Lagos, NG • GMT +1
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Wednesday, June30 , 2020 / 8:34 PM / By NSE / Header Image Credit: Getty Images
The Nigerian StockExchange (NSE) is pleased to announce that it has reviewed the eligibilitycriteria for the NSE Pension Index ("The Index") inline with changes in the regulatory and market requirements. The amended methodology and rebalancing will be effective on WednesdayJuly 1, 2020.
Accordingto Mr. Abimbola Abdulazeez Babalola, Chairman, Index Governance Committee, NSE "The review of the Index was made imperative by the need to ensure that itcontinues to represent the appropriate benchmark for evaluating the PensionFund Assets equity portfolios and remain suitable for all market stakeholders.The review further takes into consideration the changes in guidelines asspecified in the Pension Reform Act 2014 and Amended Regulation on Investmentof Pension Fund Assets as advised by the National Pension Commission (PENCOM)as well as market requirements in the amendments".
Below are thesummary of the amended NSE Pension Index Methodology and Eligibility Criteria.
| S/No | Criteria | NSE Pension Index | Amendment Remarks |
| 1 | Count (No. of Securities) | The top 40 companies that fulfilled all the requirements in the latest 6 months' period. | No Amendment |
| 2 | Eligibility Universe | The Stocks are picked for further tests based on their market capitalization from the most liquid sectors. Minimum of 6 months holding period. | No Amendment |
| 3 | Investability weighting | Companies to be included must have Free Float Factor of at least 5%. | Free Float consideration to be aligned with Exchange's free float rules and definition. |
| 4 | Liquidity Test | 70% 6-Month Frequency of Trading and Turnover velocity. | Equities 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. |
| 5 | Profitability Criteria | 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. | Dividend payment or bonus issue is now at least one and no longer two out of the five years |
| 6 | Returns Calculation | Total Return Method (to capture returns from dividends, price changes and realized gain | No Amendment |
| 7 | Security Cap | No individual listed equity can have a weighting of more than 10% | Maximum weighting of an individual listed equity has been reviewed from 4.5% to 10% |
| 8 | Sector Cap | No sector can have a weighting of more than 45% | No Amendment |
| 9 | Sector Base | No sector can have a weighing less than 2% | No Amendment |
| Governance | | ||
| 10 | Maintenance | The Index Governance Committee of NSE will monitor and implement the required adjustments for company additions and deletions, share changes, stock splits, stock dividends, corporate restructurings, spin-offs, or other corporate actions. | No Amendment |
| 11 | Rebalancing | The index is rebalanced semi-annually in June and December | No Amendment |
| 12 | Reviews | The index is reviewed annually on the first business day in January whereby constituents are reconstituted (added or deleted) based on their fulfilment of The Index eligibility criteria and methodology | No Amendment |
The Nigerian Stock Exchange in order to deepen themarket introduced the Pension Index and exposed to the investing public in2015.
The creation of the NSE Pension Index hasprovided benchmarks tracking mechanisms for Pension Fund Administrators andother Users that follow the PENCOM guidelines.
The NSE pension tracks the top 40 companies interms of market capitalization and liquidity. It is a total return index and isweighted by adjusted market capitalization, a capping factor and a free floatfactor.
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