MSCI will adjust all its equity indices for free float – and will increase the target market representation of its Standard Index series from 60% to 85% coverage, within each industry group within each country.
The changes will be implemented in two separate phases – one as of the close of November 30, 2001, and the other at the close of May 31, 2002.
Unlike the current method, the new free float standard defined by MSCI will consider total shares outstanding, but will NOT include shares held by “strategic” investors such as governments, corporations, controlling shareholders, and management, and shares subject to foreign ownership restrictions.
That change is expected to shift capital between markets, particularly from Japan, where many companies own large portions of each other in cross shareholdings that aren’t available to the public.
In the first phase, MSCI will implement approximately half of the change resulting from the free float-adjustment for all existing index constituents and, at the same time, include all the new constituents resulting from the increase in coverage to 85% at approximately half of their free float-adjusted market capitalization.
The remaining changes required to fully implement the new methodology will take place in the second phase.
They plan to publish index components and their Inclusion Factors based on the new methodology on or before June 30, 2001. MSCI will begin calculating a provisional index series shortly after that.