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WIKI ANALYSIS
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This article describes an index that measures the performance of an exchange, industry or a geographic region. View articles referencing this index. |
The S&P TSX composite index is a capitalization weighted index of the Toronto Stock Exchange. It's the main index for the exchange and covers over 95% of the Toronto Stock Exchange by market capitalization. It includes all common stocks and income trust units traded on the exchange.
Weighting and Calculations
The index is calculated on the basis of the market capitalization method. Instead of using a company's outstanding shares it uses its float, or shares that are readily available for trading. The free-float method, therefore, does not include restricted stocks, such as those held by company insiders.
So the formula would be[1]:
Index level= Σ(Price of stock* Number of shares)/ Index Divisor.
While one might track this portfolio’s value in dollar terms, it would probably be an unwieldy number – for example, the S&P 500 market value is roughly $11.8 trillion. Rather than deal with ten or more digits, the figure is scaled to a more easily handled number, currently around 1250. Dividing the portfolio market value by a factor, usually called the Index divisor, does the scaling.
Continuity in index values is maintained by adjusting the divisor for all changes in the constituents’ share capital after the base date. This includes additions and deletions to the index, rights issues, share buybacks and issuances, and spin-offs. The divisor’s time series is, in effect, a chronological summary of all changes affecting the base capital of the index. The divisor is adjusted such that the index value at an instant just prior to a change in base capital equals the index value at an instant immediately following that change[2].
Composition
Eligibility
To be eligilbile for inclusion in the Composite index[3] :
- Market Capitalization: For eligibility any security must represent a minimum weight of 0.05% of the index. Moreover, the security must have a minimum weighted average price of atleast C$ 1 over the past three months and over the last three trading days of the month-end prior to the exchange reviewing the index.
- Liquidity: The trading volume in terms of dollar value and the number of transactions must exceed at least 0.025% of the sum of all eligible securities' trading volume. To ensure that no single company dominates trading, they are capped at a maximum of 15% for value, volume and transactions.
- Domicile:Stocks must be listed on the Toronto Stock Exchange and be in corporated under Canadian laws.
Breakdown
References
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