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STOXX to adopt rule changes to enhance index liquidity

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STOXX Limited has announced a series of rule enhancements to its indices, in reaction to the increasingly fast moving and volatile markets, as well as to enhance the liquidity of the index baskets.

These measures include the introduction of a fast entry rule for STOXX’s regional blue-chip indices; the adoption of a minimum liquidity rule for its benchmark indices, among them the STOXX Europe 600 Index; and the use of more up-to-date figures in the calculation of STOXX’s regional blue-chip indices.

Under the new fast entry rule for the STOXX regional blue-chip indices, all stocks that rank in the "lower buffer" category of the selection list during the quarterly rebalance will be eligible for fast entry into the respective indices, e.g. top 40 for the EURO STOXX 50 Index. Previously, fast entries were only possible for initial public offering (IPO) companies that ranked among the "lower buffer" category on the selection list. This improved rule will enable the respective STOXX indices to reflect the market with greater precision, and to accurately represent the performance of the biggest and most liquid stocks in the respective regions. The fast entry rule will become effective immediately.

The new liquidity rule will require a minimum liquidity screening for eligible components, as measured by the three-month average daily trading volume (ADTV). To be included in one of the STOXX Benchmark Indices, such as the STOXX Europe 600 Index, and the subsequent derived blue-chip indices, a company must have a minimum three-month ADTV of 1 million euro. Previously, the selection process for the STOXX Benchmark Indices was solely based on the company’s free-float market capitalization. The new rule is designed to ensure liquid and investable index constituents and thus tradability of related products, as it excludes large but illiquid companies from the indices. The new liquidity rule will be effective with the Q4 2011 benchmark index review.

The liquidity of the regional STOXX blue-chip indices will be further enhanced by using up-to-date free-float data in the selection list, which is the basis for deriving the new index composition. Under this amended rule, which will become effective immediately, the most current data as known to STOXX will be used to create the selection list used for component selection. Previously, up to three months old free-float factors from the last index rebalancing have been used. Under the new rule, free-float factors will continue to be reviewed on a quarterly basis. However, the free-float data will be based on new cutoff dates of 20 February, May, August and November. Therefore, index reviews will be based on current data on available shareholder structures and ensure that only companies with the largest available free float – and thus the most liquid ones – are selected for the indices.

Today’s enhancement of the index methodology is a result of recent market conditions and reflects STOXX Limited’s commitment to the constant development of its index family.
 

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