FUTURES Share-index contract ready to go

Press, 20 December 1986, Page 31

FUTURES Share-index contract ready to go

PA Wellington The Futures Exchange confirmed yesterday that its Barclay’s share index contract will begin trading on January 5.

The contract value will be $2O times the share index, expressed as a whole number.

“The Barclay’s index is a capital index with a base of 100 on January 31, 1957, and comprises a representative sample of leading New Zealand listed public companies,” the Futures Exchange said in a statement.

“The purpose of the

index is to portray the pattern of share price movement.”

At December 12, the total market value of the Barclay’s represented more than 75 per cent of the aggregate market value of shares traded on the Stock Exchange. The index is made up of 40 companies selected by market capitalisation; all are New Zealand domiciled.

The 40 companies are weighted in the index according to their market capitalisation (diluted number of ordinary

shares multiplied by market price). Based on this method the percentage weighting of any particular stock will alter whenever the price changes or there is a capital issue. Similarly, the Barclay’s index is adjusted immediately Barclays is aware of a change in the number of shares on issue. When there is a bonus issue the issued capital is increased by the appropriate ratio on the ex date and the price adjusts accordingly.

If there is a cash issue the procedure is similar to the addition of a new company in that there is an increase in the market capitalisation of the index.

On the ex-issue date Barclay’s assumes all rights have been taken up and the application moneys paid thus increasing the paid capital by the appropriate ratio. Barclay’s then calculates a theoretical exissue price for the shares and compares this with the actual ex-issue market price to determine whether a particular company’s capitalisation has increased or decreased. In the case of convertible securities, the index is calculated on the basis of assuming immediate conversion on issue.

Dividends, however, are ignored as the Barclay’s index is a capital index.

To set the cash settlement value the index cal-

culation on the last trading day of each cash settlement month will be recalculated overnight on the basis of information from the Stock Exchange and the adjusted quotation will be advised to the clearing house in accordance with the contract bylaws.

The cash settlement value declared by the clearing house will be final and binding.

Where — as a result of a merger, take-over or other such development (including new listings) — there is a change in the “top 40” companies, the Barclay’s index will be amended.

Changes driven by take-overs are automatic and the composition of the index is immediately updated. However, where there are movements in relative size as a result of minor price or capital movements the index does not automatically adjust.

To stabilise the impact of frequent change at the lower end of the index a company not already in the index will be included only if it holds a position of 35 or better.

At that point the Barclay’s index will admit that company and the previously fortieth ranked company will be deleted.

If a company within the index falls in market capitalisation terms to forty-fifth ranking (or worse) then that company will be deleted from the index and Barclay’s will introduce the relevant new company to maintain the index at 40.

To ensure that the index is constantly calculated in accordance with established procedures Barclay’s has agreed to allow the index records to be periodically reviewed by an independent third party appointed by the exchange.