<Nikkei Index Consultation>
May 10, 2021
Nikkei Inc.
Index Consultation Regarding the Changes to the Presumed Par Valueand other methodologies of the Nikkei Stock Average
Nikkei Inc. is considering some amendments to the methodology of the Nikkei Stock
Average (Nikkei 225). Behind considerations are the new developments in the market
such as consolidation of trading units and planned reform of the market structure by theTokyo Stock Exchange. Nikkei has decided to amend the methodology of the Nikkei
225 to better serve the users of the index either as a measure of the market or as anunderlying for financial products.
Nikkei 225 is the best-known index of the Japanese equity market and widely used not
only for evaluation of the market but for various financial assets. In the process of thereview, Nikkei keeps the basic features of the index unchanged. Its constituents are
selected from highly liquid stocks with considerations to the industrial sector balance. It
will continue to be calculated as a price-weighted index. Nikkei maintains thecontinuity of the index with history of more than 70 years.
Based on the above policy, Nikkei intends to amend the methodology in considerationof the impact it might have on the market where the size of the assets linked to the index
needs attention. Nikkei values the opinions received through this consultation and willcontinue to review the rules of the Nikkei 225 to reflect the changes in the market in thefuture.
Nikkei consults on the specific subjects listed below.
① Change from “Presumed Par Value” to “Price Adjustment Factor”, andamendment to the setting rule for new constituents (effective from the 2021
Periodic Review)
In calculation of the Nikkei 225, price of a constituent has been adjusted by the“presumed par value” which has roots in the old “par value” concept under the Japanese1

commercial law before 2001. Since it has passed 20 years since the abolishment of parvalue under the commercial law, and the concept of par value is no longer commonly
acknowledged among market participants, Nikkei will change it to the “Price Adjustment
Factor” or “PAF”. The price of a new constituent will not be adjusted (PAF=1) except
when a new constituent is highly priced.
(1) Change from “Presumed Par Value” to “Price Adjustment Factor”
Function of the price adjustment factor (PAF) is the same as the presumed par value
which adjusts the price level of constituents. In calculation of the Nikkei 225, a stock
price of a constituent is multiplied by PAF. The value of PAF is the same as “50 dividedby the current presumed par value” (up to the first digit under the decimal point). The
price used to calculate the Nikkei 225 will not be affected by this change of the concept.
Examples: Presumed par value 50 is PAF 1 which is 50/50
Presumed par value 500 is PAF 0.1 which is 50/500
In line with the change above, the methodology is amended as follows.

For theavoidance of doubt, this change will not alter the mathematical nature of the calculation
formula.
[Index Guidebook] 3: Calculation method, Preamble
Current Rule

Proposed new rule

The Nikkei225 is calculated as a weighted
price average where the sum of theconstituent stock prices adjusted by thepresumed par value is divided by theThe Nikkei225 is calculated as a weighted
price average where the sum of theconstituent stock prices adjusted by theprice adjustment factor is divided by thedivisor.

divisor.

Adjusted stock price
Adjusted stock price= stock price x 50 (yen) / presumed par = stock price x price adjustment factorvalue (yen)Nikkei Stock Average = sum of Adjusted Nikkei Stock Average = sum of Adjusted
stock price / Divisor
stock price / Divisor
The PAFs of the current constituents at the time of this replacement will be 50 over the2current presumed par value. However, if the result of this calculation yields 2nd digit
under the decimal, it will be rounded down to the nearest 0.1 and the fraction will beadjusted by the divisor. Refer to the “List of the expected Price Adjustment Factor as
on May 10, 2021”.
(2) Rules to set PAF for new constituentsThe PAF for a new constituent to be added to the Nikkei 225 as a result of periodic
reviews or by extraordinary replacements will be set to 1 in principle, in line with theconsolidation of trading unit of the domestic stocks to 100 by the Tokyo Stock Exchange.
However, in order to reduce the impact of the addition of a new stock, PAF other than 1(0.1 to 0.9) may be assigned to an extremely highly priced stock so that its weight in theindex becomes less than 1%.
[Index Guidebook] 3: Calculation method, (2) Presumed par value, final sentence
Current Rule

Proposed new rule(2) Presumed par value(2) Price adjustment factor…
Nikkei uses “presumed” par value which
succeeds the ex-par value, and adjust theconstituent prices to the presumed parvalue of 50 yen base.

The price adjustment factor (PAF) of astock to be added to the Nikkei 225 is 1
provided that the value other than 1 (0.1 to0.9) may be assigned when the price ofsuch stock exceeds 1% of the sum of
constituent prices. It is set at the highest
value which does not exceed 1% of thesum of the prices by 0.1 interval.
PAF = sum of Adjusted stock price of theconstituents x 1% / the stock price of thenew constituent.
Note) RAF is evaluated on the base dateand rounded down to the nearest 0.1.
However, if the stock price of the new
constituent fluctuates drastically after thebase date until the effective date of thechange, the PAF may be adjusted.
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Presumed par value has been adjusted when a constituent goes a large-scale stock split
or reverse split to keep the adjusted price unchanged. The same rule applies to the PAF
and the PAF will be adjusted by the ratio of a large-scale split/reverse split.
② Upper limit to the number of constituents change in periodic review (effectivefrom the 2021 Periodic Review)To maintain the quality of the index, it is important to review the constituents while
limiting the impact of the reshuffle, especially when the asset linked to the index is rapidly
growing. To this end, an upper limit of 3 is applied to the constituent change in theperiodic review.
[Constituent Selection Rules] 2: Rules of the Periodic Review, Preamble
Current Rule

Proposed new rule

Constituents are reviewed annually in Constituents are reviewed annually asaccordance with the following rules. evaluated at the end of July (base date) in
Results of the review become effective on accordance with following rules.
the first trading day of October and there Results of the review become effective onis no limit to the number of constituents the first trading day of October. Thereshuffled.
maximum number of the constituents
reshuffled is 3.
③ Subject market change to the Prime Market from the 1st section of the Tokyo
Stock Exchange (effective from April 2022)
Currently, the Nikkei 225 is comprised of market representative stocks listed in the 1st
section of the Tokyo Stock Exchange. After the implementation of the new market
structure in April 2022, the constituents will be selected from the “Prime” market of theTSE. On this occasion, “Designation as Securities on Alert” is added to the “Deletionfor special reasons”.
[Constituent Selection Rules] 1: Constituents, first paragraph
Current Rule

Proposed new rule

The Nikkei225 is calculated with 225 The Nikkei225 is calculated with 225
market representative stocks from the market representative stocks from theTokyo Stock Exchange First Section.

Tokyo Stock Exchange Prime Market.
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[Constituent Selection Rules] 2: Rules of the Periodic Review, (1) High Liquidity Group
Current Rule

Proposed new rule

Choose highly liquid stocks from theTokyo Stock Exchange First Section andgroup them as the “High LiquidityGroup”.

Choose highly liquid stocks from theTokyo Stock Exchange Prime Market andgroup them as the “High LiquidityGroup”.

[Constituent Selection Rules] 3: Extraordinary Replacement Rules, (1) Deletion for
special reasons
Current Rule

Proposed new rule

Constituents removed from the Tokyo Constituents which meet the following
Stock Exchange First Section due to the criteria are deleted from the index.
reasons below and others are deleted from i) Designated as Securities to be delisted
the index.
or Securities on Alerti) Designated as a Securities to be ii) Delistedduetocorporatedelisted
restructuring such as merger, shareii) Delisted
duetocorporate
exchange or share transfer
restructuring such as merger, share iii) Transfer to the market other than theexchange or share transfer
Prime (*)
iii) Transfer to the Second Section(*) Those stocks listed in the first section of the TSE will have a choice not to be tradedin the Prime Market. If the issuers of constituent stocks choose not to trade in the Prime
Market, such constituents are removed, and new constituents are added on the day of suchmarket transfer. However, depending on the size of the impact of the constituentschange, appropriate implementation process such as step-wise removal/addition, may beconsidered.
④ Expansion of the digits under the decimal of the divisor (effective from June2022)
To improve the precision of the index, digits under the decimal point of the divisor will
be expanded from 3 to 8. This will become effective from the first divisor change afterJune 2022.

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[Index Guidebook] 3: Calculation method, (3) Divisor ③ Digits under the decimal
Current Rule

Proposed new rule

4th digit is rounded to make the divisor to 9th digit is rounded to make the divisor tohave 3 digits after the decimal point.
have 8 digits after the decimal point.
[Question]
Do you agree to the following proposed amendments?
1.
2.
3.
4.
5.
6.
7.

Change from “Presumed Par Value” to “Price Adjustment Factor”(PAF)
Rules to set PAF for new constituents
Upper limit of 3 constituents change in a periodic review
Change subject market from the 1st section to the prime market of the TSE
Addition of “designation as securities on Alert” to the list of deletion criteria
Expansion of the digits under the decimal point from 3 to 8 of the divisor
If you have opinions or ideas to further improve the Nikkei 225, please provide.

Please submit your opinion from the consultation section on the following URL.
https://indexes.nikkei.co.jp/en/nkave/governanceConsultation closing date:June 13, 2021 (JST)

Although your contribution to this consultation is respected, Nikkei makes a decision atits own discretion. The result of the consultation will be announced as a formal
announcement of the new methodologies. Your contribution will not be publishedalthough a summary without identity may be used in our documents.
Contact: https://www1.entryform.jp/nikkei_indexes_contact_en/6