The Colombo Stock Exchange(CSE) through a note on its website has called for comments on proposed amendments to the S&P SL20 eligibility criteria.
They stated in order to take advantage of more readily available financial data and ensure a sufficient number of eligible stocks for the index given the declining liquidity in the Sri Lankan equity market, S&P DJI is considering amending the index’s liquidity and financial viability criteria.
Previous criteria required companies to have a market turnover of a minimum six-month median daily value traded (MDVT) of Rs 500,000. Companies already within the S&P SL20 had to maintain a MDVT of at least Rs 350,000 to remain eligible.
Currently, if there are less than 20 eligible companies after applying all the eligibility criteria, the liquidity requirement is relaxed by 10 percent for both constituent and non-constituent stocks.
The proposed criterion uses a universe of stocks to select from. In the new system stocks fulfilling all other eligibility criteria are ranked based on their six-month median daily value traded MDVT with the 40 most liquid stocks comprising the selection universe from which the S&P SL 20 index composition will be derived.
The criteria whereby companies must be profitable, as measured by positive net income over the latest 12-month period, as of the reconstitution reference date will be changed. The reconstitution reference date will be changed to the latest fiscal year.
Stakeholders are expected to respond before December 3 to the proposed changes. Sri Lankan investors currently do not have access to low-cost passive index funds. Active management of portfolios is widespread. (DP)
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