash
and/or shares), acquisition source (by existing or non‐existing constituent) and index type (fixed or
floating number of constituents).

5
Note: Mergers are also classified into one of the three groupings and EI may apply Expert Judgement to
assign one company the acquiring and one the target.

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10 September 2014
5.4.1 ACQUISITIONS FUNDED BY CASH
Acquisitions funded by cash are purchases of other companies by cash flows.  In other words, no
stock is exchanged.

5.4.1.1 Fixed number of constituents

5.4.1.2 Floating number of constituents

Index Constituents
Acquiring Company
Fixed Constituent
Index Action Taken
Target Company
Fixed Constituent
Index Action Taken
Index Capital Change
5.4.1.1.a
Acquiring company and
target company are in the
same index
No action

Target deleted and
replaced
See section 5.1 and 5.2

5.4.1.1.b
Only target company is in
the index
N/A
Target deleted and
replaced
5.4.1.1.c
Only acquiring company is
in the index
No action N/A No change
Index Constituents
Acquiring Company
Floating Constituent
Index Action Taken
Target Company
Index Action Taken
5.4.1.2.a
same index
No action
Target deleted and
not replaced
See section 5.2
5.4.1.2.b
the index
N/A
Target deleted and
not replaced
See section 5.2
5.4.1.2.c
in the index
No action N/A No change

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5.4.2 ACQUISITIONS FUNDED BY CASH AND STOCK
Acquisitions by cash and stock are purchases of other companies with cash and by issuing new stock
of the acquiring company to the shareholders of the target company.



Index Constituents
Acquiring Company
Fixed Constituent
Index Action Taken
Target Company
Fixed Constituent
Index Action Taken
5.4.2.1.a
same index
TOS Increase
Positive capital
adjustment
Target deleted and
replaced
See section 4.1.1 and 5.1
and 5.2

5.4.2.1.b
the index
N/A
Target deleted and
replaced

5.4.2.1.c
in the index
TOS Increase
Positive capital
adjustment
N/A
See section 4.1.1

Index Constituents
Acquiring Company
Index Action Taken
Target Company
Index Action Taken
5.4.2.2.a
same index
TOS Increase
Positive capital
adjustment
Target deleted and
not replaced
See section 4.1.1.and 5.2
5.4.2.2.b
the index
N/A
Target deleted and
not replaced
See section 5.2
5.4.2.2.c
in the index
TOS Increase
Positive capital
adjustment
N/A See section 4.1.1

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5.4.3 ACQUISITIONS FUNDED BY STOCK ONLY
Acquisitions funded by stock only, is a complete purchase of a company by new stock of the
acquiring company and distributing it to the shareholders of the target company, replacing their now
defunct target company shares.

Index Constituents
Acquiring Company
Fixed Constituent
Index Action Taken
Target Company
Fixed Constituent
Index Action Taken
5.4.2.1.a
same index
TOS Increase
Positive capital
adjustment
Target deleted and
replaced
See section 4.1.1. and 5.1
And 5.2
5.4.2.2.b
the index
N/A
Target deleted and
replaced
5.4.2.3.c
in the index
TOS Increase
Positive capital
adjustment
Index Constituents
Acquiring Company
Index Action Taken
Target Company
Index Action Taken
5.4.2.1.a
same index
TOS Increase
Positive capital
adjustment
Target deleted and
not replaced
See section 4.1.1.and 5.2
5.4.2.2.b
the index
N/A
Target deleted and
not replaced
See section 5.2
5.4.2.3.c
in the index
TOS Increase
Positive capital
adjustment

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6. Dividends
A dividend is a distribution of a company’s profits to shareholders.  Dividends can take the form of a
cash payment or a stock distribution; neither requires any adjustment to the index.
For the purposes of calculating a total return index, dividends are processed when a company is
quoted ex‐dividend.
Where applicable, the full, gross dividend is used in the total return calculation.  However, the UK is
an exception, and a net dividend (10% tax) is used.
When a dividend amount is greater than 15% of the underlying share price the dividend is changed
to a 'Special Dividend' and is classed by EI as a corporate action.  It will have a negative impact on the
market capitalisation of the index and the divisor (see 3.6.1.).
6.1. Dividend Types
Listed below are the most common dividend payment types6
and their treatments:

Dividend Type Description Income or Capital Event
YEARLY PAYMENT
A yearly payment is a dividend distribution paid once per year.  A
company has the option, but not an obligation, to pay its shareholders a
proportion of profits in cash.  The amount paid is fixed per share held in
the company.
INCOME
INTERIM
DIVIDEND
An interim dividend is a dividend distribution paid when the dividend
structure issues allows dividends to be paid at a frequency greater than
once per year.  Usually an interim dividend is paid before a company's
AGM and final year reports.  It is complimented by a final dividend, (or
other interim dividends), but generally the interim(s) are much smaller
compared to the other dividend.
INCOME
QUARTERLY
PAYMENT
A quarterly payment is a dividend distribution paid four times per year.
A company has the option, but not an obligation, to pay its shareholders
a proportion of profits in cash.  The amount paid is fixed per share held
in the company.
INCOME
FINAL DIVIDEND
A final dividend is a dividend distribution paid when the dividend
structure issues allows (or requires) dividends to be paid at a frequency
greater than once per year.  Usually declared after company AGM and
implemented afterwards also.  It is complimented by an interim
dividend, but generally the final dividend is larger than the interim(s).
INCOME

6
Note: Other dividend payments do occur and are recorded by EI.  Their emission is for the brevity of this
document.

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10 September 2014
Dividend Type Description Income or Capital Event
MONTHLY
DIVIDEND
A monthly dividend is a dividend distribution paid twelve times per year.
A company has the option, but not an obligation, to pay its shareholders
a proportion of profits in cash.  The amount paid is fixed per share held
in the company.
INCOME
SPECIAL CASH
DIVIDEND

A special cash dividend is a non‐recurring distribution of company assets
that is outside the scope of the regular dividend policy, usually
distributed in the form of cash to shareholders.  In any case where the
dividend amount is greater than 15% of the underlying share price, this
dividend should be classed as a ‘Special Cash Dividend’

CAPITAL

Negative capital adjustment

See section 3.7.1
SCRIP INSTEAD OF
DIVIDEND
Scrip instead of dividend is a non‐recurring distribution of stock to
shareholders instead of a cash payment.  EI process such an event as a
corporate action.  Depending on the issue, EI treat this dividend as a
regular scrip issue or a stock dividend.

CAPITAL

Zero capital adjustment

See section 3.1.1
DIVIDEND FROM
RESERVES OR
ASSETS
Dividends from reserves or assets are non‐recurring distributions of
cash.  This cash is not from profits.  Use of this dividend is usually for tax
purposes.

CAPITAL

Negative capital adjustment

See section 3.7.1
SCRIP OPTIONAL
TO DIVIDEND
A scrip issue optional to a dividend is a non‐recurring distribution of cash
or stock.  These dividends have a cash equivalent (yearly payment,
Interim, etc.) and the cash is deemed the default.  Non‐inclusion
prevents double counting.
INCOME
HALF YEARLY
PAYMENT

A half‐yearly payment is a dividend distribution paid twice per year.  A
company has the option, but not an obligation, to pay its shareholders a
proportion of profits in cash.  The amount paid is fixed per share held in
the company. Both dividend payments are of equal amount.

INCOME
ALTERNATIVE
CURRENCY
An alternative currency dividend is where the dividend payment is
available in an alternative currency.  These are not included as the
primary record will be covered in another dividend type.
INCOME
RESCINDED
PAYMENT
Rescinded payment dividends are dividends which are proposed but
never paid.  These dividends are recorded for information purposes
only, as they have no effect on the stock and thus the index.
N/A

6.2. Withholding Tax

Withholding taxes require taxes to be paid to governments on dividend income before the
distribution of the income to non‐residents.  The tax depends on the country of domicile of the
recipient of a dividend.

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Depending on the country of residence, the taxation may be reclaimed if a double‐taxation treaty
exists between the country in which the dividend is paid and the country of residence of the
recipient of the dividend payment.
Withholding tax rates are applied at a country level, rather than at a constituent level.  EI keeps a
periodic record of withholding tax rates in countries covered by them, see ‘Ground Rules’ of specific
index for lists of relevant withholding tax rates.
6.3 Gross Income Capital
For Gross Total Return Indices, the Gross dividend per share announced by a company is used.  The
calculation of the Index income is:
Dividend Income calculation Timing
Gross Dividend TOS x Gross Dividend / Index Factor Ex Date

6.4 Net Income Calculation
For an Index designed for local investors, where all the stocks are from the same country and have
the same Tax treatment, the net dividend per share announced by the company is used.  The
calculation of the Index Income is:
Net Dividend TOS x Net Dividend / Index Factor Ex Date

6.5 Net Income Calculation using Withholding Tax Rates
For an Index where Withholding Tax Rates are to be applied, the withholding tax is applied to the
Gross dividend.  The calculation of the Index income is:
Gross Dividend TOS x Gross Dividend * Withholding Tax / Index Factor Ex Date

6.6 Late Dividends
In certain markets, for example Korea, there is a practice for some stocks to announce dividends
with an ex date in the past.  The standard Euromoney Indices policy in this event is to process the
dividend in T+3 business days following the dividend announcement.
The calculation scales the dividend by the capital performance between the actual ex date and the
new T+3 ex date applied by Euromoney Indices.  The scaling ensures that the performance is
identical to the performance had the dividend been included at the ex date.

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Appendix A : Worked Example
The following example shows an Index, computed in Sterling (£), with a variable number of
constituents (initially 9) and weighted by free float market capitalisation.  The written examples
below document a day where several index events occur on the same effective date, resulting in
there being 10 stocks in the Index.
The example sets out the index parameters: index values, market capitalisation, index divisor from
the previous business day with reference to the Index Calculation formula in Section 2.  Each
constituent in the Index has an event impacting the Index is explained and referenced to the
relevant section within this Guide.  Finally, the index calculation for the current business day is
outlined, again with reference to the Index Calculation formula in Section 2.
A tabular representation of the index events by index constituent is provided at the end of
Appendix A.
Previous Business Day
The previous business day is 10 May.
The previous business day Index parameters (see 2.1) are:
t = 10 May Previous Business Day
PRIndex0 = 100.00 Inception Date Index Value
Mt = 33342 Market Capitalisation at close of business day t
Dt       =   25600 Divisor on business day t
PRIndext      =   130.24 Index value (2 decimal places) at close of business day t
TRIndext      =   148.27 Total Return at close of business day t

The PRIndext value is computed as:

Mt 33342
PRIndext  =  PRIndex0   x    =  100  x    =  130.2422
Dt 25600

The current business day is 11 May.  The events impacting each constituent on the current business
day are outlined below with reference to the Capital Adjustment (CAit) defined in section 2.3.

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Stock A
Stock A serves to provide an example of stock with zero corporate events taking place on the
effective date.  The price fluctuation is down to normal market activity.  The market capitalisation of
the stock is increased, but zero capital change is applied to the stock and index.
Original price of Stock A = 1000p
Original shares in issue of Stock A = 100m
Original free float = 100%
Original market capitalisation of Stock A in index = 100m*1000p*100% = £1000m
New price of Stock A = 1050p
New market capitalisation of Stock A in index = 100m*1005p*100% = £1050m
Capital adjustment to Stock A and index = £0m

Stock B
Stock B serves as an example of multi‐stage corporate event.  Stock B simultaneously has a scrip
issue in an ineligible stock and a stock consolidation.  The scrip issue in ineligible stock is under the
terms that existing shareholders are issued 1 ‘B Share’ for every 1 common share (X=1, Y=1).  The
stock consolidation is under the terms 3 new shares for every 4 shares originally held (X=4, Y=3).
Original price of Stock B = 1500p
Original shares in issue of Stock B = 200m
Original market capitalisation of Stock B in index = 200m*1500p*100% = £3000m
Original price of ‘B Shares’ = 150p
New price of Stock B = ((1*1500p)‐(1*150p)*(1/1) = 1800p
New shares in issue of Stock B = 200m*(3/4) = 150m
New market capitalisation of Stock B in index = 150m*1800p*100% = £2700m
Capital adjustment to Stock B and index = ‐150p*(1/1)*200m = ‐£300m
See sections 3.1.3 and 3.2.2

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Stock C and Stock D
Stock C acquires Stock D, another index constituent.  Stock D is purchased using a 50% split of cash
and stock.  Stock D is deleted from the index.
Original price of Stock C = 2800p
Original shares in issue of Stock C = 250m
Original market capitalisation of Stock C in index = 250m*2800p*100% = £7000m
Original price of Stock D = 1400p
Original shares in issue of Stock D = 200m
Original market capitalisation of Stock D in index = £2800m
Original market capitalisation of Stock C and Stock D = £9800m
New shares in issue of Stock C = 250m + (200m*50%*(1/2)) = 300m
New market capitalisation of Stock C in index = 350m*2800p*100% = £8400m
Capital adjustment to Stock C = (300m‐250m)*2800p) = £1400m
Capital adjustment to Stock D = (200m*1400p*‐1) = ‐£2800m
Capital adjustment to index = ‐£2800+£1400m = ‐£1400m
See sections 4.1.1 and 5.2

Stock E
Stock E is an addition to the index to replace Stock D, which no longer exists.
Original price of Stock E = 1650p
Original shares in issue of Stock E = 150m
Original market capitalisation of Stock E in index = 150m*1650p*100% = £2475m
Capital adjustment to index = 150m*1650p = £2475m
See section 5.1

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Stock F
Stock F undergoes a regular rights issue.  Stock F allows existing shareholders the right to purchase 1
new share for every 3 existing shares held, at a 10% discount to the market rate (X=3, Y=1).
Original price of Stock F = 2480p
Original shares in issue of Stock F = 60m
Original market capitalisation of Stock F in index = 60m*2480p*100% = £1488m
New price of Stock F = [(1*(2840p*90%))+(3*2840p)]/(3+1) = 2418p
New shares in issue of Stock F = 60*((3+1)/3) = 80m
New market capitalisation = 80m*2418p*100% = £1934.4m
Capital adjustment to Stock F and to index = 60*(1/3)*(2480p*90%) = £446.40m
See sections 3.7.1.1 and 3.7.2.1

Stock G
Stock G issues a final cash dividend of 10p per share.  The Market adjusts the stock price in line with
this dividend.
Original price of Stock G = 600p
Original shares in issue of Stock G =200m
Original market capitalisation of Stock G in index = 200m*600p*100% = £1200m
Dividend amount per share = 10p
New stock price of Stock G = 600p‐10p = 590p
New market capitalisation of Stock G = 200m*590p*100% = £1180m
Capital adjustment to Stock G and index = £0m
See section 6.1

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Stock H
The Free Float Factor of Stock H is 60%.  The major shareholder in Stock H sells 30% of the company.
These previously tightly held shares are released to market.  Due to the banding limits, the 30%
figure is rounded down to 20%.  This gives a new Free Float Factor of 80%.
Original price of Stock H = 335p
Original shares in issue of Stock H = 400m
Original market capitalisation of Stock H in index = 400m*335p*60% = £804m7

New free float = 80%
New market capitalisation of Stock H in index = 400m*335p*80% = £1072m
Capital adjustment to Stock H and to index = 335p*((400m*80%)‐(400m*60%)) = £268m
See section 4.2.2

Stock I
Stock I decides to pay its dividend in stock, as a one off, to shareholders.  Shareholders receive 1 new
share for every 9 held (X=9, Y=1).  Stock I’s free float is 80%, but this does not change in this
example.
Original price of Stock I = 1800p
Original shares in issue of Stock I = 540m
Original market capitalisation of Stock I in index = 540m*1800p*80% = £7776m
New price of Stock I = 1800p*(9/(9+1)) = 1620p
New shares in issue of Stock I = 540m*((9+1)/9) = 600m
New market capitalisation of Stock I in index = 600m*1620p*80% = £7776m = Original market
capitalisation
Capital adjustment to Stock I and index = £0m
See section 3.1.1


7
Note: Tightly held shares not included in the market capitalisation used in the index.

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Stock J and Stock K
Stock J spins‐off a division of its business and the spin‐off is added to the index.  The spin off
becomes independent company Stock K.  Stock K has an initial public offering of 850p and
shareholders of Stock J are issued with 2 new Stock K shares for every 5 Stock J shares originally held
(X=5, Y=2).
Original price of Stock J = 1950p
Original shares in issue of Stock J =200m
Original market capitalisation of Stock J in index= 200m*1950p*100% = £3900m
Initial public offering of Stock K = 850p
New price of Stock J = ((5*1950p)‐(2*850p))/5 = 1610p
New market capitalisation of Stock J in index = 200m*1610p*100% = £3220m
New shares in issue of Stock K = 200*(2/5) = 80m
New market capitalisation of Stock K in index = 80m*850p*100% = £680m
Capital adjustment to Stock J = (‐850p*(2/5)*200m) = ‐£680
Capital adjustment to Stock K = (850p*(2/5)*200m) = £680
Capital adjustment to index = ‐£680m + £680 = £0m
See section 3.1.2

Current Business Day
The current day is 11 May.
The sum of the capital adjustment required for the index events is 1489.4.  With reference to the
divisor adjustment formula in section 2.3 the new divisor is:

 CAit 1 + 1489.4
Dt = Dt‐1   x      1 +   =  25600  x   =  26743.56
Mt‐1   33342

39

Euromoney Indices
10 September 2014
The current business day Index parameters (see 2.1) are:
T = 11 May Current Business Day
PRIndex0 = 100.00 Inception Date Index Value
Mt = 34861.4 Market Capitalisation at close of business day t
Dt       =   26743.56 Divisor on business day t
PRIndext      =   130.35 Index value at close of business day t
TRIndext      =   148.48 Total return at close of business day t

The PRIndext value is computed as:

Mt 34861.4
PRIndext  =  PRIndex0   x    =  100  x    =  130.35
Dt 26743.56

The index performance is positive attributable to the performance of Stock A, slightly offset by the
drop in price of Stock G which has adjusted for the dividend.

Total Return
The income of the current business day comes from Stock G and is £20m.

The TRIndext value is computed as:

Mt + Inct 34861.4 + 20
TRIndext  =  TRIndex(t‐1)   x = 148.27 x   =  148.48
MOt 34831.4

Where MOt is calculated as:

PRIndex(t‐1) 130.2422
MOt   =  Mt  x      = 34861.4 x =  34831.4
PRIndext 130.3544

40
Euromoney Indices
10 September 2014
Listed Events
Stock Index
10 May
Price
10 May
TOS (m)
10 May
Free Float
10 May
Market Cap
10 May
Index
11 May
Price
11 May
Dividend TOS
11 May
Free Float
11 May
Market Cap
11 May
Capital
Event
X Y Reference Capital Event Notes Capital
Change
A Y 10.00 100 100% 1,000 Y 10.50 100 100% 1,050.0 n/a Stock A naturally fluctuates in price
B Y 15.00 200 100% 3,000 Y 18.00 150 100% 2,700.0
Scrip Issue in
ineligible Stock
Stock Consolidation
1
4
1
3
3.1.3
3.2.2
Issue of ‘B Share’ on a 1 for 1
basis worth £1.50
Stock B undergoes a simultaneous
stock consolidation
-300.0
C Y 28.00 250 100% 7,000 Y 28.00 300 100% 8,400.0 Acquisition 2 1 4.1.1
Acquisition of Stock D – funded 50%
cash, 50% stock, with 1 new C share for
every 2 original D shares held
1400.0
D Y 14.00 200 100% 2,800 N Deletion 5.2
Acquisition with Stock C – shareholders
are issued 1 Stock C share for every 2
-2800.0
E N 16.50 150 100% Y 16.50 150 100% 2,475.0 Addition 5.1
Stock E added to index following Stock D
deletion
2475.0
F Y 24.80 60 100% 1,488 Y 24.18 80 100% 1,934.4 Regular Rights Issue 3 1
3.7.1.1
and
3.7.2.1
Stock F undergoes a regular rights issue
under the terms existing shareholders
can purchase 1 share for every 3 shares
446.4
G Y 6.00 200 100% 1,200 Y 5.90 0.10 200 100% 1,180.0 Dividend Payment 6.1
Stock G issues a final dividend
payment of £0.10
H Y 3.35 400 60% 804 Y 3.35 400 80% 1,072.0 Free Float Change 4.2.1
Stock H major shareholder sells 30%
of the company to the market,
increasing the free float
268.0
I Y 18.00 540 80% 12,150 Y 16.20 600 80% 12,150.0
Regular Scrip Issue
(Stock Dividend)
9 1 3.1.1
Stock I issues a stock dividend under the
terms 1 new share for every 9 held
J Y 19.50 200 100% 3,900 Y 16.10 200 100% 3,220.0
Scrip Issue in Eligible
Stock (spin-off added)
5 2 3.1.2
Stock J spins off a division, and the spin-
off, Stock K, is added to the index
-680.0
K N - - - - Y 8.50 80 100% 680.0
Shareholders are issued with 2 spin-off
shares for every 5 held in the
existing company
680.0
TOTAL 33,342 34,861.4 1,489.4

41
Euromoney Indices
10 September 2014
Appendix B
Revision History
Date of Revision Revision details Actioner
10 September 2014 Completion of V1 of Corporate Actions and Events Guide EI

42

Euromoney Indices
10 September 2014

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