CONSULTATION ON SPECIFICTOPICS RELATED TO FREEFLOAT CALCULATION
January 18, 2018

© 2018 MSCI Inc. All rights reserved.
Please refer to the disclaimer at the end of this document.

CONSULTATION BACKGROUND• MSCI defines strategic and other non-free float shareholdings as stakes held by private or
public shareholders whose investment objectives suggest that these holdings are not likely tobe freely available in the market. As disclosure requirements generally do not permit a clear
determination of these investment objectives, MSCI primarily classifies shareholdings as freefloat or non-free float based on a categorization of investor types into non-strategic andstrategic, respectively.
• In relation to this, MSCI is launching a consultation regarding two specific types ofshareholders:─ Insurance companies holding securities classified in the MSCI Japan Equity Universe
─ Holdings of Sovereign Wealth Funds• MSCI is seeking feedback from the investment community until February 23, 2018.
• Should the proposals be adopted, the changes would be implemented in the May 2018 SemiAnnual Index Review as part of the Annual Float Review. Please note that this proposal may or
may not result in the changes in the MSCI Global Investable Market Indexes.
• Consultation feedback will remain confidential. MSCI may publicly disclose feedback if
specifically requested by specific market participants. In that case, the relevant feedback would
be published together with the final results of the consultation.

TREATMENT OF HOLDINGS BY
INSURANCE COMPANIES IN THE
MSCI JAPAN EQUITY UNIVERSE© 2018 MSCI Inc. All rights reserved.
Please refer to the disclaimer at the end of this document.

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BACKGROUND AND PROPOSAL• MSCI generally considers all stakes held by insurance companies as part of freefloat.
• However, in exceptional cases, stakes held by insurance companies can betreated as strategic due to the structure of equity ownership and theimportance of financial alliances for the control of companies. This treatment iscurrently applied where stakes above 2% in France, Germany, or Italy andabove 5% in Japan are treated as strategic.
• MSCI proposes to lower the threshold for Japan to 2% in order to align with theother markets as well as better reflect the strategic holdings by Japanese
insurance companies in the MSCI Japan Equity Universe.
• Discussion Points• Do you agree with the proposal to lower the threshold for Japan to 2%?
• Aside from the four markets Germany, France, Italy and Japan, are there anyother markets that may warrant similar treatment?

*Please note that these holdings are reviewed independently for each holder.

SIMULATED INDEX IMPACT (1/2)
Simulated USD Mcap Impact (in millions)and Index Turnover for the MSCI Japan
Indexes:Size-Segment

Index Mcap^ Impact

Current vs Pro-forma weight of Japan inMSCI World Index:Weight

TurnoverStandard(92,093.62)

1.58%

Current Weight

9.10%

Small(17,325.65)

1.55%

Pro-forma Weight

8.90%

Micro(2,208.04)

1.14%

Weight Change-0.20%*Data as of 15th Jan 2018
^Mcap stands for Market Capitalization*Data as of 15th Jan 2018

• Lowering the threshold to 2% would have had an impact of approximately USD
92 billion on the MSCI Japan Index resulting in a turnover of 1.58%.
• The weight of the MSCI Japan Index in the MSCI World Index would havedecreased by approximately 0.20%.

SIMULATED INDEX IMPACT (2/2)
Top 10 changes by impact on Index Mcap in the MSCI Japan Indexes:
Current FIF^

Proposed FIF

Insurance
Stake

Index Mcap
Impact~Current
Weights

Pro-forma
Weights

TOYOTA MOTOR CORP

0.80

0.75

3.68%

(11,298)

4.71%

4.52%

MITSUBISHI CORP

0.95

0.85

8.77%

(4,721)

1.17%

1.07%

HONDA MOTOR CO

0.95

0.90

4.98%

(3,263)

1.62%

1.57%

CANON INC

0.80

0.75

2.80%

(2,606)

1.09%

1.04%

DENSO CORP

0.60

0.55

2.73%

(2,525)

0.79%

0.74%

SHIN-ETSU CHEMICAL CO

0.90

0.85

2.47%

(2,368)

1.11%

1.07%

NIDEC CORP

0.80

0.75

2.21%

(2,296)

0.96%

0.92%

EAST JAPAN RAILWAY CO

0.85

0.80

4.11%

(2,021)

0.89%

0.86%

MITSUBISHI ELECTRIC CORP

0.90

0.85

6.68%

(1,954)

0.92%

0.89%

KOMATSU

0.95

0.90

6.24%

(1,942)

0.96%

0.93%

Security Name

*Data as of 15th Jan 2018

^FIF stands for Foreign Inclusion Factor~in Millions USD

TREATMENT OF SHAREHOLDINGSBY SOVEREIGN WEALTH FUNDS(SWFS)© 2018 MSCI Inc. All rights reserved.
Please refer to the disclaimer at the end of this document.

BACKGROUND AND PROPOSAL• Investment funds are generally classified as non-strategic shareholders and therefore
considered as free float. However, Sovereign Wealth Funds (SWFs) may warrant
different treatment and be considered as strategic in some circumstances.
• MSCI currently categorizes SWFs as non-free float in all the investments made by suchfunds in their respective country of domicile. However, when investments are made inother markets outside of their respective country of domicile, the categorization would
be made on a case by case basis depending on the analysis of a number of factors suchas board representation and strategic alliance, among others.
• The objective of the proposal is to provide a clearer framework for treatment of SWFs
in the context of free float estimation and to better reflect the SWFs holdings acrossdifferent markets as detailed in the following slide.

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DETAILED PROPOSAL•MSCI proposes to apply the following treatment:
1. In domicile country, continue to treat investments made by SWFs as non-free float
2. In non-domicile country,
1. if SWF holds 7% or more of a security, treat the investment as non-free float until it
falls below 5% of the security
2. board representation, strategic alliance and other similar factors will no longer beconsidered•

MSCI considers Investment made by SWFs in the country of domicile when the country oforigin of the SWF and the country of investment are the same.
- For example: China Investment Corporation (China based SWF), investing in a security in the MSCI
China Equity Universe• Discussion points• Should SWFs be treated differently from other investment funds?
• Should there be a difference in the treatment of sovereign wealth funds on the account of
their investments in Domicile/Non- Domicile country ?

9SIMULATED INDEX IMPACT (1/2)
Simulated Impact on FIF and Turnover on
the MSCI Country Indexes:
Country
Sri Lanka
Portugal
IrelandArgentina
United Kingdom
Switzerland
Spain
FranceAustralia
CanadaGermany
Korea
ThailandHong Kong
Netherlands
China
BrazilUSA
TaiwanNumber of FIF^
Changes for IMI
111
1
52242
122
12110191

Grand Total

49Index Turnover
3.15%
1.40%
0.37%
0.33%
0.31%
0.26%
0.25%
0.20%
0.17%
0.10%
0.08%
0.07%
0.07%
0.04%
0.03%
0.03%
0.03%
0.02%
0.01%
-*Data as of 15th Jan 2018
^FIF stands for Foreign Inclusion Factor

10SIMULATED INDEX IMPACT (2/2)
Top 10 changes by impact on FIF Mcap:
Name

Country

STANDARD
CHARTEREDUnited
Kingdom
UnitedKingdom

GLENCORE

Sovereign Fund NameSWF Domicile ofCurrent
Stake the Fund
Treatment

Temasek

16%

Singapore

Free Float

Qatar Investment Authority

9%

Qatar

Free Float

TECK RESOURCES B

CanadaChina Investment Corporation

10%

China

Free Float

DOLLAR GENERALCORPUSAGovernment Of Singapore Investment
Corporation

9%

Singapore

Free Float

TIFFANY & CO

USA

Qatar Investment Authority

10%

Qatar

Free Float

VONOVIAGermany

Norway Government Pension Fund –Global

7%

NorwayFree Float

GOODMAN GROUP

Australia

China Investment Corporation

9%

China

Free Float

REPSOL

Spain

Government Of Singapore Investment
Corporation

5%

Singapore

VINCIFrance

Qatar Investment Authority

4%

Qatar

Government Of Singapore Investment
Corporation

3%

Singapore

UBS GROUP

Switzerland

Non-Free
Float
Non-Free
Float
Non-Free
Float

Index
Proposed Current ProMcap^
FIF forma FIF Impact~
Treatment
Non-FreeFloat
Non-Free
Float
Non-Free
Float
Non-Free
Float
Non-Free
Float
Non-Free
Float
Non-Free
Float

10.85

(5,562)0.85

0.8(4,069)

10.9(1,775)

10.95(1,354)10.9(1,350)

10.95(1,197)10.9(1,159)

Free Float

0.8

0.85

1,532

Free Float

0.85

0.9

3,081

Free Float

0.95

13,780*Data as of 15th Jan 2018
^Mcap stands for Market Capitalization~in Millions USD

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