SIX Swiss amends rules governing blue-chip SMI Index

May 5th, 2017 | By | Category: Equities

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SIX Swiss Exchange has announced changes to the rules governing the SMI Index, Switzerland’s blue-chip equity index.

SIX Swiss Exchange adjusts rules governing blue-chip SMI Index

The SMI Index is to cap constituents at 18%, in line with UCITS guidelines.

As of 18 September, the index, which measures the performance of the 20 largest and most liquid equities listed on the Zurich stock exchange, will commence a process which will result in the weights of constituents being capped at 18%.

The amendment to the regulations brings the SMI into line with the diversification limits stipulated by ESMA’s UCITS directive, and thereby permits it to be used as a reference index for UCITS products.

The decision to introduce a cap on constituents was made following a market consultation which revealed that issuers of financial products were in favour of introducing a change in the SMI’s methodology.

A transitional period will provide for a gradual reduction in the weightings of the largest index components, reducing affected securities by 3% each quarter until the maximum of 18% of the SMI is reached.

The index currently contains two constituents which will see their weightings reduced under the new rules. They are Nestle and Novartis, with index weights of approximately 23% and 19% respectively.  Roche, at 17%, could also hit the cap if strong performance pushes it over the 18% threshold.

The consultation also revealed that some users continue to require an unfettered, uncapped index. SIX Swiss Exchange is consequently launching a new index in conjunction with the regulatory amendment. While its composition will correspond to that of the SMI, it will not be subject to capping.

ETFs listed in Europe tracking the SMI include, among others, the iShares SMI ETF (SIX: CSSMI) and the UBS SMI ETF (SIX: SMICHA), which hold CHF1.5bn (£1.2bn) and CHF2.5bn (£2.0bn) in assets under management respectively.

UBS has confirmed that its ETF will continue to track the SMI Index and will therefore adjust its holdings to reflect the 18% cap, potentially making it eligible to seek UCITS compliance.

iShares was unavailable for comment.

The UBS SMI ETF has a total expense ratio of 0.20% compared to 0.35% for the iShares SMI ETF.

Other SMI-linked ETFs include ComStage and Lyxor.

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