TSE 300 Slims Down to S&P/TSE

(PLANSPONSOR.com) - New criteria have been set for inclusion in the TSE 300 index, with company size and liquidity being the chief attributes considered, just one of a number changes in the Canadian benchmark announced by the Toronto Stock Exchange (TSE).

Size measurements will be based on minimum price and market capitalization. Liquidity measurements will be based on trading activity on the TSE.

TSE 300 will also trim off almost a third of its constituents in a bid to make the index more representative of the market – the last 100 names on the index list currently make up only 2.5% of its weight.

Fund managers complain that many of these names are difficult to purchase, given their low capitalization and liquidity.

The index will no longer be required to comprise exactly 300 constituents, the number will vary over time – the name of the index has been changed to the S&P/TSE Composite Index. Index officials say constituents will number 200 to 225.

All stocks that qualify for inclusion during quarterly reviews – which replace the annual reviews of the previous system – will be automatically included in the index, according to TSE.

The S&P/TSE will also incorporate the Global Industry Classification Standard (GICS), replacing an older classification system used solely by the Canadian market, allowing investors to compare the performance of the benchmark with other global indices more accurately.

However, implementation of the new classification, which replaces the existing 14 sector divisions with 10 new groups, has its share of critics, who say that changing the system means that important historic trends will be lost.

The changes, which represent the first major overhaul of the index in 25 years, are to be implemented on May 1, 2002, according to exchange officials.

In addition, as announced in November 1998, the TSE 100, the TSE 200 and the Toronto 35 indices will be discontinued, and will be available on a custom index basis only beginning May 1, 2003.