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MSCI Global Investable Market IndicesMethodology

Index Construction Objectives, Guiding Principles and Methodology for the MSCI Global Investable
Market IndicesNovember 2010

MSCI Global Investable Market Indices Methodology| November 2010

Table of Contents
Outline of the Methodology Book ......................................................................................................... 5
Section 1: Introduction to the MSCI Global Investable Market Indices ............................................... 6
Section 2: Constructing the MSCI Global Investable Market Indices................................................... 8
2.1

DEFINING THE EQUITY UNIVERSE .................................................................................................................... 8
2.1.1
Identifying Eligible Equity Securities ............................................................................................................ 8
2.1.2
Country Classification of Eligible Securities .................................................................................................. 8
2.2
DETERMINING THE MARKET INVESTABLE EQUITY UNIVERSES ........................................................................ 92.2.1
Equity Universe Minimum Size Requirement ............................................................................................... 92.2.2
Equity Universe Minimum Float-Adjusted Market Capitalization Requirement ......................................... 10
2.2.3
DM and EM Minimum Liquidity Requirement............................................................................................ 10
2.2.4
Global Minimum Foreign Inclusion Factor Requirement ............................................................................ 12
2.2.5
Minimum Length of Trading Requirement .................................................................................................. 12
2.3
DEFINING MARKET CAPITALIZATION SIZE-SEGMENTS FOR EACH MARKET .................................................... 13
2.3.1
Defining the Market Coverage Target Range for Each Size-Segment .......................................................... 14
2.3.2
Determining the Global Minimum Size Range for Each Size-Segment ....................................................... 15
2.3.2.1

Defining the Global Minimum Size Reference................................................................................................................................. 15

2.3.5.1
2.3.5.2
2.3.5.3

Minimum Free Float Market Capitalization Requirement .............................................................................................................. 18
Minimum Liquidity Requirement for the Standard Indices ............................................................................................................ 19
Minimum Foreign Room Requirement for the Standard Indices .................................................................................................. 19

2.3.3
2.3.4
2.3.5

2.4
2.5
2.6
2.7

Determining the Segment Number of Companies and Associated Market Size-Segment Cutoffs............... 16
Assigning Companies to the Size-Segments ................................................................................................. 17
Applying Final Size-Segment Investability Requirements and Index Continuity Rules............................... 18

INDEX CONTINUITY RULES FOR THE STANDARD INDICES ............................................................................... 20
CREATING STYLE INDICES WITHIN EACH SIZE-SEGMENT ............................................................................... 20
CLASSIFYING SECURITIES UNDER THE GLOBAL INDUSTRY CLASSIFICATION STANDARD ................................. 21
CREATING SIZE-SEGMENT INDICES: EXAMPLES .............................................................................................. 22
2.7.1
Determining Market Size-Segment Cutoffs and Assigning Companies to the Size-Segments .....................22

Section 3: Maintaining the MSCI Global Investable Market Indices .................................................. 25
3.1

SEMI-ANNUAL INDEX REVIEWS IN MAY AND NOVEMBER ................................................................................ 25
3.1.1
Updating the Equity Universe .......................................................................................................................26
3.1.2
Updating the Market Investable Equity Universes .......................................................................................26
3.1.2.1
3.1.2.2
3.1.2.3
3.1.2.4

Updating the Equity Universe Minimum Size Requirement .......................................................................................................... 26
Updating the Equity Universe Minimum Free Float–Adjusted Market Capitalization .............................................................. 27
Minimum Liquidity Requirement for Existing Constituents .......................................................................................................... 27
Global Minimum Foreign Inclusion Factor Requirement .............................................................................................................. 28

3.1.4.1
3.1.4.2

Determining Initial Segment Number of Companies...................................................................................................................... 28
Changes in the Segment Number of Companies ............................................................................................................................. 29

3.1.5.1

Using Buffer Zones to Manage the Migration of Companies between Size-Segment Indices ................................................. 31

3.1.6.1
3.1.6.2

For New Constituents .......................................................................................................................................................................... 32
For Existing Constituents .................................................................................................................................................................... 33

3.2.1.1
3.2.1.2
3.2.1.3
3.2.1.4

Updating the Global Minimum Size References and Global Minimum Size Ranges ................................................................. 35
Reassessing the Market Size-Segment Cutoffs ................................................................................................................................. 35
Assigning Companies to the Size-Segment Indices ......................................................................................................................... 35
Assessing Conformity with Final Size-Segment Investability Requirements ............................................................................... 36

3.1.3
3.1.4
3.1.5
3.1.6

Recalculating the Global Minimum Size References and Global Minimum Size Ranges ............................28
Reassessing the Segment Number of Companies and the Market Size-Segment Cutoffs ............................28
Assigning Companies to Appropriate Size-Segments ................................................................................... 31
Assessing Conformity with Final Size-Segment Investability Requirements................................................32

3.1.7
Semi-Annual Index Review of Changes in Foreign Inclusion Factors (FIFs) ..............................................34
3.1.8
Semi-Annual Index Review of Changes in Number of Shares (NOS) ..........................................................34
3.1.9
Date of Data Used for Semi-Annual Index Review .......................................................................................34
3.2
QUARTERLY INDEX REVIEWS IN FEBRUARY AND AUGUST ............................................................................... 35
3.2.1
Quarterly Index Review of Size-Segment Migrations ...................................................................................35

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Quarterly Index Review of Addition of Companies Currently not Constituents of the Investable Market
Indices ...........................................................................................................................................................37
3.2.3
Quarterly Index Review of Changes in FIFs .................................................................................................38
3.2.4
Quarterly Index Review of Changes in Number of Shares (NOS) ................................................................38
3.2.5 Date of Data Used for Quarterly Index Review: ..................................................................................................39
3.3
ONGOING EVENT-RELATED CHANGES ............................................................................................................ 39
3.3.1
Determining the Interim Market Size-Segment Cutoffs for Daily Maintenance...........................................40
3.3.2
Updating the Segment Number of Companies .............................................................................................40
3.3.3
Corporate Events Affecting Existing Index Constituents ............................................................................. 41
3.2.2

3.3.3.1
3.3.3.2
3.3.3.3
3.3.3.4

Changes in FIF, Number of Shares or Industry Classification for Existing Constituents ......................................................... 41
Changes in Size or Style Segment Classification as a Result of a Large Corporate Event ......................................................... 42
Early Inclusions of Non-Index Constituents .................................................................................................................................... 43
Early Deletions of Existing Constituents .......................................................................................................................................... 44

3.3.4.1

IPOs and Other Early Inclusions ....................................................................................................................................................... 45

3.4.3.1
3.4.3.2

Client Announcements ......................................................................................................................................................................... 46
Public Announcements ........................................................................................................................................................................ 48

3.3.4
3.4

Corporate Events Affecting Non-Index Constituents ...................................................................................45

ANNOUNCEMENT POLICY ................................................................................................................................ 46
3.4.1
Semi-Annual Index Review ...........................................................................................................................46
3.4.2
Quarterly Index Review .................................................................................................................................46
3.4.3
Ongoing Event-Related Changes ..................................................................................................................46
3.4.4
3.4.5

IPOs and Other Early Inclusions ..................................................................................................................48
Global Industry Classification Standard (GICS) ...........................................................................................48

Section 4: MSCI All Cap Indices .......................................................................................................... 50
4.1

CONSTRUCTING THE MSCI ALL CAP INDICES ................................................................................................. 50
4.1.1
Micro Cap Maximum Size Requirement .......................................................................................................50
4.1.2
Micro Cap Minimum Size Requirement .......................................................................................................50
4.1.3
Micro Cap Minimum Liquidity Requirement ............................................................................................... 51
4.1.4
Global Minimum Foreign Inclusion Factor Requirement ............................................................................ 51
4.1.5
Minimum Length of Trading Requirement .................................................................................................. 51
4.2
MAINTAINING THE MSCI ALL CAP INDICES .................................................................................................... 51
4.2.1
Semi-Annual Index Reviews in May and November.....................................................................................52
4.2.1.1
4.2.1.2

4.2.2
4.2.3

Updating the Micro Cap Minimum Size Requirement .................................................................................................................... 52
Assigning Companies to the Micro Cap Size-Segment ................................................................................................................... 52

Quarterly Index Reviews of February and August ........................................................................................53
Ongoing Event-Related Changes ..................................................................................................................53

Section 5: MSCI Frontier Markets Indices........................................................................................... 54
5.1

FRONTIER MARKETS DEFINITION ................................................................................................................... 54
5.1.1
Updating MSCI Frontier Markets Index Coverage .......................................................................................54
5.2
METHODOLOGY USED TO CONSTRUCT AND MAINTAIN THE MSCI FRONTIER MARKETS INDICES .................. 54
5.2.1
Categorization of Frontier Markets into Larger and Smaller Markets ..........................................................55
5.2.1.1
5.2.1.2
5.2.1.3

5.2.2
5.2.3
5.2.4
5.2.5
5.2.6
5.2.7

Equity Universe Minimum Float-Adjusted Market Capitalization Requirement ........................................................................ 56
Global Minimum Foreign Inclusion Factor Requirement .............................................................................................................. 56
Global Minimum Size Reference ........................................................................................................................................................ 56

Categorization of Frontier Markets into very low, low or average liquidity markets.....................................57
Final Size-Segment Investability Requirements............................................................................................57
Treatment of Securities with Low Foreign Room .........................................................................................58
Index Continuity Rules .................................................................................................................................59
Implementation of Corporate Events ............................................................................................................59
IPOs and Other Early Inclusions ..................................................................................................................60

Appendix I: Equity Markets and Universe .......................................................................................... 62
Appendix II: Market Classification Framework .................................................................................. 69
Appendix III: Country Classification of Securities .............................................................................. 72
Appendix IV: Free Float Definition and Estimation Guidelines......................................................... 76
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Appendix V: Global Industry Classification Standard (GICS) ............................................................ 86
Appendix VI: Price Source for Securities ............................................................................................. 92
Appendix VII: Policy Regarding Trading Suspensions During Index Reviews ................................. 93
Appendix VIII: Updating the Global Minimum Size References and Ranges ................................... 95
Appendix IX: Minimum Market-Relative Liquidity Requirements for the Standard Index .............. 97
Appendix X: MSCI Frontier Markets Indices Country Classification ................................................. 98
Appendix XI: Transition ...................................................................................................................... 99
PROVISIONAL INDICES ................................................................................................................................................. 100
Deriving the Size-Segment Indices at Initial Construction of the Provisional Indices.............................................. 100
Publication of Provisional Indices ............................................................................................................................. 100
REFLECTING CONSTITUENT CHANGES IN THE STANDARD INDICES AT THE TRANSITION POINTS .............................. 101
INDEX REVIEWS AND TREATMENT OF ON-GOING MARKET EVENTS DURING THE TRANSITION PERIOD .................. 103
Ongoing Event Related Changes............................................................................................................................... 103
May 2007 Annual Full Country Index Review of the Standard Indices and Semi-Annual Index Review of the
Small Cap Index .......................................................................................................................................... 103
August 2007 Quarterly Index Review ......................................................................................................................... 104
November 2007 Semi-Annual Index Review.............................................................................................................. 104
February 2008 Quarterly Index Review ...................................................................................................................... 104
May 2008 Semi-Annual Index Review........................................................................................................................ 105
TRANSITIONING OTHER INDICES ................................................................................................................................ 106
Global Value and Growth Indices .............................................................................................................................. 106
Euro and Pan-Euro Indices ....................................................................................................................................... 106
Indices Based on the Standard Indices ...................................................................................................................... 106
SUMMARY TRANSITION TIMELINE ............................................................................................................................... 108

Appendix XII: Transition of MSCI China A Index ............................................................................ 111
Appendix XIII: MSCI DR Indices ...................................................................................................... 114

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Outline of the Methodology Book
This methodology book outlines MSCI’s index objectives and details the methodology employed to create
and maintain the MSCI Global Investable Market Indices.
Section 1 provides an introduction and background to the MSCI Global Investable Market Index family
including the objectives and design of the indices.
Section 2 details the principles and the methodology used for index construction. This includes theinvestability requirements and the size-segmentation methodology used in constructing the indices.
Section 3 describes the maintenance principles employed for reflecting the evolution of the markets in atimely fashion while providing index stability and controlling turnover.
Section 4 details the principles and the methodology used for MSCI All Cap Indices construction.
Section 5 details the principles and the methodology used for MSCI Frontier Markets Indicesconstruction.

The Appendices contain details on equity market coverage, country classification of securities, free float
definition and estimation, and other attributes.
This book was last updated in November 2010.

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Section 1: Introduction to the MSCI Global Investable Market Indices
For over 35 years, MSCI has constructed the most widely used international equity indices for institutional
investors. The MSCI global equity indices have maintained their leading position because they have
evolved over time to continue to appropriately reflect the international investable opportunity set of
equities while addressing the changing and expanding investment interests of cross-border investors.
MSCI’s objective is to construct and maintain its global equity indices in such a way that they may
contribute to the international investment process by serving as:••••

Relevant and accurate performance benchmarks.
The basis for asset allocation and portfolio construction across geographic markets, size-segments,
style segments, and sectors.
Effective research tools.
The basis for investment vehicles.

Developments in international equity markets and investment management processes have led many
investors to desire very broad coverage and size-segmentation of the international equity markets. To
address these desires and continue to meet our index construction and maintenance objective, after athorough consultation with members of the international investment community, MSCI enhanced its
Standard Index methodology, by moving from a sampled multi-cap approach to an approach targeting
exhaustive coverage with non-overlapping size and style segments. The MSCI Standard and MSCI Small
Cap Indices, along with the other MSCI equity indices based on them, transitioned to the Global
Investable Market Indices methodology described in this methodology book. The transition wascompleted at the end of May 2008.
The Enhanced MSCI Standard Indices are composed of the MSCI Large Cap and Mid Cap Indices. The
MSCI Global Small Cap Index transitioned to the MSCI Small Cap Index resulting from the Global
Investable Market Indices methodology, and contains no overlap with constituents of the transitioned
MSCI Standard Indices. In addition, under the MSCI Global Investable Market Indices methodology,
there are new Small Cap Indices covering Emerging Markets countries. There are also new MSCI Valueand Growth Indices constructed from the Small Cap Indices for both Emerging and Developed Markets.
Together, the relevant MSCI Large Cap, Mid Cap and Small Cap Indices make up the MSCI Investable
Market Index for each country, composite, sector, and style index that MSCI offers.
Based on transparent and objective rules, the Global Investable Market Indices are intended to provide:••••

Exhaustive coverage of the investable opportunity set with non-overlapping size and stylesegmentation.
A strong emphasis on investability and replicability of the indices through the use of size and liquidity
screens.
Size segmentation designed to achieve an effective balance between the objectives of global size
integrity and country diversification.
An innovative maintenance methodology that provides a superior balance between index stability andreflecting changes in the opportunity set in a timely way.

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6 of 118MSCI Global Investable Market Indices Methodology| November 2010•

A complete and consistent index family, with Standard, Large Cap, Mid Cap, Small Cap, andInvestable Market Indices.

In addition to the innovations listed above, the Global Investable Market Indices methodology retains
many of the features of the original methodology, such as:
•
•
•
•
•

The use of a building block approach to permit the creation and calculation of meaningful composites.
The creation of sector and industry indices using the Global Industry Classification Standard (GICS®).
The creation of Value and Growth Indices using the current MSCI Global Value and Growth
Methodology.
Minimum free float requirements for eligibility and free float-adjusted capitalization weighting toappropriately reflect the size of each investment opportunity and facilitate the replicability of the
Indices.
Timely and consistent treatment of corporate events and synchronized rebalancings, globally.

In November 2010 MSCI also introduced a Micro Cap Size-Segment for developed markets as well as the
MSCI World All Cap Index consisting of the Large, Mid, Small and Micro Cap Size-Segments in order tofurther broaden the coverage of the international equity markets.

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Section 2: Constructing the MSCI Global Investable Market Indices
Constructing the MSCI Global Investable Market Indices involves the following steps:
•
•
•
•
•
•

Defining the Equity Universe.
Determining the Market Investable Equity Universe for each market.
Determining market capitalization size-segments for each market.
Applying Index Continuity Rules for the Standard Index.
Creating style segments within each size-segment within each market.
Classifying securities under the Global Industry Classification Standard (GICS®).

Each of these steps is described in detail below.

2.1

Defining the Equity Universe

The Equity Universe is defined by:••

Identifying eligible equity securities, andClassifying these eligible equity securities into the appropriate country.
2.1.1

Identifying Eligible Equity Securities

All listed equity securities, or listed securities that exhibit characteristics of equity securities, except
mutual funds (other than Business Development Companies in the U.S.), ETFs, equity derivatives,
limited partnerships, and most investment trusts are eligible for inclusion in the Equity Universe.
Real Estate Investment Trusts (REITs) in some countries and certain income trusts in Canada arealso eligible for inclusion.
Preferred shares that exhibit characteristics of equity securities are generally eligible. As thedefinition of the preferred shares may vary from country to country or even from one company toanother, MSCI analyses this type of security on a case by case basis. The key criterion for apreferred share to be eligible is that it should not have features that make it resemble – and behave
like – a fixed income security, such as the entitlement to a fixed dividend and/or, in case of
liquidation, an entitlement to a company’s net assets which is limited to the par value of thepreferred share. On the other hand, preferred shares whose only difference compared to commonshares is a limited voting power are typically eligible for inclusion in the Equity Universe.
2.1.2

Country Classification of Eligible Securities

Each company and its securities (i.e., share classes) is classified in one and only one country, whichallows for a distinctive sorting of each company by its respective country.
The DM Equity Universe consists of all securities in the Equity Universe classified into a Developed
Market.
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8 of 118MSCI Global Investable Market Indices Methodology| November 2010
Please refer to Appendix I: Equity Markets and Universe and Appendix III: Country Classification of
Securities for further details.

2.2

Determining the Market Investable Equity Universes

A Market Investable Equity Universe for a market is derived by applying investability screens to individualcompanies and securities in the Equity Universe that are classified in that market. A market is equivalent toa single country, except in DM Europe, where all DM countries in Europe are aggregated into a single
market for index construction purposes. Subsequently, individual DM Europe country indices within the
MSCI Europe Index are derived from the constituents of the MSCI Europe Index under the Global
Investable Market Indices methodology.
The Global Investable Equity Universe is the aggregation of all Market Investable Equity Universes. The
DM Investable Equity Universe is the aggregation of all the Market Investable Equity Universes forDeveloped Markets.
Some of the investability requirements referred to above are applied at the individual security level andsome at the overall company level, represented by the aggregation of individual securities of the company.
As such, the inclusion or exclusion of one security does not imply the automatic inclusion or exclusion ofother securities of the same company.
The investability screens used to determine the Investable Equity Universe in each market are:
•
•
•
•
•

Equity Universe Minimum Size Requirement.
Equity Universe Minimum Free Float-Adjusted Market Capitalization Requirement.
DM and EM Minimum Liquidity Requirement.
Global Minimum Foreign Inclusion Factor Requirement.
Minimum Length of Trading Requirement.
2.2.1

Equity Universe Minimum Size Requirement

This investability screen is applied at the company level.
In order to be included in a Market Investable Equity Universe, a company must have the required
minimum full market capitalization. This minimum full market capitalization is referred to as theEquity Universe Minimum Size Requirement. The Equity Universe Minimum Size Requirement
applies to companies in all markets, Developed and Emerging, and is derived as follows:••First, the companies in the DM Equity Universe are sorted in descending order of full market
capitalization and the cumulative coverage of the free float-adjusted market capitalization of
the DM Equity Universe is calculated at each company. Each company’s free float-adjusted
market capitalization is represented by the aggregation of the free float-adjusted market
capitalization of the securities of that company in the Equity Universe.
Second, when the cumulative free float-adjusted market capitalization coverage of 99% of the

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9 of 118MSCI Global Investable Market Indices Methodology| November 2010•sorted Equity Universe is achieved, the full market capitalization of the company at that point
defines the Equity Universe Minimum Size Requirement.
The rank of this company by descending order of full market capitalization within the DM
Equity Universe is noted, and will be used in determining the Equity Universe Minimum Size
Requirement at the next rebalance.
Example:Using the steps mentioned above, in this example the full market
capitalization of the 8008th company of USD 150 million will be chosen as
the Equity Universe Minimum Size Requirement.

Company Country
A
a
B
a
C
a
AD
a
AE
b
AF
c
GG
a
AH
a
AL
d
…
…
..
WWW
f
XYZ
g
YYY
f
ZZZZ
f
…
Total

Full Market
Capitalization(USD millions)
400,000
360,000
275,000
250,000
240,000
235,000
230,000
225,000
210,000
…
…
..
1,000
150
125
100
…

Free FloatAdjusted Market
Capitalization(USD millions)
400,000
360,000
250,000
250,000
190,000
95,000230,000
225,000
210,000
…
…
..
250
130
125
100
…
31,000,000

Cumulative Free
Float-Adjusted
MarketCapitalization
Coverage
1.29%
2.45%
3.26%
4.06%
4.68%
4.98%
5.73%
6.45%
7.13%
…
…
..
98.99%
99.00%
99.01%
99.01%…
100.00%Rank ofCompany
1
2
3
4
5
6
7
8
9
…
…
..
8,007
8,008
8,009
8,010
…

As of April 22, 2010, the Equity Universe Minimum Size Requirement is
USD 112 million. Companies with full market capitalizations below this levelare not included in any Market Investable Equity Universe. The Equity
Universe Minimum Size Requirement is reviewed and, if necessary revised, at
Semi-Annual Index Reviews.

2.2.2

Equity Universe Minimum Float-Adjusted Market Capitalization Requirement

This investability screen is applied at the individual security level. To be eligible for inclusion in aMarket Investable Equity Universe, a security must have a free float-adjusted market capitalization
equal to or higher than 50% of the Equity Universe Minimum Size Requirement.
2.2.3

DM and EM Minimum Liquidity Requirement

This investability screen is applied at the individual security level. To be eligible for inclusion in aMarket Investable Equity Universe, a security must have adequate liquidity measured by:•

Twelve month and 3-month Annual Traded Value Ratio (ATVR);

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MSCI Global Investable Market Indices Methodology| November 2010•

Three month Frequency of Trading.

The ATVR screens out extreme daily trading volumes, taking into account the free float-adjusted
market capitalization size of securities. The aim of the 12-month and 3-month ATVR together
with 3-month Frequency of Trading is to select securities with a sound long and short-term
liquidity.
A minimum liquidity level of 20% of 3-month ATVR and 90% of 3-month Frequency of Tradingover the last 4 consecutive quarters, as well as 20% of 12-month ATVR are required for the
inclusion of a security in a Market Investable Equity Universe of a Developed Market. This rule isreferred to as the DM Minimum Liquidity Requirement.
A minimum liquidity level of 15% of 3-month ATVR and 80% of 3-month Frequency of Tradingover the last 4 consecutive quarters, as well as 15% of 12-month ATVR are required for the
inclusion of a security in a Market Investable Equity Universe of an Emerging Market. This rule isreferred to as the EM Minimum Liquidity Requirement.
In instances when a security does not meet the above criteria, the security will be represented by arelevant liquid eligible Depositary Receipt if it is trading in the same geographical region.1
Depositary Receipts are deemed liquid if they meet all the above mentioned criteria for 12-month
ATVR, 3-month ATVR and 3-month Frequency of Trading.
Concerning the level of a stock price, there may be liquidity issues for securities trading at a very
high stock price. Hence, a limit of USD 10,000 has been set and securities with stock prices above
USD 10,000 fail the liquidity screening. This rule applies only for non-constituents of the MSCI
Global Investable Market Indices. Consequently, current constituents of the MSCI Global
Investable Market Indices would remain in the index if the stock price passes the USD 10,000
threshold.
The ATVR of each security is calculated in a 3-step process:• First, monthly median traded values are computed using the mediandaily traded value, multiplied by the number of days in the monththat the security traded. The daily traded value of a security is equal
to the number of shares traded during the day, multiplied by theclosing price of that security. The median daily traded value is themedian of the daily traded values in a given month.
• Second, the monthly median traded value of a security is divided by
its free float-adjusted security market capitalization at the end of themonth, giving the monthly median traded value ratio.
• Finally, the 12-month ATVR is obtained by taking the average of the1

Exceptions: In Russia liquid ADRs may be eligible for inclusion in the Market Investable Equity Universe despite trading in a different time-zone. In Peru,

liquid U.S. listings other than ADRs may be eligible for inclusion in the Market Investable Equity Universe. MSCI classifies markets into three main
geographical regions: EMEA, Asia Pacific and Americas.
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MSCI Global Investable Market Indices Methodology| November 2010
monthly median traded value ratios of the previous 12 months – orthe number of months for which this data is available (previous 6months, 3 months or 1 month) – and annualizing it by multiplying itby 12. The 3-month ATVR is obtained by taking the average of themonthly median traded value ratios of the previous 3 months – or 1
month if no 3 month of data is available– and annualizing it bymultiplying it by 12.2
The 3-month Frequency of Trading is determined by dividing the numberof days a security traded during a 3-month period by the number of
trading days within this period.3
2.2.4

Global Minimum Foreign Inclusion Factor Requirement

This investability screen is applied at the individual security level.
To be eligible for inclusion in a Market Investable Equity Universe, a security’s Foreign Inclusion
Factor (FIF) must reach a certain threshold. The FIF of a security is defined as the proportion ofshares outstanding that is available for purchase in the public equity markets by international
investors. This proportion accounts for the available free float of and/or the foreign ownership
limits applicable to a specific security (or company).
In general, a security must have a FIF equal to or larger than 0.15 to be eligible for inclusion in aMarket Investable Equity Universe. This rule is referred to as the Global Minimum Foreign
Inclusion Factor Requirement.
Exceptions to this general rule are made only in the limited cases where the exclusion of securities
of a very large company would compromise the Standard Index’s ability to fully and fairly
represent the characteristics of the underlying market. Please refer to Sub-section 2.3.5: Applying
Final Size-Segment Investability Requirements and Index continuity Rules for more details.
2.2.5

Minimum Length of Trading Requirement

This investability screen is applied at the individual security level.
For an IPO to be eligible for inclusion in a Market Investable Equity Universe, the new issue musthave started trading at least four months before the implementation of the initial construction of
the index or at least three months before the implementation of a Semi-Annual Index Review.

2
3

ATVR values used in the regular Index Reviews as well as the relevant thresholds are not rounded.
At the time of the regular index reviews the ATVR and Frequency of Trading of securities that have been suspended during the relevant period are

adjusted to exclude the suspension days [in those cases where the ATVR and/or Frequency of Trading are the decisive elements that trigger the nonaddition or deletion of a security].
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MSCI Global Investable Market Indices Methodology| November 2010
This rule is referred to as the Minimum Length of Trading Requirement. This requirement isapplicable to small new issues in all markets.
Large IPOs are not subject to the Minimum Length of Trading Requirement and may be included
in a Market Investable Equity Universe and the Standard Index outside of a Quarterly or SemiAnnual Index Review. Please refer to Sub-section 3.3.4.1: IPOs and Other Early Inclusions fordetails.

2.3

Defining Market Capitalization Size-Segments for Each Market

Once a Market Investable Equity Universe is defined, it is segmented into the following size-based indices:• Investable Market Index (Large + Mid + Small).
• Standard Index (Large + Mid)
• Large Cap Index• Mid Cap Index• Small Cap Index
The structure of the MSCI Global Investable Market Index family in each market is depicted below.

The Investable Market Index, the Standard Index and the Large Cap Index are created first, while the Mid
Cap Index is derived as the difference between the Standard Index and the Large Cap Index and the Small
Cap Index is derived as the difference between the Investable Market Index and the Standard Index.
In order to create size-segments that can be meaningfully aggregated into composites, the individualMarket Size-Segments need to balance the following two objectives:•

Achieving Global Size Integrity by ensuring that, within a given size-segment of a composite index, only
companies of comparable and relevant sizes are included across all markets. This can be measured bylooking at a size-segment cutoff relative to a free float-adjusted market capitalization coverage target
based on the Global Investable Equity Universe.

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MSCI Global Investable Market Indices Methodology| November 2010•

Achieving Consistent Market Coverage by ensuring that each market’s size-segment is represented in its
proportional weight in the composite universe. This can be measured by looking at a size-segment
cutoff relative to a consistent and comparable target size-segment coverage within each market.

It is not possible to achieve both of these objectives consistently and simultaneously across all markets.
Therefore, to balance these objectives, the methodology sets a minimum size cutoff for each size-segmentin each market using:••A size range for all markets derived from a free float-adjusted target market capitalization of the
Global Investable Equity Universe, together with
A target free float-adjusted coverage range set within each individual Market Investable Equity
Universe.

The intersection of these ranges specifies a Size and Coverage Target Area as depicted below. This is donefor each of the three size-segment indices, namely the Investable Market Index, the Standard Index, andthe Large Cap Indices.
Full Market Capitalization

Size
Range

Size and Coverage
Target Area

Coverage
Range

Cumulative
Free FloatAdjusted
MarketCoverage

Creating the Size-Segment Indices in each market involves the following steps:
•
•
•
•
•

Defining the Market Coverage Target Range for each size-segment.
Determining the Global Minimum Size Range for each size-segment.
Determining the Market Size-Segment Cutoffs and associated Segment Number of Companies
Assigning companies to the size-segments.
Applying final size-segment investability requirements.
2.3.1

Defining the Market Coverage Target Range for Each Size-Segment

To define the Size-Segment Indices for a market, the following free float-adjusted market
capitalization Market Coverage Target Ranges are applied to the Market Investable Equity
Universe:•

Large Cap Index:

70% ± 5%.

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MSCI Global Investable Market Indices Methodology| November 2010••

Standard Index:
85% ± 5%.
Investable Market Index: 99%+1% or -0.5%.

The Mid Cap Index market coverage in each market is derived as the difference between themarket coverage of the Standard Index and the Large Cap Index in that market.
The Small Cap Index market coverage in each market is derived as the difference between the free
float-adjusted market coverage of the Investable Market Index and the Standard Index in thatmarket.
2.3.2

Determining the Global Minimum Size Range for Each Size-Segment

The Global Minimum Size Range for each size-segment is determined by defining a Global
Minimum Size Reference for Large Cap, Standard, and Investable Market Indices, and specifying a
range of 0.5 times to 1.15 times those References.
2.3.2.1 Defining the Global Minimum Size Reference
The Global Minimum Size Reference for the Large Cap, Standard, and Investable Market
size-segments are derived in a similar manner to the derivation of the Equity Universe
Minimum Size as follows:••First, the companies in the DM Investable Equity Universe are sorted in descendingorder of full market capitalization and the cumulative free float-adjusted market
capitalization coverage of the DM Investable Equity Universe is calculated at eachcompany.
Then, the respective full market capitalizations of the companies that provide thefollowing cumulative free float-adjusted market capitalization coverage of the DM
Investable Equity Universe are chosen:
o
o
o

•

DM Large Cap Index:
DM Standard Index:
DM Investable Market Index:

70% coverage.
85% coverage.
99% coverage.

For Emerging Markets, the Global Minimum Size Reference is set at one-half thecorresponding level of full market capitalization used for the Developed Markets foreach size-segment.

The Global Minimum Size References for the Large Cap, Standard, and Investable Market
segments, based on April 2010 data, are set forth below.
The full market capitalization of the company that provides an 85%
cumulative free float-adjusted coverage of the DM Investable Equity
Universe is USD 3.50 billion. This level, therefore, defines the Global
Minimum Size Reference for DM Standard Indices. Applying the range of
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MSCI Global Investable Market Indices Methodology| November 2010
0.5 times to 1.15 times to this Global Minimum Size Reference gives the
Global Minimum Size Range of USD 1.75 billion to USD 4.03 billion for the
DM Standard Indices. The EM range for the Standard Indices, therefore, is
USD 0.88 billion to USD 2.02 billion.
Global Minimum Size Reference
Percent of Free
Float Adjusted
Market Coverage

Developed Markets
Investable Equity
Universe

Developed Markets
Global Minimum
Size Reference

Emerging Markets Global
Minimum Size Reference(50% of DM)

10,225

5,113

3,503

1,752

312

156

Universe
Large
Cap
70%

Mid
Cap
85%

Small
Cap
99%

Note: All market caps are in USD millions. Data as of the close of October 21, 2010.

2.3.3 Determining the Segment Number of Companies and Associated Market SizeSegment Cutoffs
The Market Size-Segment Cutoffs are derived by identifying a size cutoff which falls within, or as
close as possible to, the Size and Coverage Target Area for that size-segment. For each sizesegment, for each market, this is achieved as follows:•••

The companies in the Market Investable Equity Universe are sorted in descending order of fullmarket capitalization.
The cumulative free float-adjusted capitalization coverage of the Market Investable Equity
Universe is calculated at each company.
MSCI notes the respective full market capitalization of the companies that provide thefollowing free float-adjusted market capitalization coverage for the relevant size-segments:o Large Cap Index:
70%
o Standard Index:
85%.

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MSCI Global Investable Market Indices Methodology| November 2010
o Investable Market Index:
99%.*• If the full market capitalization of the relevant company lies within the Global Minimum Size
Range for the size-segment, then:o The full market capitalization of the relevant company defines the Market Size-Segment
Cutoff for that size-segment at that point in time.
o The number of companies with full market capitalization greater than or equal to therelevant company provides the Segment Number of Companies, which will be used tomaintain the indices over time.
• If it is not, then:o The number of companies is decreased until the full market capitalization of the smallest
company in the size-segment is equal or higher than the lower bound of the Global
Minimum Size Range for that size-segment. Or,
o The number of companies is increased to include all companies with a full market
capitalization higher than the upper bound of the Global Minimum Size Range for thatsize-segment.
o The full market capitalization of the last company defines the Market Size-Segment Cutoff
for that segment and the Segment Number of Companies is set to this company’s rank.
This process is designed to give priority to global size integrity over market coverage in situations
where both objectives cannot be achieved simultaneously.
* For the Investable Market Index, at initial construction, the above process
is not followed in order to provide as broad a coverage as possible without
sacrificing size integrity. At initial construction the Market Size-Segment
Cutoffs and associated Segment Number of Companies of the Investable
Market segment are derived by including all companies equal to or larger
than the Global Minimum Size Reference for the Investable Market Indices.
As of April 12, 2007, the Global Minimum Size Reference was USD 370
million.
Since Size-Segment Indices are based on company full market capitalization, all securities of acompany are always classified in the same size-segment. As a result, there may be more securities
than companies in a given size-segment.
The Market Size-Segment Cutoffs and Segment Number of Companies are maintained daily, andupdated at Semi-Annual and Quarterly Index Reviews, additionally taking into account index
stability and continuity rules.
2.3.4

Assigning Companies to the Size-Segments

At initial construction, all companies with full market capitalization greater than or equal to that of
the full market capitalization of the company that defines the Market Size-Segment Cutoff areassigned to that size-segment.
At Semi-Annual and Quarterly Index Reviews, the company assignment rules additionally take into
account, new additions, and index continuity and stability rules.
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MSCI Global Investable Market Indices Methodology| November 2010
Between Semi-Annual and Quarterly Index Reviews, the assignment of companies resulting from
corporate events (e.g., mergers, IPOs, spin-offs) to the appropriate size-segments are based on
Market Size-Segment Cutoffs that are updated daily. This process is described in Sub-section 3.3:
Ongoing Event-Related Changes.
2.3.5 Applying Final Size-Segment Investability Requirements and Index Continuity
Rules
To enhance the replicability of Size-Segment Indices, additional size-segment investability
requirements are set for the Investable Market and the Standard Indices.
2.3.5.1 Minimum Free Float Market Capitalization Requirement
If the Market Size-Segment Cutoff is within the Global Minimum Size Range for theInvestable Market Index, a security can be included in the Investable Market Index only if
its free float-adjusted market capitalization is at least 50% of the Market Size-Segment
Cutoff for the Investable Market Index. In the case of the Market Size-Segment Cutoff
being above the Global Minimum Size Range upper boundary for the Investable Market
Index, the security’s free float-adjusted market capitalization must be at least 50% of theupper boundary of the Global Minimum Size Range for the Investable Market Index. In
the case of the Market Size-Segment Cutoff being below the Global Minimum Size Range
lower boundary for the Investable Market Index, the security’s free float-adjusted market
capitalization must be at least 50% of the lower boundary of the Global Minimum Size
Range for the Investable Market Index.
If the Market Size-Segment Cutoff is within the Global Minimum Size Range for theStandard Index, a security can be included in the Standard Index only if its free floatadjusted market capitalization is at least 50% of the Market Size-Segment Cutoff for theStandard Index. In the case of the Market Size-Segment Cutoff being above the Global
Minimum Size Range upper boundary for the Standard Index, the security’s free floatadjusted market capitalization must be at least 50% of the upper boundary of the Global
Minimum Size Range for the Standard Index. In the case of the Market Size-Segment
Cutoff being below the Global Minimum Size Range lower boundary for the Standard
Index, the security’s free float-adjusted market capitalization must be at least 50% of thelower boundary of the Global Minimum Size Range for the Standard Index. Any company
excluded from the Standard Index based on this rule is also excluded from the Investable
Market Index.
For a security with a Foreign Inclusion Factor (FIF) lower than 0.15 to be included in theStandard Market Index, its free float-adjusted market capitalization must be at least 1.8
times the minimum free float-adjusted market capitalization required for the Standard
Index. Please refer to the Sections 3.1.6.2 and 3.2.1.4 for details on assessing conformity
with the Final Size-Segment Investability Requirements for existing constituents.

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MSCI Global Investable Market Indices Methodology| November 2010
2.3.5.2 Minimum Liquidity Requirement for the Standard Indices
The liquidity of constituents is especially important for the Standard Indices, as these
indices are widely used for performance benchmarking and as the basis for creating
investment vehicles. Therefore, a Market-Relative 12 month ATVR screen is also applied
for determining eligibility of securities for the Standard Indices. The 12-month ATVR
levels for the Market-Relative Liquidity Requirement are updated at each SAIR andpublished in this methodology book. In the calculation of the 12-month ATVR used in theabove screening, the trading volumes in depositary receipts associated with that security,
such as ADRs or GDRs, are also considered. 4
In addition, as described in Section 2.2.3, in order to be eligible for inclusion in the Market
Investable Equity Universe of a Developed Market, among other criteria, a security musthave a 3-month Frequency of Trading of at least 90% over the last four consecutive
quarters. To be eligible for inclusion in the Market Investable Equity Universe of an
Emerging Market, among other criteria, a security must have a 3-month Frequency of
Trading of at least 80% over the last four consecutive quarters. However, as the liquidity
requirements are more stringent for the Standard Indices, all securities from Developedand Emerging Markets with the 3-month Frequency of Trading of below 90% over the last
four consecutive quarters are excluded from the Standard Indices.
Companies that do not meet this investability screen and are therefore not included in theStandard Indices are also not eligible for the Small Cap Index in that market as they exceed
the full market capitalization size threshold for the Small Cap Index. As a result, thesecompanies are not included in any of the indices within the MSCI Global Investable
Market Index family.
Please see Appendix IX: Minimum Market-Relative Liquidity Requirements for theStandard Index for more details.
There are no additional size-segment investability requirements affecting securities in the
Large Cap, Mid Cap, or the Small Cap Indices in addition to the Market-Relative Liquidity
Requirement.

2.3.5.3 Minimum Foreign Room Requirement for the Standard Indices
For a security that is subject to a Foreign Ownership Limit (FOL) to be included in theStandard Index at its entire free float adjusted market capitalization, the proportion ofshares still available to foreign investors relative to the maximum allowed (referred to as“foreign room”) must be at least 25%. Any security excluded from the Standard Index
based on this rule is also excluded from the Investable Market Index

4

In addition the trading volumes of Canadian securities on the TSE are aggregated with the trading volumes of such securities on the eligible U.S. exchanges.

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MSCI Global Investable Market Indices Methodology| November 2010

2.4

Index Continuity Rules for the Standard Indices

Although index continuity rules described in this sub-section are primarily designed for maintaining thecountry Standard Indices, they are also applied at initial construction, and impact some markets, such as
New Zealand.
Index continuity is a desirable feature of an index as it avoids the temporary inclusion or exclusion ofmarket indices in composite indices at different times. In order to achieve index continuity, as well as
provide some basic level of diversification within a market index, notwithstanding the effect of other index
construction rules contained herein, a minimum number of five constituents will be maintained for a DM
Standard Index and a minimum number of three constituents will be maintained for an EM Standard
Index. The application of this requirement involves the following steps.
••

If after the application of the index construction methodology, a Standard Index contains fewer than
five securities in a Developed Market or three securities in an Emerging Market, then the largest
securities by free float-adjusted market capitalization are added to the Standard Index in order to reach
five constituents in that Developed Market or three in that Emerging Market.
At subsequent Index Reviews, if the free float-adjusted market capitalization of a non-index
constituent is at least 1.50 times the free float-adjusted market capitalization of the smallest existing
constituent after rebalancing, the larger free float-adjusted market capitalization security replaces thesmaller one.

When the Index Continuity Rule is in effect, the Market Size-Segment Cutoff is set at 0.5 times the Global
Minimum Size Reference for the Standard Index rather than the full market capitalization of the smallest
company in that market’s Standard Index.

2.5

Creating Style Indices within Each Size-Segment

All securities in the investable equity universe are classified into Value or Growth segments using the
MSCI Global Value and Growth methodology. This methodology is available at
http://www.msci.com/methodology/meth_docs/MSCI_May07_GIMIVGMethod.pdf
•
•
•
•
•
•

The MSCI Global Value and Growth methodology is applied to the Standard and Small Cap Indiceson a market-by-market basis.
IN DM Europe, the Value and Growth Indices will be created from the MSCI Europe Standard andSmall Cap Indices, rather than the country indices. Value and Growth country indices will be derived
from these constituents.
The Large Cap and Mid Cap Value and Growth Indices are derived using the Value and Growth
Inclusion Factors from the Standard Value and Growth Indices.
The Investable Market Index Value and Growth Indices are created by aggregating the Value and
Growth segments of the Standard and Small Cap Indices.
The Standard Value and Growth Indices use the full set of variables as per the MSCI Global Valueand Growth methodology.
However, for Small Cap Indices, the Long Term Forward EPS Growth rate variable is not used as avariable to define the growth investment style characteristic, due to lack of consistent coverage by

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MSCI Global Investable Market Indices Methodology| November 2010
street analysts.

2.6

Classifying Securities under the Global Industry Classification Standard

All securities in the Global Investable Equity Universe are assigned to the industry that best describes theirbusiness activities. To this end, MSCI has designed, in conjunction with Standard & Poor’s, the Global
Industry Classification Standard (GICS). The GICS currently consists of 10 sectors, 24 industry groups, 68
industries, and 154 sub-industries. Under the GICS, each company is assigned uniquely to one subindustry according to its principal business activity. Therefore, a company can only belong to one industry
grouping at each of the four levels of the GICS.
Classifying securities into their respective sub-industries can be complex, especially in an evolving anddynamic environment. The GICS guidelines used to determine the appropriate industry classification are
as follows:•••

A security is classified in a sub-industry according to the business activities that generate approximately
60% or more of the company’s revenues.
A company engaged in two or more substantially different business activities, none of which
contributes 60% or more of revenues, is classified in the sub-industry that provides the majority ofboth the company’s revenues and earnings.
Where the above guidelines cannot be applied, or are considered inappropriate, further analysis isconducted, and other factors are analyzed to determine an appropriate classification.

For further details on the GICS see Appendix V: Global Industry Classification Standard (GICS).

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2.7

Creating Size-Segment Indices: Examples
2.7.1

Determining Market Size-Segment Cutoffs and Assigning Companies to the Size-

Segments
Example:For the USA Standard segment, companies are counted in descendingorder of full market capitalization starting with the largest company.
Companies continue to be counted until the cumulative free float-adjusted
market capitalization of the companies reaches 85% of the free floatadjusted market capitalization of the US Market Investable Equity
Universe. In this example, the full market capitalization of the lastcompany counted is within the Global Minimum Size Range. The rank ofthis company in the US Market Investable Equity Universe (645) defines
the Segment Number of Companies for the size-segment and its fullmarket capitalization (USD 4.1 billion) defines the Market Size-Segment
Cutoff between Standard and Small Cap segments in the US.

6,000

USA

and
HigherSmallest Company in theStandard Index

5,000(90%,4.67 B)

Global Minimum Size Range(80%,4.67 B)

Company Full Market Capitalization

4,000

3,000

2,000

Standard Index Size and Coverage
Target Area

(90%,2.03 B)(80%,2.03 B)

cMarket Coverage Target Range

1,000Standard Index

Small Cap Index

0

93.9%

93.0%

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92.1%

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90.9%

MSCI Index Research

89.6%

87.9%

86.0%

83.8%

80.8%

77.1%

71.6%

63.2%

50.3%

28.6%

Cumulative Free-Float Adjusted Market Capitalization

MSCI Global Investable Market Indices Methodology| November 2010
Example:For the Pakistan Standard segment, companies are counted in descendingorder of full market capitalization starting with the largest company.
Companies continue to be counted until the cumulative free float-adjusted
market capitalization of the companies reaches 85% of the free floatadjusted market capitalization of the Pakistan Market Investable Equity
Universe. In this example, the full market capitalization of the lastcompany counted is below the lower bound of the Global Minimum Size
Range. Therefore, companies are subtracted until the smallest company
has a full market capitalization at or above the lower bound of the Global
Minimum Size Range for the Standard segment. In this case, thecumulative free float-adjusted market capitalization coverage is below
80%, the lower bound of the Market Coverage Target Range. The rank of
the smallest company defines the Segment Number of Companies (8) and
its full market capitalization of USD 1.0 billion defines the Market SizeSegment Cutoff between the Standard and the Small Cap segment inPakistan.

3,000

and
HigherPakistan

2,500

Smallest Company in the(80%, 2.33 B)
Standard Index

Global Minimum Size Range

Company Full Market Capitalization

2,000

1,500

(90%, 2.33 B)

Standard Index Size
and Coverage
Target Area

1,000

(80%,1.01 B)(90%,1.01 B)

cMarket Coverage
Target Range

500

Standard Index

Company at the 85%

Small Cap Index

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23 of 11897.5%

MSCI Index Research

93.7%

86.9%

77.5%

70.3%

56.6%

31.9%

14.5%

Cumulative Free-Float Adjusted Market Capitalization Coverage

MSCI Global Investable Market Indices Methodology| November 2010
Example:For the Hungary Standard segment, companies are counted in descendingorder of full market capitalization starting with the largest company.
Companies continue to be counted until the cumulative free float-adjusted
market capitalization of the companies reaches 85% of the free floatadjusted market capitalization of the Hungary Market Investable Equity
Universe. In this example, the full market capitalization of the lastcompany counted is significantly above the upper bound of the Global
Minimum Size Range. All companies in Hungary, above the upper boundare added resulting in the cumulative free float-adjusted market
capitalization coverage above 90%, the upper bound of the Market
Coverage Target Range. The rank of the last company counted (4)defines the Segment Number of Companies and its full market
capitalization (USD 3.8 billion) defines the Size-Segment Cutoff between
the Hungary Standard and Small Cap Indices. The next largest company
has a full market capitalization of USD 941 million, below the lower
bound of the Global Minimum Size Range.

5,000

and
HigherSmallest Company in theStandard Index

Hungary

4,500

4,000

3,000

2,500

(80%, 2.33 B)
Global Minimum
Size Range

Company Full Market Capitalization

3,500

2,000

1,500

1,000

(90%, 2.33 B)
Standard
Index SizeandCoverage
Target Area
(90%,1.01 B)(80%,1.01 B)
MarketCoverage
Target Range

500

Standard Index

Small Cap Index

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100.0%MSCI Index Research

99.6%

99.0%

97.9%

96.3%

86.2%

77.4%

43.9%

Cumulative Free-Float Adjusted Market Capitalization Coverage

MSCI Global Investable Market Indices Methodology| November 2010

Section 3: Maintaining the MSCI Global Investable Market Indices
The MSCI Global Investable Market Indices are maintained with the objective of reflecting the evolutionof the underlying equity markets and segments on a timely basis, while seeking to achieve:•••

Index continuity,
Continuous investability of constituents and replicability of the indices, andIndex stability and low index turnover.

In particular, index maintenance involves:•

Semi-Annual Index Reviews (SAIRs) in May and November of the Size-Segment and Global Valueand Growth Indices which include:o Updating the indices on the basis of a fully refreshed Equity Universe.
o Taking buffer rules into consideration for migration of securities across size and style segments.
o Updating Foreign Inclusion Factors (FIFs) and Number of Shares (NOS).

•

Quarterly Index Reviews (QIRs) in February and August of the Size-Segment Indices aimed at:o Including significant new eligible securities (such as IPOs which were not eligible for earlier
inclusion) in the index.
o Allowing for significant moves of companies within the Size-Segment Indices, using wider buffers
than in the SAIR.
o Reflecting the impact of significant market events on FIFs and updating NOS.

•

Ongoing event-related changes. Changes of this type are generally implemented in the indices as theyoccur. Significantly large IPOs are included in the indices after the close of the company’s tenth day of
trading.

3.1

Semi-Annual Index Reviews in May and November

The objective of the SAIRs is to systematically reassess the various dimensions of the Equity Universe forall markets on a fixed semi-annual timetable. A SAIR involves a comprehensive review of the SizeSegment and Global Value and Growth Indices.
During each SAIR, the Equity Universe is updated and the Global Minimum Size Range is recalculated foreach size-segment. Then, the following index maintenance activities are undertaken for each market:
•
•
•
•
•

Updating the Market Investable Equity Universe.
Recalculating the Global Minimum Size References and Global Minimum Size Ranges
Reassessing the Segment Number of Companies and the Market Size-Segment Cutoffs.
Assigning companies to the size-segments taking into account buffer zones.
Assessing conformity with Final Size-Segment Investability Requirements.

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MSCI Global Investable Market Indices Methodology| November 2010
3.1.1

Updating the Equity Universe

During each SAIR, the Equity Universe is updated by identifying new equity securities that were
not part of the Equity Universe at the previous Quarterly Index Review and classifying them into
countries.
Details on the determination of the Equity Universe are in Sub-section 2.1: Defining the Equity
Universe.
3.1.2

Updating the Market Investable Equity Universes

During each SAIR, each new company/security in the updated Equity Universe is evaluated forinvestability using the same investability screens described in Sub-section 2.2:.Determining theMarket Investable Equity Universes. Existing constituents, on the other hand, are evaluated using
buffers around these investability requirements as explained below.
3.1.2.1 Updating the Equity Universe Minimum Size Requirement
The Equity Universe Minimum Size Requirement is updated at each SAIR in the following
manner:The cumulative free float-adjusted market capitalization coverage at the company rank thatwas used to define the Equity Universe Minimum Size Requirement at the previous
rebalance is calculated.
If the coverage of the updated DM Equity Universe at that rank falls:•••

between 99% and 99.25%, the Equity Universe Minimum Size Requirement is set tothe current full market capitalization of the company at that rank.
below 99%, the Equity Universe Minimum Size Requirement is reset to the fullmarket capitalization of the company at 99% coverage and the rank of that company
is noted for the next rebalance.
above 99.25%, Equity Universe Minimum Size Requirement and rank are reset basedon the full market capitalization of the company at 99.25% coverage.

The same Equity Universe Minimum Size Requirement is used for both Developed andEmerging Markets.
Example: Suppose that at the previous SAIR the Equity Universe Minimum
Size Requirement was set at USD 145 million and reflected the full market
capitalization of the company ranked as the 8008th largest company by fullmarket capitalization in the DM Equity Universe. Say that in the current
SAIR, the full market capitalization of the company at the 8008th rank is
USD 151 million and the cumulative free float-adjusted market capitalization
representation at that company’s rank is 98.9%. In addition, suppose the top
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MSCI Global Investable Market Indices Methodology| November 2010
8201 companies cover 99.0% of the free float-adjusted market capitalizationand the full market capitalization of the company at the 8201st rank is USD
147 million. Then USD 147 million is set as the new Equity Universe
Minimum Size Requirement. The full market capitalization of the company
at the 8201st rank will be the initial reference for the next SAIR.
New companies are evaluated relative to this updated threshold, whereas all existing
constituents remain in the Global Investable Equity Universe
3.1.2.2 Updating the Equity Universe Minimum Free Float–Adjusted Market
Capitalization
The Equity Universe Minimum Free Float-Adjusted Market Capitalization Requirement iscalculated as 50% of the updated Equity Universe Minimum Size Requirement.
New companies are evaluated relative to this updated threshold, whereas all existing
constituents remain in the Global Investable Equity Universe.
3.1.2.3 Minimum Liquidity Requirement for Existing Constituents
An existing constituent of the Investable Market Indices may remain in a Market
Investable Equity Universe if its 12-month ATVR falls below the Minimum Liquidity
Requirement as long as it is above 2/3rd of the minimum level requirement of 20% for
Developed Markets and 15% for Emerging Markets, i.e., 13.3% and 10%, respectively. In
addition, in order to remain in the Investable Market Indices the existing constituent must
have:
• The 3-month ATVR of at least 5%;• The 3-month Frequency of Trading of at least 80% for Developed Markets and 70%
for Emerging Markets.
If an existing constituent, represented by a local listing no longer meets the above
requirements, liquid Depositary Receipts that do meet such requirements can beconsidered for inclusion. Depositary Receipts can only be considered if they are listed in
the same geographical region as the local listing of the underlying security.
If an existing constituent in Emerging Markets fails to meet the liquidity requirements, but
has a weight of more than 10% in the respective country index and its float adjusted
market capitalization is above 0.5 times the Global Minimum Size Reference for Emerging
Markets, then such constituent will remain in the index. However, MSCI would apply a
Limited Investability Factor (LIF) of 0.5 to the weight of the security, and in thesubsequent index review, MSCI:•
would delete the security from the index if the security does not meet all liquidity
requirements for new constituents or• Would maintain the security in the GIMI and remove the LIF if the security does
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MSCI Global Investable Market Indices Methodology| November 2010
meet all the liquidity requirements for new constituents.
3.1.2.4 Global Minimum Foreign Inclusion Factor Requirement
New securities with a FIF lower than 0.15 are included in the Market Investable Equity
Universe if their free float-adjusted market capitalization exceeds 1.8 times half of theStandard Index Interim Market Size-Segment Cutoff. Interim Market Size-Segment
Cutoffs are calculated daily in order to determine eligibility for early inclusion of securities.
They are based on the current Market Investable Equity Universe (please refer to section
3.3.1: Determining the Interim Market Size-Segment Cutoffs for Daily Maintenance formore details).
All existing constituents remain in the Global Investable Equity Universe.

3.1.3 Recalculating the Global Minimum Size References and Global Minimum Size
RangesThe Global Minimum Size References and corresponding ranges are reset at the SAIRs using aprocess similar to the one used to update the Equity Universe Minimum Size Requirement. Moredetails may be found in Appendix VIII: Updating the Global Minimum Size References andRanges.
3.1.4 Reassessing the Segment Number of Companies and the Market Size-Segment
Cutoffs
The Segment Number of Companies and the corresponding Market Size-Segment Cutoffs are
updated to account for changes in each Market Investable Equity Universe.
3.1.4.1 Determining Initial Segment Number of Companies
If the Interim Market Size-Segment Cutoff5 is equal or above the lower bound of the
Global Minimum Size Range, then the Initial Segment Number of Companies is equal to
the number of companies in the updated Investable Equity Universe with the full company
market capitalization equal or above the Interim Market Size-Segment Cutoff. If theInterim Market Size-Segment Cutoff is below the lower bound of the Global Minimum
Size Reference, then the Initial Segment Number of Companies is equal to the sum of:• The number of companies in the updated Investable Equity Universe with the fullcompany market capitalization equal or above the lower bound of the Global
Minimum Size Range and;5

The Interim Market Size-Segment Cutoff during SAIR is calculated the same way as the Interim Market Size-Segment Cutoffs, which are reported daily,

however the Number of Shares and Foreign Inclusion factor post SAIR are used in the calculations and the value is not limited by the Global Minimum Size
Range.
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MSCI Global Investable Market Indices Methodology| November 2010•

The number of companies in the updated Equity Investable Universe that were alsopart of the Investable Market Indices prior to the SAIR with the full market
capitalization below the Global Minimum Size Range, but above the Interim Market
Size-Segment Cutoff.
This Initial Segment Number of Companies takes into account the newly eligible
companies as well as deletions from the updated Equity Investable Universe.
3.1.4.2 Changes in the Segment Number of Companies
The full market capitalization of the company ranked in the updated Market Investable
Equity Universe at the Initial Segment Number of Companies and the cumulative free
float-adjusted market capitalization coverage at this company rank are used to verify that
the Initial Segment Number of Companies falls within the Size and Coverage Target Area
for the Size-Segment Index. If it does, the Segment Number of Companies post SAIR
becomes equal to this Initial Segment Number of Companies, and the full market
capitalization corresponding to the smallest company in the Segment Number ofCompanies becomes the Market Size-Segment Cutoff for that market and is used in this
SAIR. The Segment Number of Companies is also equal to the Initial Segment Number ofCompanies in the cases when the full company market capitalization of the company
corresponding to the Initial Segment Number of Companies is above the Global Minimum
Size Range and there are no investable companies between this company and the upperboundary of the Global Minimum Size Range.
If the Initial Segment Number of Companies falls outside of the size and coverage target
area, the Initial Segment Number of Companies is changed to bring it closer to the area. In
making this change, consideration is given to index stability and index turnover, which may
impact the ability of Market Size-Segment Cutoffs to fall within the Size and Coverage
Target range.
Depending on the location of the Market Size-Segment Cutoff derived from the Initial
Segment Number of Companies relative to the Size and Coverage Target Area, an increasein, or a reduction of, the Segment Number of Companies may be required.
••

When the Market Size-Segment Cutoff is above the upper boundary of the Global
Minimum Size Range and there are investable companies between the company
corresponding to the Initial Segment Number of Companies and the upper boundaryof the Global Minimum Size Range, or the Market Size-Segment is below the lower
boundary of the Market Coverage Target Range, additions to the Size-Segment Index
are needed.
When the Market Size-Segment Cutoff is below the lower boundary of the Global
Minimum Size Range, or above the Market Coverage Target Range, deletions from theSize-Segment Index are needed.

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Changing Segment Number of Companies

The process for adjusting the Segment Number of Companies is as follows:•

If additions to the Segment Number of Companies are required:o The number of companies is increased to include all companies with a full market
capitalization higher than the upper boundary of the Global Minimum Size Range.
o The number of companies is increased to include all companies with a full market
capitalization higher than the lower boundary of the Global Minimum Size Range,
if any, that are required to reach the lower boundary of the Market Coverage
Target Range.
o The additions are made in descending order of full market capitalization. The fullmarket capitalization of the last added company then becomes the Market SizeSegment Cutoff. If the full market capitalization of the last added company isabove the upper boundary of the Global Minimum Size Range then the Market
Size-Segment Cutoff is set at this upper boundary of the Global Minimum Size
Range.

•

If a reduction of the Segment Number of Companies is required to reach the Size andCoverage Target Area, limits are placed on the decrease in the number of companies,
to further enhance index stability. These limits are implemented in the following steps:o First, a reduction of no more than 5% of the Initial Segment Number ofCompanies is made to bring the Market Size-Segment Cutoff into compliance with
the Size and Coverage Target Area.
o If this reduction brings the Market Size-Segment Cutoff into compliance with the
Global Minimum Size Range, or removes at least half the free float-adjusted market
capitalization that lies between the smallest company before the adjustment of theInitial Segment Number of Companies and the lower bound of the Global
Minimum Size Range, no further adjustment is necessary.
o If not, then a reduction of not more than 20% of the Initial Segment Number ofCompanies is made to remove at most half the free float-adjusted market

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MSCI Global Investable Market Indices Methodology| November 2010
capitalization that lies between the smallest company before adjusting the Initial
Segment Number of Companies and the lower bound.
o In market segments with a small number of companies, the deletion of the first twocompanies is not subject to the limits described above.
o When a limit is placed on the decrease in the number of companies, as explained
above, the full market capitalization of the smallest company in the index willremain below the lower boundary of the Global Minimum Size Range. In this case,
the Market Size-Segment Cutoff is set at this lower bound of 0.5 times the Global
Minimum Size Reference instead of the size of the smallest company.
3.1.5

Assigning Companies to Appropriate Size-Segments

During a SAIR, companies are assigned with the following priority to the Size-Segments until the
Segment Number of Companies is achieved:
•
•
•
•
•

Current constituents greater than the Market Size-Segment Cutoff.
Newly eligible companies with a full market capitalization greater than the Market SizeSegment Cutoff.
Companies in the lower Size-Segment Index that are above the upper buffer threshold of thelower size-segment. At the SAIR, this threshold is set at 50% above the Market Size-Segment
Cutoff. (Buffer zones for size-segments are explained in more detail below).
Companies in the lower buffer of the index in descending capitalization order, until thethreshold of the buffer is reached. At the SAIR this threshold is set at 33% below the Market
Size-Segment Cutoff.
The largest companies from the upper buffer of the next lower size-segment.

Once companies have been assigned to the Standard, Large and Investable Market Segments,
companies are then assigned to the Mid and Small Cap Segments. The Mid Cap Segment
comprises the companies that are in the Standard Segment but not the Large Cap Segment. The
Small Cap Segment comprises the companies that are in the Investable Market Segment but not in
the Standard Segment.
3.1.5.1 Using Buffer Zones to Manage the Migration of Companies between SizeSegment Indices
In order to better reflect the investment processes of size managers, allow for timely
representation of market developments when securities move far away from size-segment
thresholds, and help control index turnover, buffer zones are used to control the migrationof companies between Size-Segment Indices.
An existing constituent is generally allowed to remain in its current size-segment even if its
full market capitalization falls below (above) the Market Size-Segment Cutoff that defines
the lower (upper) boundary of its segment, as long as its company full market
capitalization falls within a buffer zone below (above) the Market Size-Segment Cutoff.
The buffer zones at SAIRs are defined with boundaries at -33% and +50% of the Market
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MSCI Global Investable Market Indices Methodology| November 2010
Size-Segment Cutoff between two size-segments. At Quarterly Index Reviews, the bufferzones are set at -50% and +80%.
In addition, a Small Cap Entry Buffer Zone is used for the entry in the Small Cap Indicesof non current constituents. It is defined with a boundary at +50% the Market SizeSegment Cutoff for the Investable Market Index. The inclusion in the Small Cap Indices of
all newly eligible companies above the Investable Market Size-Segment Cutoff could leadto a excessively large number of additions of small companies. Consequently, current
constituents within the Small Cap Entry Buffer Zone which are assigned to the Small Cap
Segment are included in the Small Cap Indices only to the extent that they replace current
constituents which have fallen below the Small Cap Lower Buffer. The remaining
companies are not included in the Investable Market Indices, but are still taken into
account to determine the Segment Number of Companies.
SAIR Buffers

Large CapMid Cap
Upper Buffer (+50%)

Large Cap
Lower Buffer (-33%)
Mid Cap

Small Cap
Upper Buffer (+50%)

Mid Cap/Standard
Lower Buffer (-33%)
Small Cap

Small Cap
Lower Buffer (-33%)

3.1.6

Small Cap
Entry Buffer (+50%)

Assessing Conformity with Final Size-Segment Investability Requirements
3.1.6.1 For New Constituents
Once companies are assigned to each size-segment, the securities of companies in eachsegment are evaluated for conformity with the additional size-segment investability
requirements for each size-segment. The securities of newly eligible companies and ofcompanies migrating from the lower segment are required to meet the additional
investability requirements as described in Sub-section 2.3.5: Applying Final Size-Segment
Investability Requirements and Index Continuity Rules and Appendix IX: Minimum

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MSCI Global Investable Market Indices Methodology| November 2010
Market-Relative Liquidity Requirements for the Standard Index.
In addition, IPOs eligible for early inclusion according to Sub-section 3.3.4.1, and forwhich the effective date of inclusion is either 5 days before the effective date of the SAIR
or 3 days after, will be made effective to coincide with the SAIR. For example, when theeffective date of inclusion of the IPO is November 28 (3 business days before December1), while the effective date of the SAIR is December 1, the IPO will be added effective
December 1.
3.1.6.2 For Existing Constituents
Existing constituents may remain in the size-segment indices if they would otherwise failthe additional investability requirements for Free Float Market Capitalization and 12month ATVR described in Sections 2.3.5.1 and 2.3.5.2 but still meet 2/3rd of thethreshold6. Existing constituents of the Standard Index with FIF of less than 0.15 mustmeet 2/3rd of the 1.8 times of the minimum free float-adjusted market capitalization
required for the Standard Index. In addition, existing Standard Index constituents may
remain in the size-segment if:• The 3-month ATVR and Frequency of Trading are at least 10% and 80% respectively
for Developed Markets• The 3-month ATVR and Frequency of Trading are at least 7.5% and 80% respectively
for Emerging Markets
If an existing Standard Index constituent, represented by a local listing no longer meets theabove requirements, liquid eligible Depositary Receipts that do meet such requirements
may be considered for inclusion. Depositary Receipts can only be considered if they arelisted in the same geographical region as the local listing of the underlying security.
Existing Standard Index constituents in the lower buffer that fail the additional
investability requirements of the Standard Index are moved to the Small Cap Index. Anyother Standard Index constituent that fails these requirements is not included in any of theindices within the MSCI Global Investable Market Index family.
Current constituent securities for which there is less than 25% foreign room may remain in
the Standard Index. Current constituent securities for which there is no foreign room left
may remain in the Standard Index, but their weight may be reduced by the application of a
Limited Investability Factor (LIF).

6

For potential deletions of existing constituents of the MSCI Global Standard Indices other significant liquid listings will be taken into account in thecalculation of the 12-month ATVR if insufficient liquidity is the only reason for deletion.
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3.1.7

Semi-Annual Index Review of Changes in Foreign Inclusion Factors (FIFs)

During a SAIR, changes in FIFs can result from:••

The implementation of the Annual Full Country Float Review. Once a year a detailed reviewof the shareholder information used to estimate free float for constituent and non-constituent
securities is carried out for each country. The review is comprehensive, covering all aspects ofshareholder information. This annual review is then implemented at one of the SAIRs,
according to a published schedule.
Changes in FIFs that result from events that occurred in the course of the past quarter. These
are identical to those typically implemented during Quarterly Index Reviews, as outlined in
Sub-section: 3.2.3. Quarterly Index Review Changes in FIFs.

3.1.8

Semi-Annual Index Review of Changes in Number of Shares (NOS)

During a SAIR, changes in NOS may result from events that occurred or were not captured in thecourse of the previous quarter. These are identical to those typically implemented during Quarterly
Index Reviews (QIRs), as outlined in Sub-section 3.2.4: Quarterly Index Review of Changes in
Number of Shares.
3.1.9

Date of Data Used for Semi-Annual Index Review

In general, the standard data cut off dates for the May and November SAIRs are as follows:(i) for data used for updating the Equity Universe (incorporating all FIF and NOS changes), the endof February for the May SAIR and the end of August for the November SAIR; and(ii) for the prices used for calculating market capitalization generally any one of the last 10 businessdays of April for the May SAIR and of October for the November SAIR, respectively.
A business day is defined as a day from Monday to Friday where markets cumulatively constituting morethan 80% of the MSCI All Countries World Index market capitalization are expected to be open.
In some cases, the FIF and the NOS of a security may be monitored and updated right up to the cutoff
date for the prices (described in Section 3.1.9(ii) above). Such cases typically include block sales/buys that
occur after the cutoff dates described in Section 3.1.9(i) above, additions to the Standard/Small Cap Index,
as well as deletions from the Standard Index as part of the Index Review.
Please refer to Appendix VII: Policy Regarding Market Closures During Index Reviews for details on
MSCI’s policy regarding market closures during index reviews.

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3.2

Quarterly Index Reviews in February and August

QIRs are designed to ensure that the indices continue to be an accurate reflection of the evolving equity
marketplace. This is achieved by a timely reflection of significant market driven changes that were notcaptured in the index at the time of their actual occurrence but are significant enough to be reflected
before the next SAIR. QIRs may result in additions or deletions due to migration to another Size-Segment
Index, and changes in FIFs and in NOS. Only additions of significant new investable companies are
considered, and only for the Standard Index. The buffer zones used to manage the migration ofcompanies from one segment to another are wider than those used in the SAIR. The style classification isreviewed only for companies that are reassigned to a different size-segment.
3.2.1

Quarterly Index Review of Size-Segment Migrations

During each Quarterly Index Review, the following index maintenance activities are performed to
identify migrations from one Size-Segment to another:••••

Updating the Global Minimum Size References and Global Minimum Size Ranges.
Reassessing the Market Size-Segment Cutoffs.
Assigning companies to the Size-Segment Indices.
Assessing conformity with Final Size-Segment Investability Requirements.
3.2.1.1 Updating the Global Minimum Size References and Global Minimum Size
RangesThe Global Minimum Size Range is reset at the QIR by recalculating the Global Minimum
Size Reference based on the existing DM Investable Equity Universe, excluding any newly
eligible companies, as described in Appendix VIII: Updating the Global Minimum Size
References and Ranges.

3.2.1.2 Reassessing the Market Size-Segment Cutoffs
The Market Size-Segment Cutoff is determined as the full market capitalization of thecompany ranked in the Market Investable Equity Universe, excluding any newly eligible
companies, at the Segment Number of Companies for the relevant segment.
The buffer ranges at the QIR are set up to +80% above and down to -50% below theMarket Size-Segment Cutoff between two size-segments.

3.2.1.3 Assigning Companies to the Size-Segment Indices
During a QIR, companies in the Market Investable Equity Universe are preliminarily
assigned to the Size-Segment Indices until the Segment Number of Companies is achieved
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MSCI Global Investable Market Indices Methodology| November 2010
with the following priority:
•

•
•
•

Companies with the full company market capitalization greater than the Market SizeSegment Cutoff which are not constituents of the lower size-segment (this includes
companies that failed Final Size-Segment Investability Requirements at the previous
SAIR).
Companies in the lower Size-Segment Index that are above the upper buffer thresholdof the lower size-segment.
Companies in the lower buffer of the index in descending full market capitalization
order, until the threshold of this buffer is reached.
The largest companies from the upper buffer of the lower size-segment.

However, companies that would migrate from the lower Size-Segment Index but are below
the lower bound of the Global Minimum Size Range, as well as companies that would
migrate from upper Size-Segment but are above the upper bound of the Global Minimum
Size Range, are retained in their current Size-Segment. The Segment Number ofCompanies is increased or decreased accordingly.
Once companies have been assigned to the Standard, Large and Investable Market Indices,companies are then assigned to the Mid and Small Cap Indices. The Mid Cap Index
comprises the companies that are in the Standard Index but not the Large Cap Index. The
Small Cap Index comprises the companies that are in the Investable Market Index but notin the Standard Index.
3.2.1.4 Assessing Conformity with Final Size-Segment Investability Requirements
Once the securities are assigned to the appropriate Size-Segment Indices, the securities that
migrate from the Small Cap Indices to the Standard Indices are evaluated for compliancewith the additional investability requirements for the Standard Index. Please refer to Subsection 2.3.5: Applying Final Size-Segment Investability Requirements and Index
Continuity Rules.
In addition, an existing constituent of the Standard Index can remain in the Size-Segment
only if:• The 3-month ATVR and Frequency of Trading are at least 10% and 80% respectively
for Developed Markets• The 3-month ATVR and Frequency of Trading are at least 7.5% and 80% respectively
for Emerging Markets
An existing constituent of the Small Cap Index, not migrating to the Standard Segment canremain in the Size-Segment only if:• The 3-month ATVR and Frequency of Trading are at least 5% and 80% respectively
for Developed Markets• The 3-month ATVR and Frequency of Trading are at least 5% and 70% respectively
for Emerging Markets
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If an existing constituent, represented by a local listing no longer meets the above liquidity
requirements, liquid Depositary Receipts that do meet such requirements can beconsidered for inclusion. Depositary Receipts can only be considered if they are listed in
the same geographical region as the local listing of the underlying security.
If an existing constituent in Emerging Markets fails to meet the liquidity requirements, but
has a weight of more than 10% in the respective country index and its float adjusted
market capitalization is above 0.5 times the Global Minimum Size Reference for Emerging
Markets, then such constituent will remain in the index. However, MSCI would apply a
Limited Investability Factor (LIF) of 0.5 to the weight of the security, and in thesubsequent index review, MSCI:• would delete the security from the index if the security does not meet all liquidity
requirements for new constituents or• would maintain the security in the GIMI and remove the LIF if the security does meet
all the liquidity requirements for new constituents.
Securities that are part of the Market Investable Equity Universe, but did not meet
additional investability requirements at the previous SAIR are not added to the Investable
Market Indices as part of the QIR, unless they meet the criteria outlined in section 3.2.2.
3.2.2 Quarterly Index Review of Addition of Companies Currently not Constituents of
the Investable Market Indices
Securities that are currently not constituents of the Investable Market Indices and that meet theinvestability screens described in Sub-section 2.2, including large IPOs that were not added earlier,and in addition meet the requirements listed below, are added to the Standard Index.
•••

A full market capitalization that exceeds 1.8 times both the Interim Market Size-Segment
Cutoff and the lower bound of the Global Minimum Size Range
A free float-adjusted market capitalization that exceeds 1.8 times both one-half the InterimMarket Size-Segment Cutoff and one-half the lower bound of the Global Minimum Size Range
A 12-month ATVR that exceeds the Minimum Market-Relative Liquidity Requirement for theStandard Index

These companies are assigned to the Large Cap Index if their full market capitalization exceeds theLarge Cap Cutoff; they are assigned to the Mid Cap Index otherwise.
In addition, IPOs eligible for early inclusion according to Sub-section 3.3.4.1, and for which theeffective date of inclusion is either 5 days before the effective date of the QIR or 3 days after, will
be made effective to coincide with the QIR. For example, when the effective date of inclusion of
the IPO is August 29 (3 business days before September 1), while the effective date of the QIR is
September 1, the IPO will be added effective September 1.

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3.2.3

Quarterly Index Review of Changes in FIFs

Significant changes in free float estimates and corresponding FIFs are reflected in the indices at the
QIRs. These changes may result from the following:
•
•
•
•
•
•
•
•
•

Large market transactions involving changes in strategic ownership, which are publicly
announced (for example transactions made by way of immediate book-building and otherprocesses such as block sales or block buys)7.
Secondary offerings that were not reflected immediately in the indices given the lack ofsufficient notice or small size (less than 5% of the security’s number of shares).
Increases in Foreign Ownership Limits (FOLs).
Decreases in FOLs which did not require foreign investors to immediately sell shares in themarket.
Re-estimations of free float figures resulting from the reclassification of shareholders fromstrategic to non-strategic (and vice versa) and/or updates to number of shares outstanding.
Public disclosure of the new shareholder structure for companies involved in mergers,
acquisitions or spin-offs, where different from the pro forma free float estimate at the time ofthe event.
Large conversions of exchangeable bonds and other similar securities into already existing
shares.
End of lock-up periods or expiration of loyalty incentives for otherwise non-strategic
shareholders, which determine the reclassification of these shareholdings and result in an
increase in free float.
Other events of similar nature. However, FIF changes resulting from updates in Non-Voting
Depositary Receipts (NVDRs) in Thailand are applied in the indices only on a semi-annual
basis at SAIRs and not quarterly.

FIF changes resulting from a change in free float of less than 1% will not be implemented, except
in cases of corrections.

3.2.4

Quarterly Index Review of Changes in Number of Shares (NOS)

Small changes in NOS, typically less than 5% of the shares outstanding, are generally updated at
the QIR rather than at the time of the change, to minimize index turnover provided the absoluteNOS change is greater than 1,000 shares and percentage NOS change is greater than 0.02%.
Changes may occur due to:

7••

These changes will be implemented during a QIR provided they satisfy one of the following conditions:
The absolute size of the FIF change is 0.15 or more, or
The change in free float-adjusted market capitalization resulting from the FIF change represents at least:
USD 1billion for securities classified in the US.
USD 500 million for securities classified in Developed Markets other than the US.
USD 200 million for securities classified in the Emerging Markets.

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MSCI Global Investable Market Indices Methodology| November 2010
•
•
•
•
•
•
•

Exercise of options or warrants and employee stock option plans.
Conversion of convertible bonds or other instruments, including periodic conversion ofpreferred stocks, and small debt-to-equity swaps.
Periodic share buybacks and cancellation of treasury shares.
Increases in a security’s number of shares resulting from acquisition of non-listed companies
and conversion of unlisted shares.
Small equity offerings.
Other events that could not be implemented on or near the effective dates, and where no Price
Adjustment Factor (PAF) is necessary.
Share cancellations.

Updates in number of shares implemented as part of the QIR could also trigger a review of thefree float of the security. Any resultant change in FIF would be implemented simultaneously.

3.2.5 Date of Data Used for Quarterly Index Review:
In general, the standard data cut off dates for the February and August QIRs are as follows:(i) for data used for incorporating all FIF and NOS changes to the existing Equity Universe, theend of November for the February QIR and the end of May for the August QIR; and(ii) for the prices used for calculating market capitalization generally any one of the last 10
business days of January for the February QIR and of July for the August QIR, respectively.
A business day is defined as a day from Monday to Friday where markets cumulatively constituting
more than 80% of the MSCI All Countries World Index market capitalization are expected to beopen.
In some cases, the FIF and the NOS of a security may be monitored and updated right up to thecutoff date for the prices (described in Section 3.2.5(ii) above). Such cases typically include block
sales/buys that occur after the cutoff dates described in Section 3.2.5(i) above, additions to theStandard/Small Cap Index, as well as deletions from the Standard Index as part of the Index
Review.
Please refer to Appendix VII: Policy Regarding Market Closures During Index Reviews for details
on MSCI’s policy regarding market closures during index reviews.

3.3

Ongoing Event-Related Changes

Ongoing event-related changes to the indices are the result of mergers, acquisitions, spin-offs,
bankruptcies, reorganizations and other similar corporate events. They can also result from capitalreorganizations in the form of rights issues, bonus issues, public placements and other similar corporate
actions that take place on a continuing basis. These changes generally are reflected in the indices at the
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MSCI Global Investable Market Indices Methodology| November 2010
time of the event.
These events can affect many aspects of an index and its constituents, including inclusion or deletion ofcompanies outside of the Index Reviews, weight changes due to changes in FOLs, FIFs, NOS, etc., andchanges in size, style and/or industry classification.
To evaluate the impact of changes resulting from events on the assignment of companies into sizesegments, it is necessary to maintain the Market Size-Segment Cutoffs and Segment Number ofCompanies on a daily basis as described below.
The handling of ongoing event-related changes can be classified in two broad categories:••

Corporate events affecting existing index constituents, described in Sub-section 3.3.3 below.
Corporate events affecting non-index constituents, described in Sub-section 3.3.4 below.

The technical details relating to the handling of specific corporate event types can be found in the MSCI
Corporate Events Methodology book available at:
http://www.msci.com/methodology/meth_docs/MSCI_Sep10_CorporateEventsMethodology.pdf
3.3.1

Determining the Interim Market Size-Segment Cutoffs for Daily MaintenanceFor the purpose of determining eligibility for early inclusion of securities, such as significant IPOs,
and/or assigning a company and its securities post a corporate event, e.g., mergers and spin-offs,
to the appropriate Size-Segment Index an Interim Size-Segment Cutoff is used. To derive thisnumber the following steps are followed:•••

The Global Minimum Size References and Global Minimum Size Ranges of the Large Cap, theStandard, and the Investable Market Indices are updated daily as described in Appendix VIII:
Update of Global Minimum Size References and Ranges.
On a daily basis, each Market Size-Segment Cutoff is set to be the full market capitalization of
the company of the rank equal to the Segment Number of Companies for that Size-Segment in
the Market Investable Equity Universe.
The Interim Market Size-Segment Cutoff is set to:o The lower bound of the Global Minimum Size Range, if the Market Size-Segment Cutoff isbelow the lower bound.
o The upper bound of the Global Minimum Size Range, if the Market Size-Segment Cutoff
is above the upper bound.
o The Market Size-Segment Cutoff, if it is within the Global Minimum Size Range.

The daily values for the Market Size-Segment Cutoffs, the Segment Number of Companies andthe Global Minimum Size Range are based on data from the previous trading day.
3.3.2

Updating the Segment Number of Companies

If a company is added or deleted from a size-segment as a result of a corporate event, the Segment
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Number of Companies is correspondingly increased or decreased.
3.3.3

Corporate Events Affecting Existing Index Constituents

Corporate events can affect existing index constituents in various ways:••••

Changes in Foreign Inclusion Factor (FIF), number of shares or industry classification forexisting constituents.
Changes in size or style segment classification as a result of a large corporate event.
Early inclusions of non-index constituents.
Early deletions of existing index constituents.
3.3.3.1 Changes in FIF, Number of Shares or Industry Classification for Existing
Constituents
In order to ensure that the index accurately reflects the investability of the underlying
securities, it is a general policy to coordinate changes in number of shares with changes in
FIF.
When two companies merge, or a company acquires or spins-off another company, thefree float of the resulting entity is estimated on a pro forma basis, using the pro forma
number of shares if applicable, and the corresponding FIF is applied simultaneously withthe event. When there is a subsequent public disclosure regarding the new shareholder
structure, which results in a different free float estimation than that made at the time of theevent, the FIF will be updated at the next Index Review. Other corporate events, which
result in a change in shareholder structure or FOLs and FIFs, will typically be reflected in
the indices simultaneously with the implementation of the event in the index. Any otherpending shareholder information updates or reclassifications will generally also be reflectedin the pro forma free float estimation related to the event.
Decreases in FOLs in which foreign investors are obliged to immediately sell shares in themarket will be reflected in the indices as soon as possible.
Changes in NOS and FIF resulting from primary equity offerings representing more than
5% of the security’s number of shares are generally implemented as of the close of the first
trading day of the new shares, if all necessary information is available at that time.
Otherwise, the event is implemented as soon as practicable after the relevant information ismade available. A primary equity offering involves the issuance of new shares by acompany.
Changes in NOS and FIF resulting from primary equity offerings representing less than
5% of the security’s number of shares are deferred to the next regularly scheduled Index
Review following the completion of the event.

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For public secondary offerings of existing constituents representing more than 5% of the
security’s number of shares, where possible, MSCI will announce these changes and reflect
them shortly after the results of the subscription are known. Secondary public offerings
that, given lack of sufficient notice, were not reflected immediately will be reflected at thenext Index Review. Secondary offerings involve the distribution of existing shares ofcurrent shareholders’ in a listed company and are usually pre-announced by a company orby a company’s shareholders and open for public subscription during a pre-determined
period.
For US securities, increases in NOS and changes in FIF resulting from primary equity
offerings and from secondary offerings representing at least 5% of the security’s number ofshares will be implemented as soon as practicable after the offering is priced. Generally,
implementation takes place as of the close of the same day that the pricing of the shares ismade public. If this is not possible, the implementation will take place as of the close of thefollowing trading day.
Changes in industry classification resulting from a corporate event are generally
implemented simultaneously with the event. Other changes in industry classifications are
implemented at the end of the month.
3.3.3.2 Changes in Size or Style Segment Classification as a Result of a Large
Corporate Event
In order to reflect significant changes in the market capitalization of existing constituentsin the Global Investable Market Indices and in the World All Cap Indices in a timely
fashion while minimizing index turnover, the Size-Segment classification of a security isreviewed simultaneously with the event, if the market capitalization change implied by theevent, including potential update in the number of shares for the security, is deemedsignificant.
A significant market capitalization change is defined as an increase of 50% or greater, or adecrease of 33% or more, relative to the company’s full market capitalization before theevent.
The company’s post-event full market capitalization is then compared to the Interim SizeSegment Cutoffs in order to determine the classification of that security in the appropriate
size-segment.
In addition, the securities must pass the investability screens described in Sub-section 2.2.
In particular, the free float-adjusted market capitalization of securities added to theStandard Index must be at least 50% of the Standard Index Interim Size-Segment Cutoff.
Moreover, the securities added to the Standard Index must meet the size-segment
investability requirements for the Standard Index described in Sub-sections 2.3.5.2 and2.3.5.3.
For a security to be added to the Small Cap Index, the free float-adjusted market
capitalization must be at least 50% of the Small Cap Interim Size-Segment Cutoff.
For a security to be added to the World Micro Cap Index, the free float-adjusted market
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capitalization must be at least 50% of the Micro Cap Minimum Size Requirement for
Existing Constituents as described in Sub-section 4.1.2.
However, a World Micro Cap Index constituent will not be considered for a size-segment
migration to the Small Cap Index or Standard Index due to a significant market
capitalization increase at time of the event but at Index Reviews, unless there is a merger or
acquisition of a Small Cap Index constituent or a Standard Index constituent with or by aWorld Micro Cap Index constituent.
If the company is added to, or removed from a size-segment, then it results in an increaseor a decrease in the Segment Number of Companies for the size-segment.
For these significant events, if the post-event entity moves from being a non-constituent toa constituent of the Global Investable Market Indices, the style characteristics of theaffected securities are reviewed. The same applies for the post-event entity that migrates
from the World Micro Cap Index or the Small Cap Index to an upper Size-Segment Index.
If the post-event entity moves from the Standard Index to the Small Cap Index or remains
in the same Size-Segment Index (with the Large and Mid Cap Indices being considered as
one size index), the style characteristics of the affected securities are not reviewed. If the
post-event entity moves from the Standard Index or Small Cap Index to the World Micro
Cap Index, the style characteristics of the affected securities are removed as there are nostyle characteristics for the World Micro Cap constituents.
The guidelines regarding significant market capitalization changes described above apply inmost corporate events cases. For certain corporate events where the outcome is uncertain
such as acquisitions for shares or non-renounceable rights issues, or combinations ofdifferent types of corporate events, or other exceptional cases, MSCI will determine themost appropriate implementation method and announce it prior to the changes becoming
effective in the indices.
3.3.3.3 Early Inclusions of Non-Index Constituents
When there is a corporate event affecting index constituents, non-index constituents thatare involved in the event are generally considered for immediate inclusion in the MSCI
Global Investable Market Indices, as long as they meet all the index constituent eligibility
rules and guidelines described in Sub-sections 2.2 and 2.4.
For example, if a non-constituent company acquires a constituent company, theconstituent company’s securities may be replaced by the securities of the acquiring
company. Similarly, if a constituent company merges with a non-constituent company, themerged company may replace the constituent company. In addition, securities spun-off
from existing constituents will be considered for early inclusion at the time of the event.
Such non-index constituents are generally included in the same size-segment and Value and
Growth Indices as the affected index constituents, since they are considered to be acontinuation of the index constituents. However, if the difference between the post-event
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market capitalization of the non-index constituents and the respective index constituents isdeemed significant, as discussed in Sub-section: 3.3.3.2, a size-segment review is conducted
for the non-index constituents. A style review is conducted if the non-index constituentsare included to different Size-Segment Indices from the affected index constituents.
Thereafter, the non-index constituents are included in the appropriate Size-Segment
Indices by comparing the company’s post-event full market capitalization with the InterimMarket Size-Segment Cutoff, and in the appropriate style indices based on their styleattribution within the relevant Size-Segment Indices.
Securities spun-off from existing constituents are also considered for inclusion at the timeof the event. A systematic size-segment classification review is conducted for all spun-off
securities from existing Global Investable Market Index constituents provided that they
pass all the investability screens described in Sub-section 2.2 with the exception of thelength of trading and liquidity screens. In addition, the free float-adjusted market
capitalization of securities added to the Standard Index must be at least 50% of theStandard Index Interim Size-Segment Cutoff. For a security to be added to the Small Cap
Index, the free float-adjusted market capitalization must be at least 50% of the Small Cap
Interim Size-Segment Cutoff. Securities spun-off from the World Micro Cap Index are also
considered for inclusion at time of the event, but only for the World Micro Cap Index sizesegment. For a security to be added to the World Micro Cap Index, the free float-adjusted
market capitalization must be at least 50% of the Micro Cap Minimum Size Requirement
for Existing Constituents as described in Sub-section 4.1.2 A style review is performed forspun-off securities if they are included in different Size-Segment Indices from thespinning-off securities and/or the spinning-off securities move to other Size-Segment
Indices at the time of the event. No style reviews are performed for spun-off securities thatare considered to be included in the World Micro Cap Index, as there are no stylecharacteristics for the World Micro Cap constituents. Thereafter, the spun-off securities
are included in the appropriate Size-Segment Indices by comparing the company’s postevent full market capitalization with the Interim Market Size-Segment Cutoff, and in theappropriate style indices based on their style attribution within the relevant Size-Segment
Indices.

3.3.3.4 Early Deletions of Existing Constituents
Securities of companies that file for bankruptcy, companies that file for protection fromtheir creditors and/or are suspended and for which a return to normal business activity andtrading is unlikely in the near future will be removed from the MSCI Global Investable
Market Indices as soon as practicable. When the primary exchange price is not available,
the securities will be deleted at an over-the-counter or equivalent market price when such a
price is available and deemed relevant. If no over-the-counter or equivalent price isavailable, the company will be deleted at the smallest price (unit or fraction of the currency)
at which a security can trade on a given exchange.
Securities may also be considered for early deletion in other significant cases, such as
decreases in free float and FOLs, or when a constituent company acquires or merges withMSCI Index Research© 2010 MSCI. All rights reserved.
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a non-constituent company or spins-off another company.
In practice, when a constituent company is involved in a corporate event which decreases
by more than 33% the company’s full market capitalization, the securities of theconstituent company are considered for early deletion from the indices simultaneously withthe event. Securities are also considered for early deletion in cases of corporate events
where the Foreign Inclusion Factor (FIF) of the security decreases or is expected todecrease below 0.15.
Moreover, existing constituents of the Standard Index with a FIF already lower than 0.15
may be considered for early deletion simultaneously with an event if the FIF further
decreases due to the event.
In cases of securities that are considered for early deletion, the securities are removed fromthe indices if due to the event they no longer pass the investability screens described in
Sub-section 2.2.
However, securities may remain in the indices following the event if they still meet 2/3rd of
the Equity Universe Minimum Float-Adjusted Market Capitalization Requirement
described in Sub-section 2.2.2, provided that all other investability requirements describedin Sub-section 2.2 are met. For Standard Index constituents with a FIF lower than 0.15, theminimum float-adjusted market capitalization required for the security to be maintained in
the indices is 2/3rd of the 1.8 times one half of the Standard Index Interim Size-Segment
Cutoff.
Conversions of a constituent’s share class into another share class may also result in thedeletion of one or more share classes fromthe indices.

3.3.4

For securities that are suspended, the market price immediately prior to the suspension will
be carried forward during the suspension period.
Corporate Events Affecting Non-Index Constituents
3.3.4.1 IPOs and Other Early Inclusions
In general, newly listed equity securities available to foreign investors are considered forinclusion in the MSCI Global Investable Market Indices, according to MSCI’s Global
Investable Market Indices methodology rules and guidelines, at the time of the Index
Reviews. However, for IPOs, which are significant in size and meet all the MSCI inclusion
criteria, an early inclusion, outside of the Index Reviews, may be considered for inclusionin the Standard Index. If the decision is made to include an IPO early, the inclusion will
generally become effective after the close of the security’s tenth day of trading. However,in certain cases, another date may be chosen for the inclusion to reduce turnover, forexample, where the normal inclusion date is close to the effective date of the next Index
Review, as described in Sub-sections 3.1.6.1 (for the Semi-Annual Index Reviews) and3.2.2 (for the Quarterly Index Reviews).
In order for an IPO and other newly eligible securities to qualify for an early inclusion to
the Standard Index, a security must meet the index constituent eligibility rules and

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guidelines described in Sub-section 2.2 and size-segment investability requirements
described in Sub-section 2.3.5.1 and have a company full market capitalization of at least
1.8 times the Interim Market Size-Segment Cutoff and free float-adjusted market
capitalization of at least 1.8 times one-half of the Interim Market Size-Segment Cutoff asof the close of its first trading day.8
Securities may also be considered for early inclusion in other significant cases, including
but not limited to those resulting from removal or relaxation of FOLs, consolidation,
restructuring in the industry giving rise to a large new company or a large additional public
offering of an already listed security if the size of the offering exceeds the IPO threshold of
1.8 times one-half of the Interim Market Size-Segment Cutoff. Such cases will be treated in
the same way as IPOs of significant size.

3.4

Announcement Policy
3.4.1

Semi-Annual Index Review

The results of the SAIRs are announced at least two weeks in advance of their effective
implementation dates as of the close of the last business day of May and November.
3.4.2

Quarterly Index Review

The results of the QIRs are announced at least two weeks in advance of their effective
implementation dates as of the close of the last business day of February and August.
3.4.3

Ongoing Event-Related Changes
3.4.3.1 Client Announcements
All changes resulting from corporate events are announced to clients prior to theirimplementation in the MSCI Global Investable Market Indices.
The changes are typically announced at least ten business days prior to these changes
becoming effective in the indices as “expected” announcements, or as “undetermined”
announcements, when the effective dates are not known yet or when aspects of the eventare uncertain. MSCI sends “confirmed” announcements at least two business days prior toevents becoming effective in the indices provided that all necessary public information
concerning the event is available. In case a “confirmed” announcement needs to beamended, MSCI sends a “correction” announcement with a descriptive text announcement
to provide details about the changes made.

8

IPOs with a FIF of less than 0.15 would have to meet the same criteria for early inclusion as IPOs with a FIF of 0.15 or higher.

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For certain events, MSCI only sends “confirmed” announcements, especially due toinsufficient or lack of publicly available information or late company disclosure. For the
MSCI World Micro Cap Index and the MSCI Frontier Markets Small Cap Index, MSCI
will generally only send “confirmed” announcements at least two business days prior toevents becoming effective in the index, provided that all necessary public information
concerning the event is available.
The full list of all new and pending changes is delivered to clients on a daily basis, between
5:30 PM and 6:00 PM US Eastern Time (EST) through the Advance Corporate Events(ACE) File.
In exceptional cases, events are announced during market hours for same or next day
implementation. Announcements made by MSCI during market hours are usually linked tolate company disclosure of corporate events or unexpected changes to previously
announced corporate events. A descriptive text announcement is sent for all corporate
events effective on the same day or on the next day.
In general, MSCI also sends text announcement for corporate events effective within thenext 48 hours, except for US Equities’ equity offerings and market neutral events such as
split, reverse split or stock dividend.
In the case of secondary offerings representing at least 5% of a security’s number of sharesfor existing constituents, these changes will be announced prior to the end of thesubscription period when possible and a subsequent announcement confirming the detailsof the event (including the date of implementation) will be made as soon as the results areavailable.
Both primary equity offerings and secondary offerings for US securities, representing atleast 5% of the security’s number of shares, will be confirmed through an announcement
during market hours for next day or shortly after implementation, as the completion of theevents cannot be confirmed prior to the notification of the pricing.
Early deletions of constituents due to bankruptcy or other significant cases are announced
as soon as practicable prior to their implementation in the MSCI indices.
For MSCI Global Standard Index constituents, a more descriptive text announcement issent to clients for significant events that meet any of the following criteria:••

Additions and deletions of constituents.
Changes in free float-adjusted market capitalization equal to or larger than USD 5
billion, or with an impact of at least 1% of the constituent's underlying country index.

In general, no descriptive text announcement will be sent for the MSCI World Micro Cap
Index constituents and Frontier Markets Small Cap Index constituents.
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are complex in nature and for which additional clarification could be beneficial for any
Standard, Small Cap and Micro Cap Indices.
3.4.3.2 Public Announcements
All additions and deletions of constituents of the MSCI Global Investable Market Indicesresulting from corporate events are publicly announced prior to their implementation.
In general, other changes resulting from corporate events that affect constituents of the
MSCI Global Investable Market Indices, such as changes in the Foreign Inclusion Factor(FIF) and/or in the number of shares of a constituent, are not publicly announced but areannounced only to clients.
If warranted, MSCI reserves the right to make public announcements related to corporate
events for special cases, such as the ineligibility of a security in the MSCI Global Investable
Market Indices.
The changes are typically announced at least two business days prior to events becoming
effective in the indices. Public announcements are a summary of the “confirmed”
announcements that are made to clients. Public announcements are typically made shortly
before a “confirmed” client announcement is made.
MSCI posts the announcements on its web site, www.msci.com, and on Bloomberg page
MSCN. In addition, announcements are posted on Reuters public pages MSCIA for MSCI
Global Standard Index constituents and MSCI Domestic Standard Index constituents.
3.4.4

IPOs and Other Early Inclusions

Early inclusions of large IPOs in the MSCI Standard Index Series are announced no earlier than
the first day of trading and no later than before the opening of the third day of trading in themarket where the company has its primary listing.
Early inclusions of already listed securities following large secondary offerings of new and/or
existing shares are announced no earlier than shortly after the end of the offer period.
It is MSCI policy not to comment on the potential inclusion of equity securities to be listed in the
future, including their industry classification under the Global Industry Classification Standard(GICS), their country classification and their potential inclusion in an MSCI index. The same
applies to non-index constituents that are already listed which have pending large events.
3.4.5

Global Industry Classification Standard (GICS)

Non-event related changes in industry classification at the sub-industry level are announced at least
two weeks prior to their implementation as of the close of the last US business day of each month.
MSCI announces GICS changes twice a month, the first announcement being made on the first
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US business day of the month and the second one being made at least ten US business days prior
to the last US business day of the month. All GICS changes announced in a given month will be
implemented as of the close of the last US business day of the month.

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Section 4: MSCI All Cap IndicesThis section should be read in conjunction with the earlier Section 2 ‘Constructing the MSCI Global
Investable Market Indices’ and Section 3 ‘Maintaining the MSCI Global Investable Market Indices’.
The calculation of the MSCI All Cap Indices is currently limited to Developed Markets.

4.1

Constructing the MSCI All Cap Indices

The MSCI All Cap Indices encompass all constituents of the MSCI Global Investable Market Indices aswell as securities allocated to the MSCI Micro Cap Indices. The construction of the MSCI Global
Investable Market Indices is described in detail in previous sections.
Constructing the MSCI All Cap Indices involves the following steps:•••

Constructing Global Investable Market Indices as described in earlier sections.
Constructing a Micro Cap Index for each market as described below.
Aggregating the Global Investable Market Indices with the Micro Cap Indices.

The Micro Cap Size-Segment is constructed by including all securities which are not part of the Global
Investable Market Indices and meet the following requirements:
•
•
•
•
•

Micro Cap Maximum Size Requirement.
Micro Cap Minimum Size Requirement.
Micro Cap Minimum Liquidity Requirement.
Global Minimum Foreign Inclusion Factor Requirement.
Minimum Length of Trading Requirement.

Each of these screens is described in detail below.

4.1.1

Micro Cap Maximum Size Requirement

This screen is applied at the company level.
A company with a full company market capitalization exceeding the Small Cap Entry Buffer (asdefined in Sub-section 3.1.5.1) may not be allocated to the Micro Cap Size-Segment.
4.1.2

Micro Cap Minimum Size Requirement

This screen is applied at the company level.
In order to be allocated to the Micro Cap Size-Segment, a company must have the required
minimum full market capitalization and full security market capitalization. This minimum fullmarket capitalization is referred to as the Micro Cap Minimum Size Requirement and is applied to
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both full company market capitalization (issuer level) and full security market capitalization. Thisrequirement applies to companies in all Developed Markets.
The Micro Cap Minimum Size Requirement is derived using the same process as described in the
Sub-section 2.2.1 targeting cumulative free float-adjusted market capitalization coverage of 99.8%of the Developed Markets Equity Universe (as defined in Sub-section 2.1).
4.1.3

Micro Cap Minimum Liquidity Requirement

In order to be eligible for inclusion in the Micro Cap Size-Segment a security must have a 12month ATVR of at least 5% and a 12-month frequency of trading of at least 50%.
4.1.4

Global Minimum Foreign Inclusion Factor Requirement

This screen is applied at the individual security level.
A security must have Foreign Inclusion Factors (FIFs) equal to or larger than 0.15 to be eligible forinclusion in the Micro Cap Size-Segment.
Securities with a FIF equal to 0.15 or above will also be excluded if their free float-adjusted market
capitalization is less than Micro Cap Minimum Size Requirement for Existing Constituentsthreshold defined in the sub-section 4.2.1.2
4.1.5

Minimum Length of Trading Requirement

This screen is applied at the individual security level.
For an IPO to be eligible for inclusion in the Micro Cap Size-Segment, the new issue must havestarted trading at least three months before the implementation date of a Semi-Annual Index
Review.

4.2

Maintaining the MSCI All Cap IndicesSimilarly to the Large, Mid and Small Cap Size-Segments, Micro Cap Size-Segment index maintenanceinvolves:•

Semi-Annual Index Reviews (SAIRs) in May and November which include:o Updating the indices on the basis of a fully refreshed Equity Universe.
o Taking buffer rules (as defined in Sub-section 3.1.5.1) into consideration for migration of securities
across size segments.
o Updating (FIFs) and Number of Shares (NOS).

•

Quarterly Index Reviews (QIRs) in February and August are aimed at:

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o Reflecting the impact of significant market events on FIFs and updating NOS.
•

Ongoing event-related changes. Changes of this type are generally implemented in the indices as theyoccur. More information on the event-related changes can be found in the Corporate Events
Methodology book
4.2.1

Semi-Annual Index Reviews in May and November

As described in Section 3, during each SAIR the Equity Universe is updated and all size-segmentsof the Global Investable Market Indices are reviewed. The following index maintenance activities
are undertaken as part of the SAIR for the Micro Cap Size-Segment:•

Updating the Micro Cap Minimum Size Requirement.

•

Assigning companies to the Micro Cap Size-Segment taking into account size and liquidity
buffer zones.
4.2.1.1 Updating the Micro Cap Minimum Size Requirement
The Micro Cap Minimum Size Requirement is updated at each SAIR in the following
manner:The cumulative free float-adjusted market capitalization coverage at the rank of thecompany that was used to define the Micro Cap Minimum Size Requirement at theprevious rebalance is calculated.
If the coverage of the updated Developed Market Equity Universe at that rank falls:•••

between 99.7% and 99.8%, the Micro Cap Minimum Size Requirement is set to thecurrent full market capitalization of the company at that rank.
below 99.7%, the Micro Cap Minimum Size Requirement is reset to the full market
capitalization of the company at 99.7% coverage and the rank of that company isnoted for the next rebalance.
above 99.8%, the Micro Cap Minimum Size Requirement and rank are reset based on
the full market capitalization of the company at 99.8% coverage and the rank of thatcompany is noted for the next rebalance.

4.2.1.2 Assigning Companies to the Micro Cap Size-Segment
All companies meeting the requirements outlined in Sub-sections 4.1.1 through 4.1.5 which
are not part of the Investable Market Size-Segments are assigned to the Micro Cap SizeSegment.
Existing constituents of the Micro Cap Size-Segment may remain in the segment under the
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following conditions:• company full market capitalization is not above the Small Cap Entry Buffer.
• company full market capitalization and security full market capitalization are greaterthan or equal to the lower of USD 10 million or the full market capitalization of thecompany at 99.95% coverage (Micro Cap Minimum Size Requirement for Existing
Constituents).
•• FIF remains above or equal to 0.15.
• 12-month frequency of trading is above or equal 10%.
4.2.2

Quarterly Index Reviews of February and August

QIRs are only aimed at reflecting the impact of significant market events on FIFs and updating
NOS. Typically no change in the constituents of the Micro Cap Size-Segment may take place at thetime of QIRs. At the time of QIRs a company may enter the Micro Cap Size-Segment only if it isdeleted from the Small Cap Size-Segment due to a low liquidity and it satisfies the conditions
specified in Sub-section 4.2.1.2.
4.2.3

Ongoing Event-Related Changes

Ongoing event-related changes to the indices are the result of mergers, acquisitions, spin-offs,
bankruptcies, reorganizations and other similar corporate events. They can also result from capitalreorganizations in the form of rights issues, bonus issues, public placements and other similar
corporate actions that take place on a continuing basis. These changes generally are reflected in theindices at the time of the event.
The ongoing maintenance of the Micro Cap Size-Segment generally follows the process outlined in
Sub-section 3.3.

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Section 5: MSCI Frontier Markets Indices
5.1

Frontier Markets Definition

MSCI starts by considering all equity markets not included in the MSCI Emerging Markets Index, that• demonstrate a relative openness to and accessibility for foreign investors• are generally not considered as part of the developed markets universe9• do not belong to countries undergoing a period of extreme economic (e.g., hyperinflation) or
political instability (e.g., civil war)
MSCI then applies the following materiality requirement:• A minimum of two companies with securities eligible for the Standard Index.
5.1.1

Updating MSCI Frontier Markets Index Coverage

MSCI will on a regular basis monitor potential new markets that may qualify or current markets
that may not qualify anymore for the MSCI Frontier Markets Index. Potential additions anddeletions will be considered semi-annually during the May and November Semi-Annual Index
Reviews.
Please refer to Appendix II for more information on the Market Classification Framework.

5.2

Methodology used to construct and maintain the MSCI Frontier Markets
IndicesThis appendix should be read in conjunction with the earlier Section 2 ‘Constructing the MSCI Global
Investable Market Indices’ and Section 3 ‘Maintaining the MSCI Global Investable Market Indices’.
The methodology used to construct the MSCI Frontier Markets Indices is similar, but not identical, to theconstruction of the indices for Developed and Emerging Markets. One of the prime differences is that the
Frontier Markets are divided into Larger Frontier Markets and Smaller Frontier Markets with different
minimum size requirements. Larger Frontier Markets are defined as markets for which the application of
the Emerging Markets Global Minimum Size reference results in adequate Standard Size-Segment
coverage. Smaller Frontier Markets require the use of a relaxed Global Minimum Size Reference (0.5 times
Global Minimum Size Reference for Larger Frontier Markets) to reach sufficient Standard Size-Segment
coverage. Further, there are three levels of minimum liquidity requirements – very low, low, and average –to accommodate the divergent liquidity levels in Frontier Markets. See Appendix X for the countries thatfall under each classification.
In addition, to account for generally lower investability characteristics of Frontier Markets, no additional
investability requirements are applied for securities to be included in the Standard Size-Segment.
9E.g. Luxembourg, Iceland or Cyprus. These countries are part of the developed markets universe. Given their modest sizethese markets are not included in the MSCI World Index.
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Another particularity of Frontier Markets is that companies tend to reach their Foreign Room, (i.e.
proportion of shares still available for foreign investors relative to the maximum allowed) more frequently
in comparison to Developed and Emerging Markets. Consequently, the foreign room requirements for
Frontier Markets are more granular than those for Developed and Emerging markets described in Subsection 2.3.5.3.
More specifically, the methodological differences between the index construction for Frontier Markets
countries and for countries constituting the MSCI ACWI Index are found in the following:
•
•
•
•
•
•
•

Full and free float-adjusted market capitalization requirements resulting from categorization of
Frontier Markets into Larger and Smaller Markets
Liquidity requirements resulting from categorization of Frontier Markets into very low, low oraverage liquidity markets
Final Size-Segment Investability Requirements
Treatment of securities with low Foreign Room
Index Continuity Rules
Implementation of Corporate Events
IPOs and other early inclusions

In addition, the size segmentation into Large Cap and Mid Cap of the Standard Index is not offered for
Frontier Markets with the exception of the MSCI Gulf Cooperation Council (GCC) Countries Indices.
More details on the methodological differences are described below.
5.2.1

Categorization of Frontier Markets into Larger and Smaller Markets

As mentioned above, in order to account for differences in market size and structure across
Frontier Markets, each Frontier Market is categorized as a Larger or Smaller market. The
categorization is reviewed semi-annually during the May and November Semi-Annual Index
Reviews.
Each country is analyzed independently to determine the most suitable size categorization. MSCI
considers several factors for the minimum size categorization of each Frontier Market:•

The number of Standard Index constituents subject to categorization.

•

The differences in the Standard Index free float-adjusted market capitalization coverage when
applying different Global Minimum Size References.

•

Recent development of the stock market structure i.e., full market capitalization and size
distribution of companies. Expected evolution of the stock market structure (e.g., futureIPOs).

The categorization between the Larger and Smaller Frontier Markets results in two different sets ofEquity Universe Minimum Float-Adjusted Market Capitalization Requirements as well as Global
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MSCI Global Investable Market Indices Methodology| November 2010
Minimum Size References.

5.2.1.1 Equity
Requirement

Universe

Minimum

Float-Adjusted

MarketCapitalization

To be eligible for inclusion in a Market Investable Equity Universe, a security must have afree float-adjusted market capitalization equal to or higher than••Larger Frontier Markets: 50% of the Equity Universe Minimum Size Requirement
Smaller Frontier Markets: 25% of the Equity Universe Minimum Size Requirement

Example:If, using the definition in section 2.2.1, the Equity Universe Minimum Size Requirement is
set at USD 172 million, then a security in a larger market must have a free float-adjusted
market capitalization equal to or higher than USD 86 million to be eligible for inclusion ina Market Investable Equity Universe, and USD 43 million in a smaller market.

5.2.1.2 Global Minimum Foreign Inclusion Factor Requirement
Similarly to Developed and Emerging Markets, securities with a FIF of less than 0.15 are
generally not eligible for inclusion in the MSCI Frontier Markets Indices unless thesesecurities are sufficiently large. In Frontier Markets, securities are considered as large if
their full company market capitalization is above 1.8 times of the Interim Size-Segment
Cutoff for the relevant Standard Country Index and their free float-adjusted market
capitalization is at least 1.8 times of the relevant free float-adjusted market capitalizationthresholds defined above.
Existing constituents with a FIF of less than 0.15 may remain in the index if the companies
meet the full company market capitalization and liquidity criteria applied for the securities
with FIF of 0.15 or higher and their free float-adjusted market is not below 2/3 of the 1.8
times of the relevant Equity Universe Minimum Size Requirement mentioned earlier.
Securities with a FIF below 0.15 may not be added to the Small Cap Size-Segment.

5.2.1.3 Global Minimum Size Reference
The Global Minimum Size References for the Standard and Investable Market SizeSegments of the MSCI Frontier Markets Indices are linked to the corresponding Global
Minimum Size References of the Emerging Markets under the MSCI Global Investable
Market Indices Methodology.

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The Global Minimum Size References for Larger Frontier Markets are set equal to thecorresponding Emerging Markets Global Minimum Size References (refer to Sub-section
2.3.2.1), while the Global Minimum Size References for Smaller Frontier Markets are set at
0.5 times the corresponding Emerging Markets Global Minimum Size References.

5.2.2

Categorization of Frontier Markets into very low, low or average liquidity markets

In order to account for the differences in liquidity patterns across Frontier Markets, each FrontierMarket is categorized as a very low, low or average liquidity market. The corresponding minimum
liquidity requirement levels are set at 2.5%, 5% or 15% Annualized Traded Value Ratio (ATVR).
This rule is referred to as the Frontier Markets Liquidity Requirement.
The categorization is reviewed semi-annually during the May and November Semi-Annual Index
Reviews.
Each country is analyzed independently to determine the most suitable liquidity categorization.
MSCI considers several variables for the liquidity categorization of each Frontier Market:•

The free float-adjusted market capitalization coverage of the Investable Equity Universe by theStandard Index resulting from the application of the three minimum liquidity requirements•

The differences in the Standard Index free float-adjusted market capitalization coverage when
applying different liquidity requirement levels.

•

Recent economic and stock market development.

•

Future economic and stock market development expectations.

If an existing constituent in Frontier Markets fails to meet the liquidity requirements, but has aweight of more than 10% in the country Standard index and a float adjusted market capitalization
above 0.5 times the Global Minimum Size Reference for Emerging Markets, the constituent willremain in the index. However, MSCI would apply a Limited Investability Factor (LIF) of 0.5 to theweight of the security, and at the subsequent semi-annual index review, MSCI:• Would delete the security from the index if the security does not meet at least 1/3rd of theliquidity requirements•

Would maintain the security in the index if the security does meet at least 1/3 of the liquidity
requirements. MSCI would remove the LIF if the security remains in the index and meets all
liquidity requirements for new constituents for two consecutive semi-annual index reviews.

5.2.3

Final Size-Segment Investability Requirements

The MSCI Frontier Markets Indices Methodology does not apply Final Size-Segment Investability
Requirements for float-adjusted market capitalization and liquidity described in Sub-sections
2.3.5.1, 2.3.5.2, 3.1.6. and 3.2.1.4

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5.2.4 Treatment of Securities with Low Foreign RoomFor a security assigned to the Standard Size-Segment and subject to a FOL to be included at its
entire free float adjusted market capitalization, the proportion of shares still available to foreign
investors relative to the maximum allowed (referred to as “foreign room”) must be at least 25%. In
the case that a security’s “foreign room” is less than 25%, MSCI will use an “adjustment factor”
reflecting the actual level of “foreign room” to adjust the securities final FIF.
The “adjustment factor” for new Standard index constituents is determined as follows:•

If the “foreign room” is equal or higher than 25% the “adjustment factor” equals 1.

•

If the “foreign room” is less than 25% and equal or higher than 18.75% the “adjustment
factor” equals 0.75.

•

If the “foreign room” is less than 18.75% and equal or higher than 12.5% the “adjustment
factor” equals 0.5.

•

If the “foreign room” is less than 12.5% and equal or higher than 6.25% the “adjustment
factor” equals 0.25.

•

If the “foreign room” is less than 6.25% the “adjustment factor” equals 0.

“Adjustment factors” are reviewed on a quarterly basis at every Index Review. “Foreign room”
decreases resulting in difficulties to trade a stock may result in reassessment of the “adjustment
factor” between the Index Reviews. Decreases in “foreign room” are reflected as follows:•

If the “foreign room” remains above 18.75% the “adjustment factor” remains unchanged.

•

If the “foreign room” decreases below 18.75% and remains equal or higher than 12.5% the“adjustment factor” equals 0.75.

•

If the “foreign room” decreases below 12.5% and remains equal or higher than 6.25% the“adjustment factor” equals 0.5.

•

If the “foreign room decreases below 6.25% and remains higher to 0% the “adjustment factor”
equals 0.25.

•

If the “foreign room” equals 0% the “adjustment factor” equals 0.

The “adjustment factor” will be applied to the security’s FOL and the resulting adjusted FOL will
be compared to the actual foreign free float. If the adjusted FOL is smaller than the actual foreign
free float, the final FIF will be based on the adjusted FOL. Otherwise, the final FIF will be basedon the actual foreign free float.
Example 1:•

FOL: 49%•

Adjustment Factor: 0.75•

Foreign Float: 44%

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FOL * Adjustment Factor = 49% * 0.75 = 36.75%
As the FOL * Adjustment Factor is less than the Foreign Float, the FIF will be reduced from 0.45(=Foreign Float rounded up to nearest 5%) to 0.37 (=FOL * Adjustment Factor rounded to thenearest 1%).
Example 2:•

FOL: 49%•

Adjustment Factor: 0.75•

Foreign Float: 23%

FOL * Adjustment Factor = 49% * 0.75 = 36.75%
As the FOL * Adjustment Factor is greater than the Foreign Float, the FIF will be maintained at
0.25 (=Foreign Float rounded up to nearest 5%).

5.2.5

Index Continuity Rules

If after the application of the index construction methodology, a Standard Index contains fewer
than two securities, then the largest securities by free float-adjusted market capitalization are added
to the Standard Index in order to reach two constituents.
At subsequent Index Reviews, if the free float-adjusted market capitalization of a non-index
constituent is at least 1.5 times the free float-adjusted market capitalization of the smallest existing
constituent after rebalancing, the larger free float-adjusted market capitalization security replaces
the smaller one.

5.2.6

Implementation of Corporate Events

Generally, the ongoing maintenance of the Frontier Markets Indices follows the same process as
Developed and Emerging Markets, outlined in Sub-section 3.3.
As a general policy, changes resulting from corporate events are implemented in the MSCI Equity
Indices as they occur simultaneously with the event, provided that all necessary public information
concerning the event is available. However, changes resulting from corporate events in the
Frontiers Market countries that could not be implemented on or near the effective dates –especially due to insufficient or lack of publicly available information – and where no priceadjustment factor (PAF) is necessary, are implemented at the following regularly scheduled Index
Reviews. Examples of such corporate events may include amongst others share placements andofferings.

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5.2.7

IPOs and Other Early Inclusions

Similarly to Developed and Emerging Markets, IPOs which are significant in size and meet all the
MSCI inclusion criteria may be considered for inclusion in the Standard Index outside Index
Reviews. In order for an IPO and other newly eligible securities to qualify for early inclusion to theStandard Index, the security has to meet the same requirements as outlined in Sub-section 3.3.4.1
with the exception of the free float-adjusted market capitalization requirement. Early inclusion to
the MSCI Frontier Markets Indices would have to have a free float-adjusted market capitalizationof at least 1.8 times the Equity Universe Minimum Float-Adjusted Market Capitalization
Requirement described in Sub-section 5.2.1.1 as of the close of its first trading day.

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Appendices

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Appendix I: Equity Markets and Universe
The tables below provide a list of Stock Exchanges, Market Segments and Eligible Security Classes thatMSCI uses as the basis of the construction of the MSCI Global Investable Market Indices and MSCI
Frontier Markets Indices.
Eligible Markets (Developed Markets)
Country Name

Stock Exchange

AUSTRALIA
AUSTRIA

Australian Securities Exchange
Vienna Stock Exchange

BELGIUM
CANADA
DENMARKFINLAND

Euronext
Toronto Stock Exchange
Copenhagen Stock Exchange
Helsinki Stock Exchange

FRANCE

Euronext

GERMANY

Deutsche Börse

GREECE

Athens Exchange

HONG KONG

Stock Exchange of Hong Kong

IRELAND

Irish Stock Exchange

ISRAELITALY

Tel Aviv Stock Exchange
Borsa Italiana

JAPANTokyo Stock Exchange

Osaka Stock Exchange

JASDAQ
Nagoya Stock Exchange

NETHERLANDSNEW ZEALANDNORWAYEuronext
New Zealand Stock Exchange
New Zealand Alternative Exchange
Oslo Stock Exchange

PORTUGALSINGAPORE

Euronext
Singapore Exchange

SPAIN
SWEDEN

Madrid Stock Exchange
Stockholm Stock Exchange

SWITZERLAND

Nordic Growth Market
Nya Marknaden
AktieTorget
SIX Swiss Exchange

UNITED KINGDOM

London Stock Exchange

USA

New York Stock Exchange
NASDAQ
American Stock Exchange

Market Segment
Prime Market
Standard Market
Eurolist

Main List
I ListNM ListEurolist
Alternext
Official Market
Regulated Market
Big Capitalization
Medium and Small Capitalization
Main Board
Growth Enterprise Market
Official Market
Irish Enterprise Exchange (IEX)
Blue Chip
STAR
Standard
Mercato ExpandiFirst Section
Second Section
Mothers
First Section
Second Section
HerculesFirst Section
Second Section
CentrexEurolist

Main List
SMB List
Primary Capital Certificates List
Eurolist
Main BoardSESDAQ
Primer Mercado
A-listO-list

VIRT-XSWX
SWX Local Caps
Main Market
AIM

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Eligible Markets (Emerging Markets)
Country Name

Stock Exchange

Market Segment

BRAZIL

Bolsa de Valores de Sao Paulo

Traditional
Level 1
Level 2
Novo Mercado

CHILE
CHINA (1)Santiago Stock Exchange
Shenzen Stock Exchange
Shanghai Stock Exchange
Stock Exchange of Hong Kong

COLOMBIACZECH REPUBLIC

Colombian Stock Exchange
Prague Stock Exchange

EGYPT
HUNGARY

Cairo & Alexandria Stock Exchanges
Budapest Stock Exchange

INDIA
INDONESIA

National Stock Exchange
Mumbai Stock Exchange
Jakarta Stock Exchange

KOREA

Korea Exchange

MALAYSIA

Malaysia Stock Exchange

MEXICO
MOROCCOPERU
PHILIPPINESPOLAND

Mexican Stock Exchange
Casablanca Stock Exchange
Lima Stock Exchange
Philippine Stock Exchange
Warsaw Stock Exchange

RUSSIA (1)
SOUTH AFRICAMICEX Stock Exchange
Johannesburg Stock Exchange

TAIWAN

Taiwan Stock Exchange
GreTai Securities Market
Stock Exchange of Thailand
Market for Alternative Investment
Istanbul Stock Exchange

THAILAND
TURKEY

Main Board
Growth Enterprise Market
Main Market
Secondary Market
Free Market
Equities Category A
Equities Category B

Main Board
Development Board
KSE
KOSDAQ
Main Board
Second BoardMESDAQ

Main Board
Main Market
Parallel Market
Main Board
AltX

National Market
Second National Market
New Economy Market(1) For a more detailed description of the MSCI universe, please refer to Appendix II

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MSCI Global Investable Market Indices Methodology| November 2010
Eligible Markets (Frontier Markets)
Country Name

Stock Exchange

ARGENTINA
BAHRAINBANGLADESHBOSNIA HERZEGOVINA (1)BOTSWANA (2)Buenos Aires Stock Exchange
Bahrain Stock Exchange
Dhaka Stock Exchange
Bania Luka Stock Exchange
Sarajevo Stock Exchange
Botswana Stock Exchange

BULGARIA
CROATIA

Bulgarian Stock Exchange
Varazdin Stock Exchange

Market Segment

BSE Domestic Equity Market
Venture Capital Market
Official Market
First Quotation
Second QuotationJDD Quotation
Official Market
Regular Market
Public Companies Market
Main List
Secondary List
First Offical List
Second Offical List
Third Offical List

Zagreb Stock Echange

ESTONIA

Tallinn Stock Exchange

GHANA (2)Ghana Stock Exchange

JAMAICA (2)JORDANKAZAKHSTAN
KENYA

Jamaica Stock Exchange
Amman Stock Exchange
Kazakhstan Stock Exchange
Nairobi Stock Exchange

KUWAITLEBANON
LITHUANIA

Kuwait Stock Exchange
Beirut Stock Exchange
Vilnius Stock Exchange

MAURITIUS
NIGERIAOMAN
PAKISTAN
QATARROMANIA

Stock Exchange of Mauritius
Nigeria Stock Exchange
Muscat Securities Market
Karachi Stock Exchange
Doha Securities Market
Bucharest Stock Exchange

SERBIA

Belgrade Stock Exchange

SLOVENIASRI LANKA

Ljubljana Stock Exchange
Colombo Stock Exchange

TRINIDAD AND TOBAGO

Trinidad and Tobago Stock Exchange

TUNISIAUKRAINE
UNITED ARAB EMIRATES

Bourse de Tunis
PFTS Stock Exchange
Abu Dhabi Securities Exchange
Dubai Financial Market
NASDAQ Dubai
Hanoi Stock Exchange
Ho Chi Minh Stock Exchange
Zimbabwe Stock Exchange (Harare)

VIETNAM
Zimbabwe (3)

MIMS
AIMS
Official Market
Main List
Secondary List
Official Market

Tier 1
Tier 2Tier 3
Listing A
Listing B
Unregulated Market
Official Market
Main Board
Second Board
First Tier
Second Tier
Primary Market(1) Added as stand-alone country at the May 2010 Semi-Annual Index Review(2) Added as stand-alone countries at the November 2008 Semi-Annual Index Review(3) Added as stand-alone countries at the November 2010 Semi-Annual Index Review

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MSCI Global Investable Market Indices Methodology| November 2010
Eligible Classes of Securities (Developed Markets)
Country NameClasses of Securities*

AUSTRALIA

Ordinary shares
Preferred shares (1)Stapled securities
Ordinary shares
Preferred shares (1)Participation certificates
Ordinary shares
Preferred shares (1)Ordinary shares
Units of Income Trusts"A" shares"B" shares"A" shares"B" shares"K" shares
Ordinary shares
Preferred shares (1)Certificats d'Investissement
Certificats Coopératif d'Investissement
Ordinary shares
Preferred shares (1)Ordinary shares
Preferred shares (1)"A" shares"B" shares
Ordinary shares
Units
Common shares
Preferred shares (1)Ordinary shares
Preferred shares (1)Savings shares
Ordinary shares
Ordinary shares
Preferred shares (1)Certificates
Ordinary shares
Preferred shares (1)"A" shares"B" shares
Primary Capital Certificates
Ordinary shares
Ordinary shares
Ordinary shares
Preferred shares (1)"A" shares"B" shares"C" shares
Swedish Depositary Receipts
Registered shares
Bearer shares
Participation certificates
Dividend-right certificates
Ordinary shares
Units
Common shares
Tracking Stock

AUSTRIABELGIUM
CANADA
DENMARKFINLANDFRANCEGERMANYGREECEHONG KONG
IRELANDISRAELITALY

JAPAN
NETHERLANDSNEW ZEALANDNORWAYPORTUGALSINGAPORE
SPAIN
SWEDENSWITZERLAND

UNITED KINGDOMUSA(1) Preferred shares that exhibit characteristics of equity securities are generally eligible* GDRs can also be considered in case of low liquidity of the local listing

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Eligible Classes of Securities (Emerging Markets)
Country NameClasses of Securities

BRAZIL

Ordinary shares
Preferred shares (2)UnitsCommon shares
Preferred shares (2)"B" shares"H" shares
Ordinary shares
Preferred shares (2)Common shares
Ordinary shares
Common shares
Ordinary shares
Ordinary shares
Common shares
Preferred shares (2)Common shares
Ordinary shares
Certificates of Participation
Units
Ordinary shares
Common shares
Preferred shares (2)Investment shares
Common shares
Philippine Depositary Receipts
Common shares
Common shares
Preferred shares (2)ADRs (3)Common shares
Preferred shares (2)UnitsOrdinary shares
Preferred shares (2)Common shares
Preferred shares (2)Common shares

CHILE
CHINA (1)COLOMBIACZECH REPUBLICEGYPTHUNGARY
INDIA
INDONESIA
KOREA
MALAYSIAMEXICO

MOROCCOPERU

PHILIPPINESPOLANDRUSSIA (1)

SOUTH AFRICATAIWANTHAILAND
TURKEY(1) For a more detailed description of the MSCI universe, please refer to Appendix II(2) Preferred shares that exhibit characteristics of equity securities are generally eligible(3) Depository Receipts trading in the same time-zone can be eligible in all markets in caseof low liquidity of a respective local listing. Exceptionally U.S. listings are eligible for Russia
despite being in a different time-zone.

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Eligible Classes of Securities (Frontier Markets)
Country NameClasses of Securities

ARGENTINA
BAHRAINBANGLADESHBOSNIA-HERZEGOVINA (1)BOTSWANA (2)BULGARIA

ADRs
Ordinary shares
Ordinary shares
Ordinary shares
Common shares
Common shares
ADRs
GDRs
Common shares
Preferred shares (3)
ADRs
GDRs
Common shares
ADRs
GDRs
Common shares
Preferred shares (3)Common shares
Preferred shares (3)Common shares
ADRs
GDRs
Common shares
Preferred shares (3)
ADRs
GDRs
Ordinary shares
Common shares
Preferred shares (3)
ADRs
GDRs
Common shares
ADRs
GDRs
Common shares
Preferred shares (3)
ADRs
GDRs
Common shares
ADRs
GDRs
Ordinary shares
Ordinary shares
Ordinary shares
Common shares
ADRs
GDRs
Common shares
ADRs
GDRs
Common shares
Preferred shares (3)
ADRs
GDRs
Ordinary shares
ADRs
GDRs
Common shares
ADRs
GDRs
Common shares
Common shares
Preferred shares (3)
ADRs
GDRs
Ordinary shares
Common shares
ADRs
GDRs
Common shares

CROATIAESTONIAGHANA (2)JAMAICA (2)JORDANKAZAKHSTANKENYAKUWAITLEBANON

LITHUANIA

MAURITIUS

NIGERIAOMAN
PAKISTAN
QATARROMANIASERBIASLOVENIASRI LANKATUNISIA

TRINIDAD AND TOBAGOUKRAINE

UNITED ARAB EMIRATESVIETNAMZIMBABWE (4)(1) Added as stand-alone country at the May 2010 Semi-Annual Index Review(2) Added as stand-alone countries at the November 2008 Semi-Annual Index Review(3) Preferred shares that exhibit characteristics of equity securities are generally eligible(4) Added as stand-alone countries at the November 2010 Semi-Annual Index Review

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REITs
Companies that have adopted the following REITs or REIT equivalent structures in the countries
mentioned below will qualify to be classified in the GICS Industry - Real Estate Investment Trusts(REITs):• Australia: LPT (Australian Listed Property Trust), A-REIT• Belgium: SICAFI (Société d’Investissement à Capital Fixe Immobilière)• Bulgaria, Canada, Germany, Hong Kong, Korea, Taiwan, the UK and the U.S.: REIT (Real Estate
Investment Trust)• France: SIIC (Sociétés d’Investissements Immobiliers Cotées)• Greece: REIC (Real Estate Investment Company)• Italy: SIIQ (Societa di investimento immobiliare quotata)• Japan: J-REIT (Japanese Real Estate Investment Trust)• Malaysia, Thailand: REIT (Real Estate Investment Trust/Property Trust Funds)• Netherlands: FBI (Fiscal investment institution/Fiscale Beleggingsinstelling)• New Zealand: Property Trusts• Singapore: S-REIT (Singapore Real Estate Investment Trust)• South Africa: Property Trusts• Turkey: Gayrimenkul Yatirim Ortakligi
MSCI closely monitors the potential emergence of REIT equivalent structures in other countries andannounces when appropriate their consideration as REITs in the Global Industry Classification Standard(GICS).

Canadian Income Trusts
Income trusts in Canada formed under the laws of provinces which have passed limited liability legislation
and are not designed to invest in a diversified portfolio of income trusts, securities, and/or funds, will be
included in the MSCI Canada Equity Universe and will be subject to the same index eligibility rules
applicable to other equity (and equity-like) securities.

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Appendix II: Market Classification Framework
The classification of markets is a key input in the process of index construction as it drives thecomposition of the investment opportunity sets to be represented. The approach used by MSCI aims toreflect the views and practices of the international investment community by striking a balance
between a country’s economic development and the accessibility of its market while preserving index
stability.
The MSCI Market Classification Framework consists of following three criteria: economic
development, size and liquidity as well as market accessibility.
In order to be classified in a given investment universe, a country must meet the requirements of all
three criteria as described in the table below.
Criteria

Frontier

Emerging

Developed

No requirement

No requirement

Country GNI per
capita 25% above theWorld Bank highincome threshold* for3 consecutive years2
USD 438 mm
USD 28 mm
2.5% ATVR

3
USD 876 mm
USD 438 mm
15% ATVR5
USD 1752 mm
USD 876 mm
20% ATVRAt least someAt least partial
ModestModestSignificant
Significant
Good and tested
ModestVery highVery highVery highVery high

A Economic Development

A.1

Sustainability of economic development

B Size and Liquidity Requirements
B.1

Number of companies meeting the following Standard Index criteria
Company size (full market cap) **Security size (float market cap) **Security liquidity

C Market Accessibility Criteria
C.1
C.2
C.3
C.4

Openness to foreign ownership
Ease of capital inflows / outflows
Efficiency of the operational framework
Stability of the institutional framework* High income threshold for 2008: GNI per capita of USD 11,906 (World Bank, Atlas method)** Minimum in use for the May 2010 Semi-Annual Index Reviews, updated on a semi-annual basis

The economic development criterion is only used in determining the classification of Developed
Markets while that distinction is not relevant between Emerging and Frontier Markets given the very
wide variety of development levels within each of these two universes.
The size and liquidity requirements are based on the minimum investability requirements for the MSCI
Global Standard Indices. Emerging Markets country indices with fewer than three companies meetingthe Emerging Markets size and liquidity requirements for four consecutive Semi-Annual Index
Reviews will be reclassified as Frontier Markets.
Market accessibility aims to reflect international investors’ experience in investing in a given market
and as a result, this criterion includes several sub-criteria. These criteria are generally based on
qualitative measures that are reviewed for all markets at least once a year during the MSCI Global
Market Accessibility Review.
MSCI regularly reviews the market classification of all countries included in the MSCI Indices toensure that they remain reflective of the evolution of the different markets. In particular, changes in the
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MSCI Global Investable Market Indices Methodology| November 2010
assessments under the classification framework serve as the basis for determining the markets that will
be reviewed for potential market reclassification as part of the Annual Market Classification Review.
Every June, MSCI will communicate its conclusions from the discussions with the investmentcommunity on the list of countries under review and announce the new list of countries, if any, underreview for potential market reclassification in the upcoming cycle.

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Definition
Openness to foreign ownership
Investor qualification requirement
Existence of qualifying conditions for international investors. Existence of a level playing field for all international investors.
Foreign ownership limit (FOL) level

Proportion of the market being accessible to non-domestic investors.

Foreign room level

Proportion of shares still available for non-domestic investors. Existence of a foreign board where non-domestic investors could tradewith each other.

Equal rights to foreign investors

Equal economic and voting rights as well as availability of information in English. Equal rights for minority shareholders.

Ease of capital inflows / outflows
Capital flow restriction level

Existence of restriction on inflows and outflows of foreign capital to/from the local stock market (excluding foreign currency exchange
restrictions).

Foreign exchange market liberalization level

Existence of a developed onshore and offshore foreign exchange market.

Efficiency of the operational framework
Market entry
Investor registration & account set up

Market organization
Market regulations

Existence/level of complexity of registration requirements for international investors such as Tax IDs as well as ease/complexity for
setting up local accounts (e.g., documents to be provided, approvals required). The time to complete the process includes the
preparation of the documents.

Level of advancement of the legal and regulatory framework governing the financial market, the stock exchange and the various otherentities involved in the financial markets, an important weight is assigned to: ease of access (including in English), lack of ambiguity andprompt enforcement of laws and regulations, as well as consistency over time.

Competitive landscape

Existence of anti-competitive clauses restricting investors’ access to derived stock exchange information, data and investment products,
including, for example the provision of independently calculated indices or the creation of baskets of securities used in the creation offinancial products.

Information flow

Timely disclosure of complete stock market information items (e.g., stock exchange alerts, corporate news, float information, dividend
information) in English and under reasonable commercial terms.

Market infrastructure
Clearing and Settlement

Well functioning clearing and settlement system based on international standards including delivery versus payment (DVP), theabsence of pre-funding requirements/practices and the possibility to use overdrafts. Availability of real omnibus structures.

Custody

Level of competition amongst local custodian banks as well as the presence of global custodian banks. Existence of a clear and formal
separation between the broker trading account and the investor’s custody account,

Registry / Depository

Well functioning central registry and central depository.

Trading

Level of competition amongst brokers ensuring high quality services (e.g., cost efficient trading, ability to execute grouped trades at thesame price for the various accounts of a fund manager).

Transferability

Possibility of off-exchange transactions and "in-kind" transfers.

Stock lending

Existence of a regulatory framework as well as an efficient mechanism allowing extensive use of stock lending.

Short selling
Stability of institutional framework

Existence of a regulatory and practical framework allowing short selling.
Basic institutional principles such as the rule of law and its enforcement as well as the stability of the "free-market" economic system.
Track record of government intervention with regards to foreign investors.

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Appendix III: Country Classification of Securities
This appendix outlines the guidelines MSCI uses to determine the country classification of equity
securities.
General framework
Each of the securities followed in the MSCI index universe is classified in one and only one country.
The country classification of a security is generally determined by the country of incorporation of theissuing company and the primary listing of the security. This approach determines the country
classification of the vast majority of securities.
In the few cases where a company is incorporated in one country while its securities have a primary listingin a different country, additional factors need to be considered to determine the country classification.
Companies may choose to incorporate in a different country than the country of primary listing to benefit
from tax, legal, and/or regulatory advantages. These companies often incorporate in countries withlimited, if any, public domestic equity markets, such as the Bahamas, Bermuda, British Virgin Islands,
Cayman Islands, Channel Islands, Luxembourg, Marshall Islands, Netherlands Antilles, and Panama. In
some other cases, companies may seek to benefit from tax, legal and/or regulatory advantages by
incorporating in a different country than their country of primary listing where such country ofincorporation is one of the countries in the MSCI All Country World Index (ACWI). In both of thesecases of special benefit incorporations, MSCI will generally classify the company in the country of the
primary listing of its securities.
Companies incorporated outside of the US which have their securities’ primary listing in the US may be
included in the USA index universe, provided that they file a Form 10-K/10-Q.
Companies incorporated in a European DM country (including Luxembourg) which have their securities’
primary listing in a different European DM country are generally classified in the country of primarylisting.
Other cases
In the few remaining cases where the general framework proves to be insufficient, an additional analysis
may be performed to determine the company’s country classification. In such circumstances, MSCI uses a
set of rules, the most important of which are:••••

The company's primary listing, secondary listings, if any, and the geographic distribution of its
shareholder base;
The geographic distribution of its operations (in terms of assets and production);
The location of its headquarters; andThe country in which investors consider the company to be most appropriately classified.

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MSCI Global Investable Market Indices Methodology| November 2010
The outcome of that analysis may lead to some companies not being eligible for any MSCI country index
if the country of classification resulting from the analysis remains different from the country of listing.
This may happen in particular, but not exclusively, for companies incorporated in an EM country andhaving their only listing in a DM country.
Country specific cases
China, Russia, and Israel have a number of large companies incorporated within them but with securities
listed only outside of them. MSCI considers such companies for inclusion in the index universe of thecountry of incorporation subject to the following:
Israel: The MSCI Israel universe includes companies incorporated in Israel with a listing on either the TelAviv Stock Exchange or a US stock exchange. Please note that this rule was discontinued following the
May 2010 Semi-Annual Index Review.
Russia: The MSCI Russia universe includes companies incorporated in Russia with a listing in either
Russia, London or New York. Companies with incorporation in a special benefit country, as describedabove, may also be included in the Russia universe if they have a listing in Russia.
China1: The MSCI China universe includes companies incorporated in the People’s Republic of China(PRC) and listed in the form of B shares on the Shanghai Stock Exchange (in US$) or Shenzhen Stock
Exchange (in HK$), or H shares on the Hong Kong Stock Exchange (in HK$).
In addition, the MSCI China universe also includes companies not incorporated in the PRC but listed on
the Hong Kong Stock Exchange provided that they meet the following definitions
Red-Chip: the company is (directly or indirectly) controlled by organizations or enterprises that are ownedby the state, provinces, or municipalities of the PRC.
P-Chip: the company satisfies the majority of the following conditions:•
The company is controlled by PRC individuals•
The company derives more than 80% of its revenue from PRC China•
The company allocates more than 60% of its assets in PRC China
The MSCI China universe excludes companies which satisfy the above conditions but derive more than
80% of their revenues and profits from the Hong Kong Special Administrative Region. Those companies
will be included in the MSCI Hong Kong universe.
Frontier Markets: The MSCI Frontier Markets ex GCC universe includes companies incorporated in a
Frontier Market with a listing in either the local market, London or New York. Companies withincorporation in a special benefit country, as described above, may also be included in the Frontier1

The amended guidelines for the classification of securities in the MSCI China universe will be effective as follows:- for existing constituents, as of the close of May 30, 2008 to coincide with the May 2008 Semi-Annual Index Review.
- for potential index additions following a corporate event, with immediate effect.
On an ongoing basis, country classification reviews for securities in Hong Kong and China are conducted annually andchanges, if any, are implemented at November SAIRs.

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MSCI Global Investable Market Indices Methodology| November 2010
Markets ex GCC universe if they have a listing in a Frontier Market.
Change of Incorporation
In the event that a company that is already classified in one of the countries in the MSCI All Country
World Index (ACWI) changes its incorporation to another country, it generally will remain in the initialcountry of classification. However, it may be re-classified if the company’s geographical profile
fundamentally differs following the reincorporation.
A change in the country classification of a company generally is implemented at a SAIR, except if thechange is the result of a corporate event. In that case the company may be reclassified simultaneously withthe change in country of incorporation or at a QIR following the corporate event.
If a decision is made to re-classify the company after the change in country of classification anannouncement will be sent out as per the MSCI announcement policy. No announcement will be sent if
the company will not be re-classified.
When MSCI changes a company's country classification, the company’s equity securities are notautomatically included in the index of the new country-classification even if the company was aconstituent of its original country's index. The company and it securities would have to be eligible in all
respects in the index of the new country.
Review and Maintenance
MSCI periodically reviews the country classification of companies not classified into their country ofincorporation.
Country of Coverage of Companies not Eligible for Inclusion in the MSCI Global Investable
Market Indices
MSCI defines the country of coverage of companies not eligible for the MSCI Global Investable Market
Indices (GIMI), as per the general framework of the country classification of securities (Appendix III of
the GIMI Methodology book), by applying four rules:
Rule 1: Country of incorporation is driven by tax, legal and/or regulatory advantages; The company
has strong linkage to its country of primary listing.
Country of coverage = Country of primary listing
Rule 2: Country of incorporation is driven by tax, legal and/or regulatory advantages; The company
has no strong linkage to its country of primary listing; The company's history, operations andinvestor perception lead to a country covered by MSCI.
Country of coverage = Country covered by MSCI
Rule 3: Country of incorporation is a country not covered by MSCI and is not driven by tax, legal
and/or regulatory advantages.
Country of coverage = Country of primary listing
Rule 4: Country of incorporation is a country covered by MSCI; The company has no strong linkage
to its country of primary listing.
Country of coverage = Country covered by MSCIThe following table provides the list of the securities not eligible for the MSCI GIMI with their respective
country of coverage.
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MSCI Global Investable Market Indices Methodology| November 2010MSCI GIMI Ineligible Securities

No

Country of Primary

MSCI Country of

Security Name

Bloomberg Ticker

Sedol

Listing

CoverageRule

1

OIL SEARCHOSH

AU Equity

6657604

AU

Australia

3

2

CHINA YUCHAI INT'L N(USD

CYD

UN Equity

2186191

US

China

4

3

SEASPAN CORP N

SSW

UN Equity

B0GNP30

US

China

4

4

TOTAL GABONECFP Equity

4309781

FR

France3

5

L'OCCITANE INTERNATIONAL

973

HK Equity

B3PG229HK

France2

6

DAIRY FARM INT'L (USD)DFI

SP Equity

6180274

SG

Hong Kong

2

7

HONGKONG LAND (USD)HKL

SP Equity

6434915

SGHong Kong

2

8

JARDINE MATHESON (USD)JM

SP Equity

6472119

SG

Hong Kong

2

9

JARDINE STRATEGIC (USD)JS

SP Equity

6472960

SG

Hong Kong

2

10

MANDARIN ORIENTAL (USD)

MAND

SP Equity

6560713

SGHong Kong

2

11

CHECK POINT SOFTWARECHKP

UW Equity

2181334

US

Israel4

12

NATUZZI ADRNTZUN Equity

2459075

US

Italy

4

13

EFES BREWERIES INTL GDR

EBID

LI Equity

B02ZC39

GB

Russia2

14

EURASIA DRILLINGEDCL

LI Equity

B289L09

GB

Russia2

15

EVRAZ GROUP GDR

EVRLI Equity

B08V9B8

GB

Russia2

16

MAIL.RU GDRMAIL LI Equity

B53NQB3

GB

Russia2

17

UNITED COMPANY RUSAL

486

HK Equity

B5BCW81HK

Russia2

18

VIMPELCOM ADR

VIP

US Equity

B62HR76

US

Russia2

19

X5 RETAIL GROUP GDR(USD)

FIVE LI Equity

B07T3T9

GB

Russia

2

20

ALCON

ACL

UN Equity

2852395

US

United States

1

21

AMDOCSDOX

UN Equity

2256908

US

United States

3

22

GLOBAL SOURCES

GSOL

UW Equity

2576521

US

United States

1

23

VELCRO INDUSTRIESVELC

UR Equity

2413446

US

United States

1

Data as of November 2010MSCI Index Research© 2010 MSCI. All rights reserved.
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Appendix IV: Free Float Definition and Estimation Guidelines
MSCI calculates the free float-adjusted market capitalization of each security in the equity index universe.
The process of free float-adjusting market capitalization involves:•••

Defining and estimating the free float available to foreign investors for each security, using MSCI’s
definition of free float.
Assigning a free float-adjustment factor to each security (Foreign Inclusion Factor or FIF).
Calculating the free float-adjusted market capitalization of each security.

The free float-adjusted market capitalization is used to calculate the weights of the securities in the indices.

Defining and Estimating Free Float
MSCI’s estimation of free float is based solely on publicly available shareholder information. For eachsecurity, all available shareholdings are considered where public data is available, regardless of the size ofthe shareholding. MSCI may consult with analysts, other industry experts and official company contacts,
particularly where disclosure standards or data quality make the estimation of free float difficult.
MSCI defines the free float of a security as the proportion of shares outstanding that is deemed to beavailable for purchase in the public equity markets by international investors. In practice, limitations on theinvestment opportunities available to international institutional investors include:•••

Strategic and other non-free float shareholdings: Stakes held by private or public shareholders
whose investment objectives or other characteristics suggest that those holdings are not likely to beavailable in the market. In practice, disclosure requirements generally do not permit a clear
determination of these investment objectives. Therefore, MSCI primarily classifies shareholdings
as free float or non-free float based on a categorization of investor types into non-strategic andstrategic respectively.
Limits on share ownership for foreign investors: Limits on the proportion of a security’s sharecapital that is authorized for purchase by non-domestic investors. Where they exist, these foreign
share-ownership limits are set by law, government regulations, company by-laws and otherauthoritative statements.
Other foreign investment restrictions: Investment restrictions, other than those describedabove, which materially limit the ability of international investors to freely invest in a particularequity market, sector or security. There is typically no simple way to account for these limitations
in a benchmark, as these restrictions tend to be more subtle and complex, and may affect different
market participants in different ways.

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Classification of Shareholder Types

STRATEGIC SHAREHOLDER TYPES (NON-FREE FLOAT)
Governments
Shareholdings owned by governments and affiliated entities
are generally classified as non-free float.
Companies

Shares owned by companies. This includes treasury shares
owned by the company itself.1

Banks

Shareholdings by banks are considered as strategic, excluding
shareholdings held in trust on behalf of third parties that are
deemed to be non-strategic. (Shareholding by trust banks inJapan are considered non-strategic).

Principal officers
board members

and Shares owned by the company’s principal officers or membersof the company’s board of directors, including shares owned
by individuals or families that are related to or closely affiliatedwith the company’s principal officers, members of thecompany’s board of directors, or founding members deemed
to be insiders.

STRATEGIC SHAREHOLDER TYPES (NON-FREE FLOAT)
Employees
Shares of the employing companies, held by both officers andnon-officers, which are held in a variety of ways including
plans sponsored by the employer for the purpose ofretirement and savings plans, incentive compensation
programs and other deferred and employee pension funds.

1

For most countries, treasury shares are included in the determination of the total shares outstanding which is used in thecalculation of the indices, and therefore MSCI takes them into account in its calculation of free float. In other countries
where treasury shares are excluded from the determination of the total shares outstanding, they are accordingly not taken
into consideration for the free float calculation.
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MSCI Global Investable Market Indices Methodology| November 2010
NON-STRATEGIC SHAREHOLDER TYPES (FREE FLOAT)
Individuals
Shares owned by individuals, excluding shares owned byindividuals or families that are related to or closely affiliatedwith the company’s principal officers or members of thecompany’s board of directors or founding members deemed
to be insiders, and, also excluding those shareholdings held byindividuals, the significant size of which suggests that they are
strategic in nature.
Investment funds, mutual Shares owned in investment funds, mutual funds and unit
funds and unit trusts
trusts, including shares owned in passively-managed funds.
Security brokers

Pension funds
Insurance companies

Social security funds

Non-strategic interests held by broker-dealers (e.g., trades in
the process of settlement, holdings in the process of beingtransferred, as part of underwriting activity, etc.), unless held
within the same group or the nature of holding is deemedstrategic.
Shares owned in employee pension funds, excluding shares ofthe employing company, its subsidiaries or affiliates.
In principle, all stakes held by insurance companies are part offree float. For exceptions to this general principle, please referto the additional discussion on insurance companies presented
below.
Shares owned in social security funds, unless the fund’s
management is deemed to exert influence over the
management of the company.

In the event that the above categories do not appropriately capture the nature of a specific shareholding,its classification as free float or non-free float will be determined based on a more extensive analysis.

Special Cases
The following guidelines will be applied in analyzing the special cases set forth below:•

Nominees or trustees: Shareholdings registered in the name of a nominee or trustee are classified
as strategic or non-strategic based on an analysis of who the ultimate beneficial owner of theshares is, according to the shareholder types described above.

•

Government agencies and government-related investment funds: Shareholdings ofgovernment agencies and government-related investment funds are classified based on an analysisof the objective of the investment and the extent of government involvement in managing thecompanies.

•

Insurance companies: Shareholdings by insurance companies are considered as non-free float,

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MSCI Global Investable Market Indices Methodology| November 2010
when analysis shows that these holdings are unlikely to be made available as free float in themarket. This analysis typically looks at the nature of the insurance business in each country, acompany's business practices with its group-related or other companies, and the regulatoryenvironment in the country, including fiscal incentives. These factors, individually or combined,
could restrict the insurance company's shareholdings from being made freely available in the stock
market. Therefore, the treatment of stakes held by insurance companies may differ from country
to country. Because of the structure of equity ownership and the importance of financial alliances
for the control of companies in some countries, insurance companies’ stakes in other companies
may be treated as strategic. This is the case in France, Germany, Italy and Japan, where stakes
above 2% (France, Germany, and Italy) and above 5% (Japan) are treated as strategic.
•

Depositary Receipts: Shares that are deposited to back the issuance of Depositary receipts suchas ADRs and GDRs are classified as non-strategic, unless it is established that a specific stake heldin Depositary receipts is strategic in nature.

•

Shares with "loyalty" incentives: In a public offering, special incentives are sometimes provided
to retail investors and are subject to a minimum holding period. These shares will not be
considered as part of the free float during the minimum holding period if the incentives are
deemed to be material. In general, a conditional share bonus in a ratio of 1 to 5 (or an equivalent
price discount of 1/6th), or more, will be considered as material.
• Lock-up periods: Any shares that are subject to lock-up periods will be considered as non-freefloat during the lock-up period. At the end of the lock-up period, these shares will be classified as
strategic or non-strategic based on the nature of the shareholder.

Foreign Ownership Limits (FOLs)
For the determination of the FOLs, the following guidelines are used:
•
•
•
•
•
•

For companies that impose ownership restrictions for non-European Union investors, such
restrictions are fully taken into account in the calculation of the FOL.
Regulatory requirements governing the ownership of shares by foreign investors in the country
where the security is included.
In countries where companies are allowed to issue depositary receipts such as ADRs or GDRs as
an exception to the outstanding foreign ownership restrictions, the FOL calculation includes thepercentage represented by the depositary receipts.
Similarly, if a company exceptionally permits certain foreign shareholders to own shares in excessof the maximum stated in the company's by-laws and the exception is publicly disclosed, this istaken into account in the calculation of the FOL.
When a company's foreign ownership restriction is defined as a proportion of the company's total
share capital and the company has multiple-listed share classes with no specific limit set for any
one class, MSCI applies the company's FOL equally to each of the company's listed share classes.
When a company's foreign ownership restriction is defined as a proportion of the company's total
share capital and the company has multiple share classes but only one is listed, MSCI calculates the

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MSCI Global Investable Market Indices Methodology| November 2010
FOL by applying the total shares available to foreign investors (after taking into consideration
foreign non-free float shareholdings of non-listed shares, if any) on the listed shares only.
Example:Calculating Foreign Ownership Limit (FOLs)

Number of shares outstanding
Foreign non-free float shareholdings
Foreign ownership limit applied to the company
Foreign Ownership Limit (FOL) applied to listed shares

ListedNon-Listed

Total

500

500
100

1,000
100

= 40%
= ((0.40*1,000) – 100)/500= 0.60Calculation of Free Float
Securities Not Subject to Foreign Ownership Limits (FOLs)
For securities not subject to FOLs, the free float of a security is estimated as its total number of shares
outstanding less shareholdings classified as non-free float.
Non-Free Float Shareholdings (%) =Number of Shares Classified as Non-Free Float divided by
the Total Number of Shares

Free Float (%)

100% minus Non-Free Float Shareholdings (%)=

Securities Subject to FOLs
For securities subject to FOLs, the estimated free float available to foreign investors is equal to the lesserof:••

Estimate of free float, as defined above.
FOL adjusted for non-free float stakes held by foreign investors.

Free Float for Foreign Investors (%) =Lower of:• 100% minus Non-Free Float Shareholdings, including Domestic and Foreign Shareholdings• FOL minus Foreign Non-Free Float Shareholdings

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Assigning a Free Float-Adjustment Factor
MSCI free float-adjusts the market capitalization of each security using an adjustment factor referred to as
the Foreign Inclusion Factor (FIF).
Securities with Free Float Greater Than 15% and Not Subject to FOLs
For securities with free float greater than 15%, the FIF is equal to the estimated free float, rounded up to
the closest 5%.
Securities with Free Float Less than 15% and Not Subject to FOLs
For securities with free float less than 15%, the FIF is equal to the estimated free float, rounded to theclosest 1%.
Securities Subject to FOLs
For securities subject to FOLs, the FIF is equal to the lesser of:••

Estimated free float available to foreign investors,− Rounded up to the closest 5%, if the free float is greater than 15%.
− Rounded to the closest 1%, if the free float is less than 15%.
FOL rounded to the closest 1%.

Securities Affected by Other Foreign Investment Restrictions
In the case where other foreign investment restrictions exist, which materially limit the ability ofinternational investors to freely invest in a particular equity market, sector or security, a Limited
Investability Factor (LIF) may be applied to insure that the investability objectives of the MSCI Indicescan be achieved.
There is typically no simple way to account for these types of investability limitations in a benchmark, asthey tend to be subtle and complex, and may affect different market participants in different ways.
For example, such restrictions may involve a complex process of investor validation and qualification,
restrictions on funds transfer, individual investment quota limits and various complex administrativerequirements. While instituted at a country level these restrictions may have different consequences
depending on the characteristics of the investor, including legal status, size of assets under management ordate of application.
In the case of individual companies with Foreign Ownership Limits, it may happen that the maximum
ownership by non-national investors is reached while depositary receipts may continue to be available toforeign investors. In such cases, the depositary receipts typically trade at a persistent premium relative tothe domestic shares, highlighting the difficulties for international investors to replicate the security’s weightin the index.

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MSCI Global Investable Market Indices Methodology| November 2010
Therefore, where deemed necessary, a LIF will be determined and applied based on an extensive, case-bycase analysis. The application of this LIF permits a more accurate comparison of constituent markets andsecurities that have more complex and subtle restrictions on the investment process to markets andsecurities where investment limitations can be appropriately reflected in their standard FIFs.
In cases where MSCI applies a LIF, the free float adjusted for limited investability is defined as the
product of the available free float for foreign investors and the LIF.
Free Float-Adjusted for Limited Investability = Free Float for Foreign Investors times the LIF
Therefore, for securities subject to other foreign investment restrictions, the Foreign Inclusion Factor isequal to the lesser of:• Estimated free float-adjusted for limited investability,- Rounded up to the closest 5%, if the free float-adjusted for limited investability is greaterthan 15%.
- Rounded to the closest 1%, if the free float-adjusted for limited investability is less than
15%.
• FOL rounded to the closest 1%.
Foreign RoomFor a security that is subject to a Foreign Ownership Limit (FOL), in determining eligibility for index
inclusion and in determining an affected constituent’s weight in an index, MSCI will additionally take into
consideration the proportion of shares still available to foreign investors relative to the maximum allowed(referred to as “foreign room”). Securities with less than 25% foreign room are typically not eligible forindex inclusion. However, current constituent securities for which there is less than 25% foreign room
may remain in the index. Current constituent securities for which there is no foreign room left may remainin the index, but their weight may be reduced by the application of a Limited Investability Factor (LIF).

Calculating the Free Float-Adjusted Market Capitalization
The free float-adjusted market capitalization of a security is calculated as the product of the FIF and the
security’s full market capitalization.
Free Float-Adjusted Market Capitalization = FIF times the Security’s Full Market Capitalization
The following examples illustrate the calculation of the free float-adjusted market capitalization of
securities with and without FOLs.

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MSCI Global Investable Market Indices Methodology| November 2010
Example:Calculating Free Float-Adjusted Market Capitalization:
Securities Not Subject to FOLs
Company A

Company B

Total number of shares outstanding
10,000,000
Number of shares classified as non-free float
4,300,000
Non-free float shareholding (%)
43.0%
Free float (%)
57.0%
Foreign Inclusion Factor (FIF)
0.60
Market price ($)
500
Full market capitalization ($ mm)
5,000
Free float-adjusted market capitalization ($ mm) 3,000

10,000,000
8,760,000
87.6%
12.4%
0.12
500
5,000
600

Example:Calculating Free Float-Adjusted Market Capitalization:
Securities Subject to FOLs
Company C
10,000,000
8,760,000
1,000,000
87.6
12.4
33.3
10.0

Total number of shares outstanding
All shares classified as non-free float- those held by foreign investors as strategic
Total non-free float shareholdings (%)
Free float (%)
Foreign ownership limit (%)
Foreign strategic shareholding (%)
Foreign ownership limit less the foreign
strategic shareholding (%)
23.3
Foreign Inclusion Factor (FIF)
0.12
Market price ($)
500
Full market capitalization ($ mm)
5,000
Free float-adjusted market capitalization ($ mm) 600

Company D
10,000,000
4,000,000
1,000,000
40.0
60.0
33.3
10.0

Company E
10,000,000
4,000,000
40.0
60.0
33.3
0.0

23.3
0.25
500
5,000
1,250

33.3
0.33
500
5,000
1,650

Treatment of Non-Voting Depositary Receipts in Thailand
As part of the Capital Market Development Plan, the Securities and Exchange Commission of Thailand
set up Non-Voting Depositary Receipts (NVDRs) to improve the investability of the Thai capital market.
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MSCI Global Investable Market Indices Methodology| November 2010
Exchange of Thailand (SET) and backed by shares listed on the SET. NVDRs entitle their holders to all
financial benefits of the underlying shares, except voting rights.
Foreign ownership limits that apply to common shares do not apply to NVDRs, and therefore the NVDR
scheme may allow foreign investors to own a greater percentage of shares than the foreign ownership limitof certain companies. NVDRs are traded as local shares and as such, investors can buy and sell themthrough the local price counter.
MSCI will consider increasing the weight of companies that are existing constituents of the MSCI
Thailand Index, that also have sizeable NVDRs. Sizeable NVDRs are defined as those representing at least
5 per cent of the existing constituent’s total outstanding company number of shares and must represent atleast the minimum size for addition in Thailand as defined in Appendix IX: Minimum Market-Relative
Liquidity Requirements for the Standard Index.
MSCI will recognize NVDRs as securities based on the local price. The calculation of Foreign Ownership
Limit (FOL) and Foreign Inclusion Factor (FIF) will differ in the following scenarios:
Existing Constituent Included with the Local Price
When an existing constituent of the MSCI Standard Thailand Index is included with the local price, MSCI
includes the portion of NVDRs issued at the time of the review in the calculation of the Foreign
Ownership Limit (FOL), for the existing constituents.
The Foreign Inclusion Factor (FIF) is equal to the lesser of:••

Estimated free float available to foreign investors, where the FOL used in the calculation
follows the same definition described above:- Rounded up to the closest 5%, if the free float is greater than 15%,
- Rounded to the closest 1%, if the free float is less than 15%.
FOL rounded to the closest 1%, where the FOL is calculated as the sum of the foreign
ownership limits as defined in the company’s bylaws or regulations rounded to the closest 1%
and NVDRs in issue as a proportion of total outstanding company number of shares rounded
to the closest 1%.

Existing Constituent Included with the Foreign Price
When an existing constituent of the MSCI Standard Thailand Index is included with the foreign price,
MSCI will account for the NVDRs in the Index separately as securities based on the local price while
maintaining the existing constituent with the foreign price. The Foreign Inclusion Factor (FIF) of the local
price security is equal to the portion of NVDRs issued at the time of the review rounded to the closest
1%:
As FIF changes related to NVDR reviews are applied in the indices on a semi-annual basis, the review ofinclusions or removals of NVDRs occurs on a semi-annual basis to coincide with the May and November
SAIRs.

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MSCI Global Investable Market Indices Methodology| November 2010
Example:Calculating Foreign Inclusion Factor (FIF) and Foreign Ownership Limit (FOL) for an Existing
Constituent included with the Local Price in the MSCI Thailand Index Series with Sizeable NVDRs:
Company A
Company B
Company C
Total number of shares outstanding
10,000,000
10,000,000
10,000,000
All shares classified as non-free float
4,000,000
4,000,000
4,000,000- those held by foreign investors as strategic
1,000,000
100,000
Total non-free float shareholdings (%)
40.0
40.0
40.0
Free float (%)
60.0
60.0
60.0
Foreign ownership limit as defined by the company (%)
Percentage of NVDRs issued
Foreign Ownership Limit (%)
Foreign strategic shareholding (%)
Foreign Ownership Limit less the foreign
strategic shareholding (%)

33.3
20.0
53.3
10.0

33.3
20.0
53.3
-

33.3
20.0
53.3
1.0

43.3

53.3

52.3

Foreign Inclusion Factor (FIF)
Market price ($)
Full market capitalization ($mm)
Free-float adjusted market capitalization ($mm)

0.45
500
5,000
2,250

0.53
500
5,000
2,650

0.52
500
5,000
2,650

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MSCI Global Investable Market Indices Methodology| November 2010

Appendix V: Global Industry Classification Standard (GICS)
Introduction
The Global Industry Classification Standard (GICS) was developed by MSCI in collaboration withStandard & Poor’s (S&P) to provide an efficient, detailed and flexible tool for use in the investment
process. It is designed to respond to the global financial community’s need for a global, accurate, complete
and widely accepted approach to defining industries and classifying securities by industry. Its universal
approach to industry classification aims to improve transparency and efficiency in the investment process.
Key Features of the GICS
The key features of the GICS are that it is:••••

Universal: the classification applies to companies globally.
Accurate: the structure precisely reflects the state of industries in the equity investment universe.
Flexible: the classification consists of four levels of analysis, ranging from the most general to themost specialized sub-industry.
Evolutionary: annual reviews are conducted to ensure that the classification remains fully
representative of the universe.

To provide the level of precision critical in the investment process, the GICS is designed with four levelsof classifications:
The Global Industry Classification Standard (GICS)
10 Sectors

24 Industry Groups

68 Industries

154 Sub-Industries

The GICS has 10 sector classifications:• Energy• Materials• Industrials• Consumer Discretionary• Consumer Staples• Health Care
• Financials
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MSCI Global Investable Market Indices Methodology| November 2010•••

Information Technology
Telecommunication Services
Utilities.

Philosophy and Objectives of the GICS
The way in which securities are classified into asset classes forms the basis of many important investment
decisions. The relative merits of each security are judged primarily within these asset classes, andinvestment decisions are taken within this framework.
Approaches to Industry Classification Schemes
While grouping securities by country and regions is relatively straightforward, classifications by industries
are more difficult. There are many approaches to developing industry classification schemes, some ofwhich are discussed below.
At one extreme is the purely statistical approach, which is solely financial market-based and backward
looking, using past returns. Aggregations are formed around correlation, often yielding non-intuitive
groupings that are dissimilar across countries and regions. Another approach attempts to define a priori
financial market-oriented groups or themes, such as cyclical, interest rate sensitive, etc. The difficulty,
however, lies in finding widely accepted and relatively stable definitions for these themes.
Two other approaches begin with an economic perspective on companies. The first focuses on a
production orientation while the other adopts a market or demand orientation in company analysis. The
production-oriented approach was effective in the past in its analysis of the microstructure of industries
from the producers’ standpoint. For instance, it segregated goods and services on the premise that it was adifferent set of companies that provided each to consumers. As the structure of the global economy
evolved, limitations of this approach became increasingly obvious. The ever-increasing share of
discretionary income brought about by economic development, emergence of the service era, and theavailability and accessibility of information with the advent of new communication technology has moved
the emphasis from producers to consumers.
The GICS: Market Demand-Oriented
The Global Industry Classification Standard is designed to be market demand-oriented in its analysis andclassification of companies. For example, drawing the line between goods and services is becoming
increasingly arbitrary as they are now commonly sold together. This distinction between goods andservices is replaced by adopting the more market-oriented sectors of “Consumer Discretionary” and“Consumer Staples”, which group goods and services sub-industries. In addition, the creation of large
stand-alone sectors such as Health Care, Information Technology and Telecommunication Services
accurately represents industries that provide significant value to the consumer in today’s global andintegrated economy. This further contributes to a more uniform distribution of weights among the 10
sectors.

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MSCI Global Investable Market Indices Methodology| November 2010

GICS Company Classification
The GICS is used to assign each company to a sub-industry according to its principal business activity.
Since the GICS is strictly hierarchical, a company can only belong to one grouping at each of the fourlevels.
An Illustration of the GICS – Telecommunication Services Sector:
50 – Telecommunication
Services
5010 – Telecommunication
Services

501010 - Diversified
Telecommunication Services

501020 – WirelessTelecommunication Services

50101010 – Alternative
Carriers

50101020 – Integrated
Telecommunication Services

Cable & Wireless (GB)Level 3 Communications (US)

AT&T (US)Verizon Communications (US)

50102010 – WirelessTelecommunication Services
Vodafone Group (GB)Classification by Revenue
In order to provide an accurate, complete and long-term view of the global investment universe, acompany’s revenues often provide a more stable and precise reflection of its activities than earnings.
Furthermore, industrial and geographical breakdowns of revenues are more commonly available thanearnings broken down the same way for most companies. Nevertheless, company valuations are moreclosely related to earnings than revenues. Therefore, earnings remain an important secondary
consideration in a company’s industry classification.
General Guidelines for Classification
The primary source of information used to classify securities is a company’s annual reports and accounts.
Other sources include brokers’ reports and other published research literature. As a general rule, acompany is classified in the sub-industry whose definition most closely describes the business activities
that generate at least 60% of the company’s revenues.
Example: Nokia (FI)2006 Results
Revenues
Earnings

Mobile Phones
60%
75%

Multimedia
19%
24%

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Enterprise Solutions
3%0%

Networks
18%
15%

MSCI Global Investable Market Indices Methodology| November 2010
Classified as:
GICS Level

GICS Code

Code Description

Sector45

Information Technology

Industry Group4520

Technology Hardware & Equipment

Industry

452010Communications Equipment

Sub-Industry

45201020

Communications Equipment

However, a company engaged in two or more substantially different business activities, none of which
contribute 60% or more of revenues, is classified in the sub-industry that provides the majority of both thecompany’s revenues and earnings. When no sub-industry provides the majority of both the company’s
revenues and earnings, the classification will be determined based on further research and analysis. In
addition, a company significantly diversified across three or more sectors, none of which contributes the
majority of revenues or earnings, is classified either in the Industrial Conglomerates sub-industry(Industrial Sector) or in the Multi-Sector Holdings sub-industry (Financials Sector).
Example: General Electric (US)2006 Results
Revenues
Earnings

Infrastructure
30%
34%

Industrial
21%
10%

Healthcare NBC Universal Commercial Finance Consumer Finance
10%
10%
15%
14%
12%
11%
19%
13%

Classified as:
GICS Level

GICS Code

Code Description

Sector20

Industrials

Industry Group2010

Capital Goods

Industry

201050Industrial Conglomerates

Sub-Industry

20105010

Industrial Conglomerates

In the case of a new issue, the classification will be determined based primarily on the description of thecompany’s activities and pro forma results as given in the prospectus.
Review of Sub-Industry Classification
A company’s sub-industry classification will be reviewed either when a significant corporate restructuring
occurs or when a new annual report is available. In order to provide a stable sub-industry classification,
when reviewing a company’s classification, changes will be minimized in the sub-industry classification to
the extent possible by disregarding temporary fluctuations in the results of a company’s different activities.
In the event that the above guidelines should not appropriately capture a particular company’s businessactivity, its classification will be determined based on more extensive analysis.

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MSCI Global Investable Market Indices Methodology| November 2010
GICS (Global Industry Classification Standard)
Effective after close of business (US, EST) Friday August 29, 2008
S ector10 Energy

15

20

Material s

Industrials

Ind ustry G roup1010 Energy

1510

2010

2020

2030

25

Consum er Di screti onary 2510

2520

2530

Materials

Capital Goods

Com merci al & P rofessi onal S ervices

Transportation

Automobi les & Com ponents

Consumer Durabl es & ApparelConsumer S ervices

In dustry
101010 Energy Equi pment & Services
101020Oil , Gas & Consum abl e Fuels

151010Chem icals

151020151030Constructi on Materi al s
Containers & Packagi ng

151040

Metal s & Mini ng

151050Paper & Forest P roducts

201010201020201030201040Aerospace & Defense
Buildi ng Products
Constructi on & Engi neering
El ectrical E quipment

201050201060Industrial Congl omerates
Machinery

201070202010

Trading Compani es & Distri butors
Commercial Servi ces & Suppl ies

202020Profession al Services

203010203020203030203040Air Freight & Logistics
Airli nes
MarineRoad & Rail

203050Transportati on I nfrastructure

251010Auto Components

251020Autom obiles

252010Household Durables

252020

Leisure Equi pment & Products

252030

Texti les, Apparel & Luxury Goods

253010Hotels, Restaurants & Lei sure253020

Diversified Consumer Services

2540

Media

254010

Media

2550

Retai ling

255010255020Distri butors
Internet & Catalog Retai l255030

Mul ti line Retail255040Specialty Retai l

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S ub -Ind ustry
10101010
Oi l & Gas Drill ing
10101020
Oi l & Gas Equi pment & Servi ces
10102010
Integrated Oil & Gas
10102020
Oi l & Gas Expl oration & P roduction
10102030
Oi l & Gas Refini ng & Marketing
10102040
Oi l & Gas Storage & Transportation
10102050
Coal & Consumable Fuel s
15101010
15101020
15101030
15101040
15101050
15102010
15103010
15103020
15104010
15104020
15104030
15104040
15104050
15105010
15105020

Com modity Chemi cal s
Di versified Chem icals
Fertil iz ers & Agricultural Chem icals
Industri al Gases
Speci alty Chemicals
Construction Materials
Metal & Gl ass Contai ners
Paper Packaging
Al uminumDi versified Metal s & Mini ng
Gol d
Preci ous Metals & M ineral s
Steel
Forest Products
Paper Products

20101010
20102010
20103010
20104010
20104020
20105010
20106010
20106020
20107010
20201010

Aerospace & Defense
Bui lding Products
Construction & Engineering
Electri cal Com ponents & E quipment
Heavy E lectrical E quipm ent
Industri al Conglom erates
Construction & Farm Machinery & Heavy Trucks
Industri al Machinery
Tradi ng Companies & Di stributors
Com merci al Pri nti ng

20201050
20201060
20201070
20201080
20202010
20202020
20301010
20302010
20303010
20304010
20304020
20305010
20305020
20305030

Environmental & Facili ti es Services
Office Services & S upplies
Di versified Support S ervices
Securi ty & Alarm S ervices
Hum an Resource & E mployment Services
Research & Consul ti ng Services
Ai r Frei ght & Logisti cs
Ai rl ines
Mari neRail roads
Trucking
Ai rport S ervices
Hi ghways & Rail tracks
Mari ne Ports & Servi ces

25101010
25101020
25102010
25102020
25201010
25201020
25201030
25201040
25201050
25202010
25202020
25203010
25203020
25203030
25301010
25301020
25301030
25301040
25302010
25302020
25401010
25401020
25401025
25401030
25401040
25501010
25502010
25502020
25503010
25503020
25504010
25504020
25504030
25504040
25504050
25504060

Auto Parts & Equipm ent
Tires & Rubber
Automobi le Manufacturers
Motorcycl e Manufacturers
Consumer E lectronics
Hom e Furnishings
Hom ebui lding
Household Appli ancesHousewares & Specialties
Lei sure Products
Photographi c Products
Apparel, Accessories & Luxury Goods
Footwear
Textil es
Casinos & Gaming
Hotels, Resorts & Crui se Lines
Lei sure Facil ities
Restaurants
Education Servi ces
Speci alized Consum er Servi ces
Advertisi ng
Broadcasting
Cable & S atelli te
Movies & Entertainment
Publi shi ng
Di stributors
Catal og RetailInternet Retail
Departm ent S tores
General Merchandise Stores
Apparel Retail
Com puter & El ectronics Retail
Hom e Improvement RetailSpeci alty S tores
Automotive Retail
Hom efurnishing Retai l

MSCI Global Investable Market Indices Methodology| November 201030

35

Consum er Stapl es

Health Care

3010

Food & Staples Retai li ng

301010Food & S taples Retail ing

3020

Food, Beverage & Tobacco

302010Beverages

302020Food P roducts
TobaccoHousehold Products
Personal P roducts

3030

Household & P ersonal P roducts

3020303030103030203510

Health Care E quipment & Services

351010

Health Care Equipm ent & S upplies

351020

Health Care Providers & Servi ces

3520

40

Financials

4010

Health Care Technol ogy
Biotechnol ogy
Pharmaceuti calsLife Sci ences Tools & S ervices

35202010
35203010

Banks

401010Commercial Banks

Di versified Financials

401020402010Insurance

4030104040

Real E state40402040403040402020
40402030
40402040
40402050
40402060
40402070
40403010

Industri al REIT' s
Mortgage REIT' s
Office REIT's
Residenti al REIT' s
Retai l REI T's
Speci alized RE IT'sDi versified Real Estate Activities

40403020
40403030
40403040

Real E state Operati ng Companies
Real E state Devel opment
Real E state Servi ces

45101010
45102010
45102020
45103010
45103020
45103030
45201020
45202010
45202020
45203010

Internet Software & Services
IT Consulting & Other Servi ces
Data Processing & Outsourced S ervices
Appl ication Software
Systems Software
Hom e Entertainment Software
Com municati ons Equi pment
Com puter Hardware
Com puter S torage & Peripheral sElectroni c Equipm ent & Instrum ents

45203015
45203020
45203030
45204010
45301010

Electroni c Com ponents
Electroni c Manufacturi ng Services
Technol ogy Distributors
Office El ectronics
Semiconductor Equi pment

4520

Software & Servi ces

Technol ogy Hardware & Equi pment

4530

Semiconductors & S em iconductor
Equipm ent

5010

Tel ecom munication S ervices

Util ities

5510

Util ities

Thrifts & Mortgage Fi nanceDiversified Financi al S ervices

Real Estate Managem ent &Developm ent

451010451020Internet S oftware & Servi ces
IT Servi ces

451030Software452010452020Communi cations E quipment
Computers & P eri pherals

452030El ectronic E quipment, I nstruments &Components

452040453010Offi ce E lectronics
Semi conductors & Semi conductor
Equi pment

501010

Diversified Tel ecom municati on
Services

50102055

Pharmaceuticals
Life Sciences Tools & Services

351030
Pharmaceuticals, Biotechnology & Life 352010
Sciences
3520203520304030

Information Technology 4510

Telecommuni cation
Services

Health Care E quipment
Health Care S upplies
Health Care Distributors
Health Care Servi ces
Health Care Facil ities
Managed Heal th Care
Health Care Technology
Bi otechnology

35101010
35101020
35102010
35102015
35102020
35102030
35103010
35201010

40202040203050

Drug Retai lFood Distri butors
Food Retail
Hyperm arkets & S uper Centers
Brewers
Di stil lers & Vintners
Soft Drinks
Agricul tural Products
Packaged Foods & Meats
TobaccoHousehold P roducts
Personal Products

40101010
40101015
40102010
40201020
40201030
40201040
Consum er Finance40202010
Capi tal Markets
40203010
40203020
40203030
Insurance
40301010
40301020
40301030
40301040
40301050
Real Estate Investm ent Trusts (REITs) 40402010

4020

45

30101010
30101020
30101030
30101040
30201010
30201020
30201030
30202010
30202030
30203010
30301010
30302010

551010551020551030551040551050Di versified Banks
Regional Banks
Thrifts & Mortgage Finance
Other Diversified Financi al S ervices
Multi-Sector Holdi ngs
Speci alized FinanceConsumer Fi nance
Asset M anagement & Custody Banks
Investment Banking & Brokerage
Di versified Capi tal Markets
Insurance Brokers
Life & Health Insurance
Multi-li ne Insurance
Property & Casualty Insurance
Reinsurance
Di versified REIT's

45301020

Semiconductors

50101010

Al ternati ve Carri ers

50101020
Wireless Tel ecom munication S ervices 50102010

Integrated Telecom muni cation S ervices
Wi rel ess Telecomm unicati on Services

El ectric Uti li ti es
Gas Util ities
Mul ti -Uti liti es
Water Uti lities
Independent Power Producers &Energy Traders

Electri c Util ities
Gas Utili ti es
Multi-Util ities
Water Util ities
Independent P ower Producers & Energy Traders

55101010
55102010
55103010
55104010
55105010

GICS Structure Review Frequency
MSCI and Standard & Poor’s are committed to ensuring that the GICS structure remains relevant and upto-date. This is accomplished through an annual review of the structure. This review includes a detailed
internal analysis to develop a proposal for potential structural changes and public request for comments
and in-depth client consultations with various market participants as a means of obtaining feedback on
proposed structural changes.

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MSCI Global Investable Market Indices Methodology| November 2010

Appendix VI: Price Source for Securities
For a full updated list of prices used in MSCI’s end of day index calculations by country, please refer to the
MSCI Index Calculation Methodology that can be found atwww.mscibarra.com/products/indices/stdindex/methodology.html.
In certain countries significant foreign ownership limits exist for certain companies and/or industries.
When the FOL is reached in these countries, foreign investors may trade with each other in an organizedlocal market, frequently at a price higher than that available to domestic investors. As a result, there may
be separate domestic and foreign board quotations.
MSCI regularly monitors the relative liquidity and foreign ownership availability of constituents withseparate domestic and foreign board quotations to determine whether prices for these constituents shouldreflect the domestic or foreign board quotations. This review occurs on a quarterly basis to coincide with
the Quarterly Index Review.
Israel and Russia
Similarly to other markets, in order to determine the most appropriate price source for the MSCI Russia
index constituents the frequency of trading, 12 month and 3 month ATVRs are considered as described in
Sections 2.2.3 and 3.1.2.3. However, the eligible universes for Russia include alternative listings, trading in
the US despite being in the different time-zone. For more details on the country classification of securities
please refer to Appendix III.
Markets open on Saturday and/or Sunday
In the event that a security is not traded on a Monday but was traded on the previous Saturday and/or
Sunday, the security will have the latter price carried forward to the Monday.

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MSCI Global Investable Market Indices Methodology| November 2010

Appendix VII: Policy Regarding Trading Suspensions During Index Reviews
Policy Regarding Trading Suspensions for Individual Securities During Index Reviews
MSCI will postpone the implementation of index review changes for the Standard Index constituents
when the affected securities are suspended on the day prior to the effective implementation date of theIndex Review. The postponed index review changes will be implemented two days after the securities
resume trading.
Policy Regarding Market Closures During Index Reviews
For both Quarterly Index Reviews and SAIRs, the following principles apply in case of market closures on
the day of implementation. As a reminder, the effective implementation date for QIR is as of the close of
the last business day of February and August. The effective implementation date for the SAIR is as of theclose of the last business day of May and November.
Market Closures Due to Scheduled Stock Market Holidays
When a given stock market is closed on the scheduled implementation date due to stock market holiday,
the change will be effective on the next business day, using the price of the previous business day’s close.
Unexpected Full Trading Day Market Closures
In the event that the primary stock market in a country fails to open for trading and remains closed for theentire trading day on the implementation date of the review due to an unexpected market closure, MSCI
will postpone the implementation of the additions to and deletions from the MSCI All Countries World
Index (ACWI), as well as the changes in FIF and NOS with a combined impact on the country index of atleast 50bp, resulting from the Semi-Annual or Quarterly Index Review of the MSCI Global Investable
Market Indices for that specific country index. MSCI will implement the above changes as a result of theSemi-Annual or Quarterly Index Review for that country as of the close of the first business day (Monday
to Friday) that the specific market reopens for trading and closing prices are available. In the event of
unexpected closures of stock markets in more than one country, MSCI will evaluate the situation and may
apply a different policy.
For smaller countries, however, in the event of unexpected market closures, MSCI reserves the right toimplement the Semi-Annual or Quarterly Index Review using the closing price of the last day the market
was open.

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MSCI Global Investable Market Indices Methodology| November 2010
Unexpected Market Closures of Less Than Full Trading Day
The trading suspensions of less than one full trading day will not trigger any postponement of theimplementation of the Semi-Annual or Quarterly Index Review of the MSCI Global Investable Market
Indices.
Market Outage during the Trading Day
In the event that a market is affected by an outage during the trading day on the effective implementation
date, MSCI will determine its pricing policy for the relevant country on a case-by-case basis. In making its
decision, MSCI will take into consideration a number of factors, including the time and duration of theoutage, information on the outage provided by the specific stock exchange, and other relevant market
information.
MSCI will communicate all decisions taken with respect to market outages during the day through theregular client communication channels as well as via Reuters (Pages MSCIA and following) andBloomberg (MSCN).
MSCI will change the implementation date for Index Reviews if markets cumulatively constituting morethan 20% of the MSCI All Country World Index market capitalization are expected to be either closed orexperience low liquidity on that day.

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Appendix VIII: Updating the Global Minimum Size References and Ranges
As markets evolve due to events and price performance, the Global Minimum Size Reference and ranges
are calculated on a daily basis using the following general principles.

General Principles for Updating the Global Minimum Size References and Ranges
•

•

•

•

The Investable Market Index Global Minimum Size Reference for Developed Markets is the fullcompany market capitalization of the company at the same rank that determined the Investable Market
Index Global Minimum Size Reference at the previous SAIR as long as the cumulative free floatadjusted market capitalization coverage of the existing DM Investable Equity Universe at that rank is
between 99% and 99.25%. If the coverage at that rank is not between 99% and 99.25%, the rank isreset to the first company that reaches a cumulative free float-adjusted representation of not less than
99% (if below) or not more than 99.25% (if above) and the Global Minimum Size Reference isrecalculated.
The Standard Index Global Minimum Size Reference for Developed Markets is the full company
market capitalization of the company ranked at the same rank that determined the Standard Index
Global Minimum Size Reference at the previous SAIR as long as the cumulative free float-adjusted
market capitalization coverage of the existing DM Investable Equity Universe at that rank is between
85 and 87%. If the coverage at that rank is not between 85% and 87%, the rank is reset to thatcompany that reaches a cumulative free float-adjusted representation of not less than 85% (if below)
or not more than 87% (if above) and the Global Minimum Size Reference is calculated.
The Large Cap Index Global Minimum Size Reference for Developed Markets is the fullcompany market cap of the company ranked at the same rank that determined the Large Cap Index
Global Minimum Size Reference at the previous SAIR as long as the cumulative free float-adjusted
market capitalization coverage of the existing DM Investable Equity Universe at that rank is between
70 and 72%. If the coverage at that rank is not between 70% and 72%, the rank is reset to thatcompany that reaches a cumulative free float-adjusted representation of not less than 70% (if below)
or not more than 72% (if above) and the Global Minimum Size Reference is recalculated.
For Emerging Markets the Global Minimum Size Reference for each size-segment is set at half of
the USD Global Minimum Size Reference for Developed Markets.

Using the rank of the company that determined the Global Minimum Size Reference at the previous SAIR
- within acceptable representation ranges - is aimed at providing more stable Global Minimum Size
References, compared to an approach that focuses on a targeted percentile coverage.
The existing DM Equity Investable Universe is used to keep the Global Minimum Size Reference up todate on a daily basis and at Quarterly Index Reviews. For SAIRs, the fully updated DM Equity Investable
Universe is used.
Example: At the previous SAIR of the Standard Indices, the Global
Minimum Size Reference was determined to be USD 3.95 billion andreflected the market capitalization of the 1700th company in the DM Equity
Investable Universe with a cumulative free float-adjusted market coverage of
85% at that rank. In the current SAIR, the market capitalization of the 1700th
company is chosen as the pro forma Global Minimum Size Reference. If the
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MSCI Global Investable Market Indices Methodology| November 2010
cumulative free float-adjusted market capitalization coverage of the 1700
companies is between 85 – 87% of the DM Equity Investable Universe, thefull market capitalization of the 1700th company will be used as the new
Global Minimum Size Reference. If, however, the cumulative free floatadjusted market capitalization of the DM Equity Investable Universe is 88%,then the rank of the company determining the Global Minimum Size
Reference is reset. In this case, suppose the top 1600 companies cumulatively
cover 87% of the free float-adjusted market capitalization, then the market
capitalization of the 1600th company is the new Global Minimum Size
Reference for the DM Standard Indices. At the next SAIR, the full market
capitalization of the 1600th company will be the pro forma Global Minimum
Size Reference.

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MSCI Global Investable Market Indices Methodology| November 2010

Appendix IX: Minimum Market-Relative Liquidity Requirements for the Standard
Index
The Market-Relative Liquidity Requirement for inclusion in the Standard Index is derived as follows:
•
•
•
•
•

Companies are first sorted in descending order by full market capitalization and the cumulative
free float-adjusted market capitalization coverage is calculated.
The universe of large and mid cap companies is defined when 85% of the free float-adjusted
market capitalization coverage of the Market Investable Equity Universe is achieved.
The securities within this universe are then sorted by descending order of 12-month ATVR.
The 12-month ATVR at the 98th percentile of this sorted universe is noted.
The Market-Relative Liquidity Requirement is then defined as 90% of that 12-month ATVR
level, subject to:o A minimum of 20% 12-month ATVR in Developed Markets and 15% 12-month
ATVR in Emerging Marketso A maximum of 50% 12-month ATVR in both Developed and Emerging Markets

This Market-Relative Liquidity Requirement is periodically updated and published at the time of the SAIR.
The 12-month ATVR thresholds for the November 2010 Semi-Annual Index Review are shown below.1
Minimum Market-Relative Liquidity Requirements for the Standard Index
Developed Markets

Country
AUSTRALIACANADAEUROPEHONG KONG
ISRAELJAPANNEW ZEALANDSINGAPORE
USA

Emerging Markets
Minimum
ATVR
50.00%
31.87%
29.25%
24.85%
50.00%
42.22%
20.00%
38.92%
26.78%

Stand-Alone Markets

Country
China A

1

Minimum
ATVR
50.00%Country
BRAZILCHILECHINA
COLOMBIACZECH REPUBLICEGYPTHUNGARY
INDIA
INDONESIA
KOREA
MALAYSIAMEXICO
MOROCCOPERU
PHILIPPINESPOLANDRUSSIA
SOUTH AFRICATAIWANTHAILAND
TURKEYThe ATVR values used in the regular Index Reviews are not rounded.

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Minimum
ATVR
50.00%
15.92%
50.00%
15.77%
50.00%
21.28%
50.00%
45.52%
16.92%
27.43%
15.00%
29.38%
15.00%
50.00%
15.00%
24.95%
45.24%
42.35%
41.26%
50.00%
36.61%MSCI Global Investable Market Indices Methodology| November 2010

Appendix X: MSCI Frontier Markets Indices Country Classification
The table below provides the country classification in terms of minimum size and liquidity that MSCI uses
as basis for the construction and maintenance of the MSCI Frontier Markets Indices.
ATVR 2.5%

ATVR 5%ATVR 15%
KuwaitNigeria
Qatar
United Arab Emirates

Bulgaria
Estonia
Kazakhstan
Kenya
Slovenia
Croatia
Mauritius
Lithuania
Tunisia
JordanArgentina
Bangladesh
Oman
Pakistan
Romania
Vietnam

Larger Countries

Smaller Countries

BahrainBosnia-Herzegovina
Botswana
Ghana
Jamaica
LebanonSerbiaSri Lanka
Trinidad & Tobago

UkraineZimbabwe

The categorization is reviewed semi-annually during the May and November Semi-Annual Index Reviews.
Bosnia Herzegovina has been added as a stand-alone country index at the May 2010 Semi-Annual Index
Review. Simultaneously, Bangladesh has moved from the 2.5% ATVR bracket to the 15% ATVR
category.

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MSCI Global Investable Market Indices Methodology| November 2010

Appendix XI: Transition
MSCI transitioned the current Standard Index, the Small Cap Index and all indices derived from theStandard Index to the Global Investable Market Indices methodology described in this book at the end of
May 2008.
All indices that are constructed with the Standard Indices as their basis, such as the GDP-weighted indices,
10/40 Indices and other custom indices, High Dividend Yield Indices, the MSCI Global Value and
Growth Indices, etc., continued to be derived from the Standard Indices throughout the transition.
The transition of the MSCI Standard and the MSCI Small Cap Indices to the MSCI Global Investable
Market Indices methodology occurred in two phases. The first phase occurred as of the close of
November 30, 2007 and the second phase occurred as of the close of May 30, 2008.
All indices derived from the MSCI Standard Indices followed the two phase transition except the MSCIEuro and Pan Euro Indices which were transitioned in one phase in November 2007.
The transition was synchronized for all markets and composites.

Global Investable Market Indices

Current
DM

EM

DM

EM

Standard
IndicesStandard
IndicesStandard
IndicesStandard
Indices(Large + Mid)

(Large + Mid)

Enhancements &Transition Period
Large Cap

Small
Cap
Indices

Large CapMid Cap

Mid Cap

Small Cap
Indices

Small Cap
Indices

MSCI Global
Investable
Market IndicesSegmented by:• Size• Style• Industry

During the transition period, MSCI was producing the MSCI Provisional Standard and Provisional Small
Cap Indices to assist investors in understanding the changes that would have occurred if the Global
Investable Market Indices methodology had been immediately implemented in the current MSCI Standard
and Small Cap Indices. The Provisional Indices also provided increased flexibility to current investors who
wished to transition to the Global Investable Market Indices methodology on their own schedule.
The Provisional Standard and Provisional Small Cap Indices and the new Size-Segment and Style Indicesthat were created based on this methodology were official MSCI indices and, as such, could be used for avariety of purposes, including as the basis for new investment mandates and for investment vehicles suchas passive mutual funds, exchange traded funds and listed and over-the-counter derivative contracts.

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MSCI Global Investable Market Indices Methodology| November 2010

Provisional Indices
Provisional Indices, together with the constituents, could be used by clients who wished to measure theirperformance against such indices, ahead of MSCI’s official implementation schedule. The Provisional
Indices and the new Size-Segment and Style Indices were maintained according to the index maintenanceprinciples of the Global Investable Market Indices methodology.
Deriving the Size-Segment Indices at Initial Construction of the Provisional IndicesIn the initial construction of the Provisional Size-Segment Indices, the Segment Number ofCompanies in each size-segment and the Market Size-Segment Cutoffs was determined as
described in section 2 of this methodology book. However, with a view to reducing transition
turnover and ongoing turnover, the following additional rules were used at initial construction:•••

The Standard Indices targeted market coverage and size integrity as described in Sub-section
2.3.3: Determining the Market Size-Segment Cutoffs and Associated Segment Number ofCompanies using the 85% ± 5% Market Segment Coverage Range, and specifically aiming at
reaching 85%, when possible. However, a Global Minimum Size Range of 0.5 times to 1.05
times the Global Minimum Size Reference, rather than 0.5 times to 1.15, was used for initialconstruction to limit turnover during the transition, as long as market coverage did not exceed
90%.
The buffer zones used in maintaining the MSCI Global Investable Market Indices at SemiAnnual Index Reviews were fully populated at initial construction with companies from thecurrent Standard and Small Cap Indices, in order to minimize turnover during the transition.
If a company was represented in both the Standard and the Small Cap Index, it was evaluatedusing the eligibility requirements of the Standard Index only. For details on the application of
buffer zones in the assignment of companies to size-segments, please see Sub-section 3.1.5.1:
Using Buffer Zones to Manage the Migration of Companies between Size-Segment Indices.
At initial construction the Market Size-Segment Cutoffs and associated Segment Number ofCompanies of the Investable Market Segment were derived by including all companies equal
to or larger than the Global Minimum Size Reference for this segment.

Publication of Provisional Indices
In preparation for the transition, as of the close of May 3, 2007, the list of pro forma index
constituents under the Global Investable Market Indices methodology for the Provisional MSCIStandard and Small Cap Indices in each market and for all Provisional Indices derived from theStandard indices were made available to clients. The Provisional Indices started with a base level of1000 as of the close of May 31, 2007. All Global Investable Market Indices, including theProvisional Standard and Provisional Small Cap Indices, were calculated as of June 1, 2007 andpublished daily as of the close of June 5, 2007.
After the May 2008 SAIR, the Provisional Standard and Provisional Small Cap Indices werediscontinued.

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MSCI Global Investable Market Indices Methodology| November 2010

Reflecting Constituent Changes in the Standard Indices at the Transition Points
In the first phase of the transition in November 2007:••

After the Provisional Standard Indices were rebalanced as per the SAIR, they were compared to therelevant Standard Indices.
All companies that were in the Provisional Standard Index but not in the corresponding Standard
Index were added to the Standard Index at half of their free float-adjusted market capitalization, andall companies that were not in the Provisional Standard Index but in the corresponding Standard
Index were retained in the Standard Index but at only half of their free float-adjusted market
capitalization.

.
In the second and final phase in May 2008:••

The Provisional Standard Indices were rebalanced.
Any and all differences between the rebalanced Provisional Standard Index and the Standard Index
were fully implemented in the Standard Indices.

The transition of the Small Cap Indices were synchronized with the transition of the Standard Indices,
following the same timeline and approach.

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MSCI Global Investable Market Indices Methodology| November 2010
Index Inclusion Factors were used to manage the indices throughout the transition.
The table below provides some examples of Index Inclusion Factors for companies through the phases of
the transition. The index market capitalization of securities was determined as Index Inclusion
Factor*FIF*Security Full Market Capitalization.
Phase I

Phase II

Current Index
Inclusion Flag

Provisional
Proforma Index
Inclusion Flag
(November 30,
2007)

Standard Proforma
Inclusion Factor(November 30, 2007)

Provisiona Proforma
Index Inclusion Flag
(May 30, 2008)

Standard (final)
Inclusion Factor(May 30, 2008)

Existing Constituents
Company A
Company B
Company C
Company D

1
1
1
1

1
0
0
1

1
0.5
0.5
1

1
0
1
0

1
0
1
0

New Constituents
Company E
Company F
Company G

0
0
0

1
1
0

0.5
0.5
0

1
0
1

1
0
1

For example, say companies A, B, C and D were current constituents of theStandard Index. Company A continued as a constituent of the Standard Index
under the Global Investable Market Indices methodology. It had an Index
Inclusion Factor of 1 throughout the transition. Company B was not eligible forinclusion in the Standard Index under the Global Investable Market Indicesmethodology. So, in the first phase, it was marked for removal from the Standard
Index and an Index Inclusion Factor of 0.5 was applied to it. In the second phase
the Index Inclusion Factor went to 0 indicating removal of the company from theStandard Index. Company C was also identified for removal from the Standard
Index and had an Index Inclusion factor of 0.5 in the first phase. But whenevaluated at phase 2, it became eligible for inclusion and the Index Inclusion
Factor was changed to 1 for the second phase. Company D was retained in theStandard Index when evaluated in the first phase and carried an Index Inclusion
Factor of 1 for that phase. But in phase 2, it was no longer eligible for inclusion in
the Standard Index and, hence its Index Inclusion Factor was changed to 0.0.
Companies E, F, and G were new constituents that were eligible for inclusion
under the Global Investable Market Indices methodology. Company E remained
eligible for inclusion to the Standard Index throughout the transition and had an
Index Inclusion Factor of 0.5 in the first phase and 1 in the second phase.
Company F, was identified as an addition in the first phase, but at the second
phase it was no longer eligible for inclusion. Its Index Inclusion Factor of 0.5 in
the first phase was therefore changed to 0 in the second phase. Company G was
not eligible for inclusion in the first phase and carried an Index Inclusion Factorof 0. But in the second phase, it became eligible for inclusion and its Index
Inclusion Factor was reset to 1, indicating full inclusion in the Standard Index.

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MSCI Global Investable Market Indices Methodology| November 2010

Index Reviews and Treatment of On-Going Market Events During the Transition
PeriodDuring the transition period, from May 4, 2007 through May 30, 2008, MSCI was maintaining its scheduleof regular index reviews for its Standard and Small Cap Index series. The Provisional Indices and SizeSegment Indices were maintained according to the index maintenance principles of the Global Investable
Market Indices methodology.
To minimize changes not related to the transition, all changes in the Standard Indices were coordinatedwith the Provisional Indices. Only very significant changes in the equity markets and constituents werereflected during the Quarterly Index Reviews for the existing Standard and Small Cap Indices. All new
additions of companies to the Provisional Standard Indices resulting from IPOs and the August 2007 andFebruary 2008 QIRs were also included in the Standard Indices at their full free float-adjusted market
capitalization.
Ongoing Event Related Changes
Effective from March 29, 2007 and throughout the transition, the ongoing maintenance of theStandard and Small Cap Indices was made with a view to minimize potential reverse turnover in
the indices.
Effective May 4, 2007 all and only securities newly added to the Provisional Standard and Small
Cap Indices as a result of ongoing maintenance of corporate events could be added to theStandard and to the Small Cap Indices, respectively. Before May 31, 2007 these were additions to
the list of pro-forma constituents of the Provisional Standard and Provisional Small Cap Indices.
May 2007 Annual Full Country Index Review of the Standard Indices and Semi-Annual
Index Review of the Small Cap Index
The changes resulting from the May 2007 Annual Full Country Index Review of the existingStandard Indices were announced on May 3, 2007, earlier than its normal announcement schedule,
to coincide with the availability of the pro-forma list of constituents of the MSCI Global
Investable Market Indices. Further, in order to minimize reverse turnover, the May 2007 Annual
Full Country Index Review for the Standard Indices used the same Global Minimum Size
Requirement and other investability requirements that were applied in the construction andmaintenance of the Provisional Standard Indices. Only securities that were constituents of theProvisional Standard Indices were added to the Standard Indices to bring the Industry Group
representation closer to 85%, if necessary. If an Industry Group was over represented, only
companies not included in the Provisional Standard Indices were deleted.
The current Small Cap Indices continued to target securities of companies in the full market
capitalization range of USD 200–1,500 million that defines the small cap universe under thecurrent Small Cap Index methodology. The changes resulting from the May 2007 SAIR of thecurrent Small Cap Indices were made available on May 3, 2007, along with the final pro forma listof constituents of the MSCI Global Investable Market Indices. In order to minimize reverse
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MSCI Global Investable Market Indices Methodology| November 2010
turnover, the May 2007 SAIR for the Small Cap Indices used the same Global Minimum Size
Requirement and other investability screens that were applied in the construction and maintenanceof the Provisional Small Cap Indices. Only securities that were constituents of the Provisional
Small Cap Indices were added to the Small Cap Indices to bring the Industry Group representation
closer to 40%, if necessary. Potential deletion of a security from the Small Cap Indices due toexcessive industry group representation was considered only if it was not a constituent of theProvisional Small Cap Indices.
August 2007 Quarterly Index Review
In August 2007, the first QIR for the Provisional Standard and Provisional Small Cap Indices was
conducted under the principles of the Global Investable Market Indices methodology. Newly
eligible companies that were included in the Provisional Standard Indices as a result of the August
2007 QIR were also added to the existing Standard Indices as of the close of August 31, 2007. The
migration of companies between the Provisional Standard and Provisional Small Cap Indices was
also reflected in the Standard and Small Cap Indices.
November 2007 Semi-Annual Index Review
The changes in the Standard and Small Cap Indices during the November 2007 Index Review were
determined in two steps:••

Identification of the changes resulting from the regular Semi-Annual Index Review and;
Identification of the additional changes resulting from the first phase of the transition to
the Global Investable Market Indices Methodology.

In the first step, MSCI performed the regular Semi-Annual Index Review of the Standard andSmall Cap Indices under the principles of the Global Investable Market Indices Methodology,
meaning that all changes in the Standard and Small Cap Indices were coordinated with the SemiAnnual Index Review of the Provisional Standard and Provisional Small Cap Indices. Similar to
the August 2007 Quarterly Index Review, the additions to and deletions from the Provisional
Standard and Provisional Small Cap Indices resulting from the review were fully added to ordeleted from the current Standard and Small Cap Indices.
In the second step, MSCI determined the difference in each constituent’s free float-adjusted
market capitalization between the indices resulting from the first step above and the corresponding
Post Semi-Annual Index Review Provisional Standard and Provisional Small Cap Indices. Then,
one-half of this difference was added to or deleted from the Standard and Small Cap Indices. Thiswas implemented by applying the Index Inclusion Factor (IIF) of 0.5 to all additions and deletions
resulting from the transition.
February 2008 Quarterly Index Review
In February 2008, the second QIR for the Provisional Standard and Provisional Small Cap Indiceswas conducted under the principles of the Global Investable Market Indices methodology. Newly
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MSCI Global Investable Market Indices Methodology| November 2010
eligible companies that were included in the Provisional Standard Index as a result of the February
2008 QIR were also added to the Standard Index as of the close of February 29, 2008. The
migrations of companies between the Provisional Standard and Provisional Small Cap Indiceswere also reflected in the Standard and Small Cap Indices.
May 2008 Semi-Annual Index Review
In May 2008, the second SAIR for the Provisional Standard and Provisional Small Cap Indices was
conducted under the principles of the Global Investable Market Indices methodology. The
addition or deletion of the remaining difference of the free float-adjusted market capitalization foreach constituent was implemented in the Standard and Small Cap Indices as of the close of May
30, 2008. After this, the Provisional Indices were discontinued as of the close of June 30, 2008.

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MSCI Global Investable Market Indices Methodology| November 2010

Transitioning Other Indices
Global Value and Growth Indices
The Global Value and Growth Indices followed the timeline and implementation of the Standard
Indices.
Starting with the first phase of the transition, the style classification of the Provisional MSCI
Global Value and Growth Indices prevailed over that of the current Global Value and Growth
Indices. Therefore, at the first phase of the transition, the constituents of the existing MSCI Global
Value and Growth Indices acquired style inclusion factors derived from the Global Investable
Market Indices. In those rare cases where an existing constituent of the current Global Value and
Growth Indices were not included in the Global Investable Market Indices, those constituents
retained their current style inclusion factors.
Euro and Pan-Euro Indices
The MSCI Euro and MSCI Pan-Euro Indices are subsets of the Standard MSCI EMU and MSCI
Europe Indices, respectively, and aimed to capture 90% of the market capitalization of the broader
benchmarks.
The MSCI Euro Pan-Euro methodology evolved to the methodology for the Large Cap Index
under the Global Investable Market Indices methodology. Consequently,••

The enhanced MSCI Pan Euro Index became identical to the MSCI Large Cap Europe Index
under the MSCI Global Investable Market Indices methodology.
The enhanced MSCI Euro Index became identical to the MSCI Large Cap EMU Index under
the MSCI Global Investable Market Indices methodology.

The transition of the MSCI Euro and MSCI Pan-Euro Indices to the Global Investable Market
Indices methodology took place in a single phase, as of the close of business on November 30,
2007.
Indices Based on the Standard Indices
Indices constructed with the Standard Indices as their basis, such as the High Dividend Yield
Indices, GDP-weighted indices, 10/40 Indices and other custom indices, continued to be derived
from the Standard Indices throughout the transition.
GCC Countries Indices
MSCI transitioned the current MSCI GCC Countries Indices to the enhanced MSCI GCCCountries Indices Methodology.

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MSCI Global Investable Market Indices Methodology| November 2010
The transition of the MSCI GCC Countries Indices to the enhanced MSCI GCC Countries IndicesMethodology occurred in one single phase. The transition was implemented as of the close of May
30, 2008.
In order to add transparency to the transition process and to assist clients in planning andimplementing their individual transition strategies, MSCI provided Provisional Indices for the
MSCI GCC Countries Indices constructed and maintained according to the enhanced MSCI GCCCountries Indices Methodology.

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MSCI Global Investable Market Indices Methodology| November 2010

Summary Transition Timeline
The transition time line for the Standard Index (and Small Cap Index) is as shown below.

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MSCI Global Investable Market Indices Methodology| November 2010
Summary Transition Time Line
Date
March 28, 2007
May Annual Index Review

Provisional/New
Final MSCI Global Investable
Market Indices methodology wasannounced.
Initial construction based on data
used in Standard and Small Cap
Index Review, including populationof the buffers.

Standard & Small Cap
No impact.
Regular Annual Index Review of theCurrent Standard Index., taking into
account
newminimum
size
requirements.
Regular SAIR of the Current Small
Cap Index.
Corporate events, IPOs and other newcompany
additions
treatedinaccordance with the current index
methodology.

May 3, 2007

List of index constituents for Results of May Annual Index Review
Provisional Standard and Provisional were announced.
Small Cap Indices, under the Global
Investable
MarketIndicesmethodology for each of the MSCI
Provisional Standard and Provisional
Small Cap Indices, was madeavailable.

May 31, 2007

Provisional Indices start with a base Annual Index Review changes became
level of 1000 as of the close of May effective.
31, 2007 and calculation began
Start of daily publication of the No impact.
Provisional Standard and Provisional
Small Cap Indices.

June 5, 2007

August 2007

New Large Cap, Mid Cap, andInvestable Market Indices also
published.
QIR of the Provisional and new QIR of the current Standard and Small
indices using buffers zones, updates Cap Indices reflecting changes inof NOS, FIFs, IPO and newly NOS, FIF, etc.
eligible companies inclusions, etc.
Addition of IPOs and newly eligible
companies to the Provisional Standard
Index Series were reflected in the

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MSCI Global Investable Market Indices Methodology| November 2010
Standard Index at their full weight.
Migrations between the Provisional
Standard and Provisional Small Cap
Indices were also reflected in theStandard and Small Cap Indices.
November 2007

SAIR for Provisional and Size- First phase of the transition included
Segment Indices.
in QIR for Standard Indices and SAIR
for Small Cap Indices.

November 30, 2007

Rebalanced Provisional Indicesimplemented.
QIR of Provisional and new SizeSegment Indices using buffers,
updates of NOS, IPO inclusions, etc.

February 2008

Partially transitioned Standard andSmall Cap Indices implemented.
QIR of the current Standard and Small
Cap Indices reflecting changes in
NOS, FIF etc.
Addition of IPOs and newly eligible
companies to the Provisional Standard
Index Series were reflected in theStandard Index at their full weight.
Migrations between the Provisional
Standard and Provisional Small Cap
Indices were also reflected in theStandard and Small Cap Indices.

May 2008 SAIR and
Annual Review

SAIR for Provisional and Size- Second and final phase of theSegment Indices.
transition included in May Annual
Index Review for Standard Indices and
SAIR for Small Cap Indices.

May 30, 2008
After June 1, 2008

Provisional Indices discontinued.

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Fully transitioned Standard and Small
Cap Indices implemented.
All MSCI global equity indices operate
under Global Investable Market
Indices methodology.

MSCI Global Investable Market Indices Methodology| November 2010

Appendix XII: Transition of MSCI China A Index
MSCI will transition the current MSCI China A Index to the MSCI Global Investable Market Indices(GIMI) methodology in two phases coinciding with the August 2009 Quarterly Index Review and theNovember 2009 Semi-Annual Index Review.
• First phase of the transition coinciding with the August 2009 Quarterly Index Review:• The enhanced MSCI China A Index would be rebalanced as per the GIMI Methodology
and compared to the current MSCI China A Index.
• All companies that would be in the enhanced MSCI China A Index but not in the current
MSCI China A Index would be added to the current MSCI China A Index at half of their
free float-adjusted market capitalization, and all companies that would not be in theenhanced MSCI China A Index but in the current MSCI China A Index would be retainedin the current MSCI China A Index but at only half of their free float-adjusted market
capitalization.
• Second phase of the transition coinciding with the November 2009 Semi-Annual Index Review:• The enhanced MSCI China A Index would be rebalanced.
• All differences between the rebalanced enhanced MSCI China A Index and the current
MSCI China A Index would be fully implemented in the current MSCI China A Index.
Methodology Adaptations Specific to the MSCI China A Index
The MSCI China A Index shares a methodology similar to that of the MSCI Global Investable Market
Indices, with the following methodology adaptations:
Equity Universe:
For the MSCI China A Index, the universe is defined as all China A shares listed on the Shanghai and
Shenzhen Stock Exchanges. In general, all listed equity securities, or listed securities that exhibit
characteristics of equity securities, except investment trusts, mutual funds and equity derivatives, areeligible for inclusion in the universe. Securities with a “ST”, “*ST” or “PT” status are excluded from the
Equity Universe.
Equity Universe Minimum Size:
The Equity Universe Minimum Size applied to the MSCI China A Index is based on the Global Minimum
Size Reference of the Emerging Markets under the MSCI Global Investable Market Indices Methodology.
Assigning a Free Float-Adjustment Factor:
MSCI defines the free float of a China A security as the proportion of tradable shares outstanding that are
deemed to be available for purchase in the public equity markets by domestic investors. In practice,

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limitations on free float available to domestic investors also include strategic and other shareholdings thatare not considered part of available free float.
MSCI free float-adjusts the market capitalization of each security using an adjustment factor referred to as
the Domestic Inclusion Factor (DIF).
Index Inclusion Factor:
Index Inclusion Factors will be used to manage the indices throughout the transition.
The table below provides some examples of Index Inclusion Factors for companies through the phases of
the transition. The index market capitalization of securities will be determined as Index Inclusion
Factor*DIF*Security Full Market Capitalization.
Phase I

Phase II

Current Index
Inclusion Flag

Proforma Index
Inclusion Flag
(August 31, 2009)

Standard Proforma
Inclusion Factor(August 31, 2009)

Proforma Index
Inclusion Flag
(November 30, 2009)

Standard Proforma
Inclusion Factor(November 30, 2009)

Existing Constituents
Company A
Company B
Com pany C
Company D

1
1
1
1

1
0
0
1

1
0.5
0.5
1

1
0
1
0

1
0
1
0

New Constituents
Company E
Company F
Company G

0
0
0

1
1
0

0.5
0.5
0

1
0
1

1
0
1

For example, say companies A, B, C and D are current constituents of the MSCI
China A Index. Company A continues as a constituent of the MSCI China A
Index under the MSCI GIMI methodology. It will have an Index Inclusion Factorof 1 throughout the transition. Whereas Company B is not eligible for inclusion in
the MSCI China A Index under the GIMI methodology. It will be marked forremoval from the MSCI China A Index and an Index Inclusion Factor of 0.5 will
be applied to it during the first phase of transition. In the second phase the Index
Inclusion Factor will be reduced to 0 indicating a complete removal of thecompany from the MSCI China A Index. In another case, company C is identified
for removal from the MSCI China A Index under the MSCI GIMI methodology
but when it is evaluated at phase two and it becomes eligible for inclusion. In thiscase, the Index Inclusion Factor of company C for the first phase and second
phase will be 0.5 and 1 respectively. Next, company D qualifies to remain in the
MSCI China A Index in the first phase but fails to qualify for inclusion in thesecond phase, the Index Inclusion Factor will be 1 for the first phase and 0 for
the second phase.
Moving on to company E, F and G which are not current constituents of the
MSCI China A Index. Company E qualifies for inclusion to the MSCI China A
Index throughout the transition. It will have an Index Inclusion Factor of 0.5 in
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the first phase and 1 in the second phase. Next, company F is identified as a new
addition in the first phase, but fails to qualify to remain in the index in the second
phase. Its Index Inclusion Factor of 0.5 in the first phase will be changed to 0 in
the second phase. Lastly, company G is not eligible for inclusion in the first phasebut subsequently becomes eligible for inclusion in the in the second phase, its
Index Inclusion Factor will be 0 for the first phase and 1 in second phase.

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Appendix XIII: MSCI DR Indices
Constructing the MSCI DR Indices
The MSCI DR Indices are constructed by substituting the constituents of the corresponding MSCIStandard Indices (herein, “Parent Indices”) with liquid Depositary Receipts (DR) for each constituent.
Only level II and level III American Depositary Receipts (ADR) listed on the New York Stock Exchangeor the NASDAQ, Global Depositary Receipts (GDR) as well as ADRs listed on the London Stock
Exchange are eligible for inclusion in the MSCI DR Indices. DRs are deemed liquid if their ATVR is 15%
or above. If more than one DR exists for a constituent, the most liquid listing will be included in the MSCIDR Index.
Constituents of the Parent Indices without DR listings are excluded from the MSCI DR Indices.
Maintaining the MSCI DR Indices
Quarterly Listing Reviews
There is a Quarterly Listing Review, which coincides with the regular Quarterly and Semi-Annual Index
Reviews of the Parent Indices. At each Quarterly Listing Review, all listings for all constituents of the
Parent Index are examined. If a new liquid DR for a current constituent of the Parent Index, which is nota constituent of the MSCI DR Index, is identified, it is added to the MSCI DR Index as part of the
Review. The DR must be listed and trading for at least three months before being added to the MSCI DR
Index.
Constituents of the MSCI DR Indices with an ATVR below 10% will be excluded from the MSCI DR
Indices as part of the Quarterly Listing Review.
All constituents deleted from the Parent Indices resulting from either Quarterly Index Reviews or SemiAnnual Index Reviews will be simultaneously deleted from the MSCI DR Indices, provided the asset was
included in the MSCI DR Indices. Additions to the Parent Indices will be added to the corresponding
MSCI DR Indices only if they meet the liquidity and seasoning requirements.
Ongoing Event Related Changes
The implementation in the MSCI DR Indices of changes in security level information, such as Foreign
Inclusion Factors (FIF) and Number of Shares (NoS), as a result of corporate events mirrors theimplementation of these events in the Parent Indices. Despite the full replication of the event
maintenance, the impact of a given event on the Parent Index and the MSCI DR Index may be different asa result of potential price discrepancies between respective listings at the time of the implementation of
the event.
IPOs
DRs of IPOs which are significant in size and included early in the MSCI Global Standard Indicesaccording to Sub-section 3.3.4.1, will be simultaneously included in the MSCI DR Indices.
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MSCI Global Investable Market Indices Methodology| November 2010
Additions and Deletions due to Corporate Events
For a constituent added to a Parent Index following a corporate event, the most liquid DR for such
constituent will be eligible for inclusion in the respective MSCI DR Index at the next regularly scheduled
Quarterly Index Review or Semi-Annual Index Review, provided it meets all index inclusion requirements.
A constituent deleted from a Parent Index following a corporate event will be simultaneously deleted fromthe corresponding MSCI DR Index, provided the corresponding DR listing was included in the MSCI DR
Index.
Current list of countries for which an MSCI DR Index is constructed
Brazil (MSCI Brazil ADR Index)
Russia (MSCI Russia ADR/GDR Index)

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MSCI Global Investable Market Indices Methodology| November 2010
The following sections have been modified since September 2010:
2.2.3 DM and EM Minimum Liquidity Requirement
3.3.3 Corporate Events Affecting Existing Index Constituents
3.4.3 Ongoing Event Related Changes
Section 4: MSCI All Cap IndicesSection 5: MSCI Frontier Markets Indices
Appendix I: Equity Markets and Universe
Appendix III: Country Classification of Securities

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© 2010 MSCI. All rights reserved.
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The company’s flagship product offerings are: the MSCI indices which include over 120,000 daily indices covering more than 70 countries;
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