''KSE-30 Index'' to be adopted from September 1

The Karachi Stock Exchange (KSE) will adopt new Index from September 1, with the methodology of free float, which would run parallel to the existing one. The new index would give equal weightings to both liquidity (average daily traded value of shares) and free float market capitalisation in determining weights of individual securities in the index.
The exact composition of the index to be implemented from September 1, 2006 (based on June 30, 2006 prices) would be communicated when the data from CDC regarding free float of individual securities is obtained.
For the purpose of the index, the KSE management has defined ''free float'' as the ''easily tradable electronic shares'' which would exclude sponsor''s holdings, Government holdings, associate companies'' holdings and physical shares.
THE MAIN DIFFERENTIATING FEATURES OF THIS INDEX FROM THE OTHER ''OFFICIAL'' INDICES (KSE-100 AND KSE ALL-SHARE INDEX) ARE: (i) The market capitalisation is based only on the ''free-float'' of shares (free float refers to those shares actually available for sale/trading), rather than on the basis of paid-up capital.
Due to this reason, the ''over-representation'' of oil and gas exploration stocks would reduce in the new index. (ii) The other indices represent ''total returns'' of the market. That is, when a company announces a dividend, the index is not reduced/adjusted for that amount of dividend (whether cash or bonus). Thus if the present KSE-100 stands at 10,000 level and remains there for a year, it would actually show that in real terms the values have declined.
DEFINING FREE-FLOAT: Generally, ''Free float'' refers to those non-sponsor shares that are actually available for sale in the market. However, there can actually be two definitions of ''free float'', both of which would yield only slightly different results:
(a) All shares, other than controlling shares held by sponsors of the company;
(b) All non-sponsor shares available in CDC electronic form.
The KSE has, however, clarified the definition of ''free float'' separately under notice KSE/N 4483 as: ''Proportion of total shares, issued by a company, readily available for trading at the Stock Exchange. It generally excludes the shares held by controlling director/sponsors/promoters, government and other locked-in shares not available for trading in the normal course''.
The other relevant information in connection with this notice pertains to an addition in the Listing Regulations of the KSE. He addition to the Sub-Regulation No 21(3) has been made as follows:
''Every Listed Company or issuer of Listed Security shall submit in such form and manner as may be prescribed by the Exchange from time to time, the number and break-up of their free float shares on quarterly basis ie as on March 31, June 30, September 30 and December 31 each year. Such information shall be submitted to the Exchange within 15 days of close of each quarter.''
Thus, for the purpose of the KSE-30 Index, a regular process for obtaining the free float from listed companies is being formed. The index would be revised on the basis of its composition on June 30 and December 31 of any year (semi-annual basis). However, as against the KSE-100 Index, where the revision takes place within a few days after the base periods of March 31 and September 30, the KSE-30 Index would be revised after six weeks:
SELECTION PREREQUISITES: FOR SELECTION OF COMPANIES INTO KSE-30 INDEX, THE FOLLOWING PREREQUISITES HAVE BEEN DECIDED:
Company should have financial results of at least one full year; and should be listed on the KSE for a minimum of two months.
During the review period, trading in the shares should have been executed on at least 75 percent of the days. Free float must be at least 5 percent of the paid-up capital (exception has been allowed for OGDC, whose free float is slightly lower than 5 percent). Mutual funds shall be excluded from the index.
CALCULATION FOR MARKET CAPITALISATION IN KSE-30: THIS WOULD BE DONE ON TWO BASIC PARAMETERS:
-- 50 percent weightage to be given to free float based market capitalisation.
-- 50 percent weightage would be given to the liquidity of the scrip in terms of trading volumes. For this purpose, ''weighted average volume'' would be taken per day and then this would be done on every day for the entire month. Then, a comparison would be made for all the months (in the six-month period) and seen which scrip was the most liquid on monthly basis. That is, which scrip had the highest per month volume.