EHIME ALEX, Lagos
The Nigerian Stock Exchange has reviewed the eligibility criteria for the NSE Pension Index in line with changes in the regulatory and market requirements.
In a statement on Tuesday, the NSE announced that the amended methodology and rebalancing will be effective on Wednesday July 1, 2020.
A summary of the amended NSE Pension Index Methodology and Eligibility Criteria showed that the NSE made specific changes to four criteria, leaving eight untouched.
On the Investability Weighting criterion, where companies to be included must have Free Float Factor of at least 5 per cent, the NSE said, “Free Float consideration to be aligned with Exchange’s free float rules and definition”.
For the Security Cap criterion, where no individual listed equity can have a weighting of more than 10 per cent, it said, “Maximum weighting of an individual listed equity has been reviewed from 4.5% to 10%”.
The NSE reviewed further that equities will now have to pass two parameter Liquidity Test instead of one: “(1) the number of times the stock traded during the half year (2) its turnover velocity”.
It added on the Profitability criterion, where companies to be included must have an operating track record of having made taxable profits for at least three out of the five years preceding the investment; and must have paid dividend or issued bonus at least one out of the five years, that “Dividend payment or bonus issue is now at least one and no longer two out of the five years.”
In a remark, NSE’s Chairman, Index Governance Committee, Mr Abimbola Abdulazeez Babalola, said, “The review of the Index was made imperative by the need to ensure that it continues to represent the appropriate benchmark for evaluating the Pension Fund Assets equity portfolios and remain suitable for all market stakeholders. The review further takes into consideration the changes in guidelines as specified in the Pension Reform Act 2014 and Amended Regulation on Investment of Pension Fund Assets as advised by the National Pension Commission (PENCOM) as well as market requirements in the amendments”.
The NSE had in 2015 introduced the Pension Index and exposed it to the investing public, in order to deepen the market.
Since then, the creation of the NSE Pension Index has provided benchmarks tracking mechanisms for Pension Fund Administrators and other Users that follow the PENCOM guidelines.
The NSE pension tracks the top 40 companies in terms of market capitalization and liquidity. It is a total return index and is weighted by adjusted market capitalization, a capping factor and a free float factor.
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