Informative Notice – 20220513 Introduction of Group Entity Capping
Introduction of Group Entity Capping
FTSE/JSE Africa Index Series
13 May 2022
On 20 July 2021, comments on the market consultation into the capping methodology applied in the
FTSE/JSE Africa Index Series closed. In August 2021 FTSE/JSE published a white paper to the market
that presented the arguments received during both consultation processes, concerns around unintended
short-term consequences, and a numerical assessment of the situation.
Responses to the consultation request indicated that there had been an increased convergence of opinion
amongst index users around the most appropriate approach to take to the capping methodology. In
particular, a significantly high proportion of index users considered Naspers and Prosus jointly when
evaluating concentration risk in their portfolios. FTSE/JSE introduced an interim capping level of 6% to
the capped SWIX indices at the September 2021 review. This notice sets out the permanent capping
solution, following consideration of all feedback received during the comprehensive consultation process.
1. Introduction of Group Entity Capping:
FTSE/JSE would like to introduce the concept of Group Entity Capping in the Index Series, effective from
the September 2022 Index Review.
The general principle in this instance would be to consider a company whose valuation is almost
exclusively dominated by its holding in another JSE-listed entity. Where an index constituent has an
equity stake in another index constituent, and the market value of that stake is greater than 75% of the
prevailing market capitalisation of the holding company, then the two companies shall be considered at
a combined group valuation level for index capping purposes only.
The Group Entity Capping Rule will read as follows:
To meet the requirements for capping two entities together, on review cut date:
• Both Company A and its related Company B must be listed on the JSE and be constituents, or
prospective review constituents, of the All Share index
• Consider the gross market capitalisation of Company A and the value of its holding in Company
B at prevailing market prices and the current cross-holding percentage
• If the market value of Company A’s holding in Company B is greater than 75% of the total gross
market capitalisation of Company A, then both companies should be considered as a single entity
for capping purposes in all Capped Indices in which both entities are constituents
• If the value of Company A’s holding in Company B falls below 65% of Company A’s total gross
market capitalisation at a subsequent quarterly review, then the two entities will no longer be
capped as one entity
Group Entity Capping will apply to all indices that have a fixed capping level based on an underlying
market capitalisation weighting or SWIX weighting. It will not apply to any equally weighted indices or
any non-market capitalisation weighted indices.
Please refer to the list of indices impacted by Group Entity Capping:
2. Increase in Capping Level:
FTSE/JSE intends to increase the default capping level from the current level to between 12% and 13%
at the September 2022 review. This will apply to the following five indices:
Code Index Name
J141 FTSE/JSE Capped Shariah Top 40
J300 Capped Top 40
J303 Capped All Share
J430 FTSE/JSE Capped Shareholder Weighted Top 40 Index
J433 FTSE/JSE Capped Shareholder Weighted All Share Index
The final level will be announced before the September Index Review.
3. Capped SWIX Indices – Update to Interim Capping Measure:
FTSE/JSE implemented an interim solution in the FTSE/JSE Capped SWIX All Share Index (J433) and the
FTSE/JSE Capped SWIX Top 40 Index (J430), reducing the capping level from 10% to 6% for all
constituents, with effect from the September 2021 Index Review. The intention of this interim measure
was to align the combined weighting of the two companies in these indices to the prevailing weights at
the time, given the uncertainty around the implementation of Group Entity Capping.
There will be an update to the interim solution in the Capped SWIX indices. With effect from the June
2022 Index Review, the capping level for the following two indices only will change from 6% to 8%:
J433 – FTSE/JSE Capped SWIX All Share Index
J430 – FTSE/JSE Capped SWIX Top 40 Index
The permanent solution will then be implemented with the September Index Review, when the capping
level for these two indices will change from 8% to the new capping level to be announced before the
September review, as described under paragraph 2 above.
For further information please contact FTSE Russell Client Services at firstname.lastname@example.org or email@example.com or call:
Australia +1800 653 680
Hong Kong +852 2164 3333
Japan +81 3 4563 6346
London +44 (0) 20 7866 1810
New York +1866 551 0617
JSE Limited +27 11 520 7000
Alternatively please visit our website at www.ftserussell.com or www.ftsejse.co.za
Date: 13-05-2022 05:37:00
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