MSCI COLCAP Index
Methodology and Transition Consultation
This consultation may or may not lead to the implementation of any or all of the proposed changes
in the highlighted or any other MSCI indexes. Consultation feedback will remain confidential.
MSCI may publicly disclose feedback if specifically requested by specific market participants.
In that case, the relevant feedback would be published together with the final result of the consultation.
December 2020

Information Classification: GENERAL© 2020 MSCI Inc. All rights reserved.
Please refer to the disclaimer at the end of this document.

Background▪

As announced on November 11, 2020, MSCI and Bolsa de Valores de Colombia (bvc) haveentered into a strategic alliance to launch the MSCI COLCAP Index in May 2021.

▪

In line with this, MSCI and bvc have launched a public consultation on:▪

-

MSCI COLCAP Index Methodology-

Transition Timeline and Details

Additional information, including implementation details, will be communicated subsequently.

MSCI and bvc welcome feedback until January 29, 2021.
Results will be announced on or before February 16, 2021.

Information Classification: GENERAL

2

Outline

1

2

3

4

Index
Construction
Methodology

On-going
Maintenance
Methodology

Expected Impact

Transition

Simulated Index
Changes

Timeline and Details

Construction Rules,
and Maintenanceat Index Reviews

Corporate Events
Treatment

Information Classification: GENERAL

3

Index Construction Methodology
CONSTRUCTION RULES, AND MAINTENANCE AT INDEX REVIEWS

Information Classification: GENERAL

Management of the MSCI COLCAP Index
The MSCI COLCAP Index will fully adopt the management framework of the MSCI Indexes

Index Decisions

Information Management

Methodology Reviews

Index content decisions
will be made consistently
in accordance with the
published rules-based
methodologies.

MSCI maintains strictmeasures to safeguard pricesensitive information.

MSCI regularly reviews
index methodologies,
at least annually.

MSCI restricts access to suchinformation by any externalmarket participant, prior to
public dissemination.

Material changes to index
methodologies will be subject
to a public consultation.

Information Classification: GENERAL

5

Index Objective
The MSCI COLCAP Index is designed to represent the performanceof the local Colombian equity market.

The index aims to include a minimum of 25 securities and 20 issuers
based on free float-adjusted market capitalization, liquidity, andinternational investability criteria.

Annual Review

Quarterly Review

Target Security Count

25

23

Target Issuer Count

20

18

Information Classification: GENERAL

6

Maintenance Cycle
The MSCI COLCAP Index will be reviewed
on a quarterly basis to coincide with MSCI’s
regular Index Reviews.
▪

▪

The November Annual Index Review
involves a full review of the compositionof the MSCI COLCAP Index
The February, May, and August Quarterly
Index Reviews are designed to minimize
turnover and hence reflect less changes

FEB QIR
Corporate
EventsCorporate
EventsMAY QIR

Rebalancing
CalendarCorporate
EventsNOV AIR

Corporate
EventsAUG QIR

Information Classification: GENERAL

7

Index Construction Overview
2

1
EQUITY UNIVERSE

Coverage andRepresentation:
The universe is designed
to cover the Colombian
equity market throughlocal listings in bvc

INVESTABILITY AND
ELIGIBILITY SCREENING
Investability:
Application of screens on
size and liquidity aims toensure the investability of theopportunity set

4

3
SECURITY SELECTIONINDEX WEIGHTINGDiversification:
A target count for both securities
and issuers aims to limit index
concentration

Replicability and
Representation:
Constituents are weighted
according to the free float
available in the market

Investability:
Priority-based selection isdesigned to include the mostinvestable stocks

Replicability:
Aims to mitigate turnover byprioritizing existing constituents
over new securities

Information Classification: GENERAL

8

Equity Universe

The applicable equity universe includes local listings*
in the Colombia Stock Exchange (bvc).

Foreign shares trading
through the Colombian
Global Market Segment
are not eligible.

Multiple securities fromthe same issuer may be
included and areassessed separately.

Preferred shares thatexhibit equity-likecharacteristics**
may be included.

Dual-listed shares may be
included and will be assessed
based on their Colombia listing.

* Securities listed in Colombia but classified in another market under MSCI’s Country Classification Framework may be include d** MSCI analyses this type of security on a case by case basis. The key criterion for a preferred share to be eligible is that it should not have features thatmake it resemble – and behave like – a fixed income security. Further details can be found in the MSCI Global Investable Market Indexes Methodology

Information Classification: GENERAL

9Investability and Eligibility Screens
Minimum requirements based on the below criteria are applied to the applicable universe
to determine the eligible equity universe.
Within the eligible equity universe, higher values for the same criteria are used to define
the investable equity universe.
Lower thresholds are applied for existing constituents vs non-constituents.

Full
Market Cap

FloatAdjusted
Market Cap(ATVR* and FOT*)(FIF*)

Applied at
Company Level

Applied atSecurity Level

Applied atSecurity Level

Applied atSecurity Level

Liquidity

Free Float

Specific thresholds are detailed in the Appendix* Details on the computation of the Annual Traded Value Ratio (ATVR), Frequency of Trading (FOT), and Foreign Inclusion Factor (FIF)
can be found in the MSCI Global Investable Market Indexes Methodology.

Information Classification: GENERAL

10

Security Selection
Securities in the MSCI Colombia Investable Market Index (IMI) are included in the MSCI COLCAP Index, except any
constituent listed in the Colombian Global Market Segment.
If the number of securities or issuers is below the target count, securities are added from the investable equity universe
first, then from the eligible equity universe, and finally from the applicable equity universe, until the target count is rea ched.
Existing constituents are prioritized over non-constituents in the selection.
Included to meet Target Count

AlwaysIncluded1
Constituentsof the MSCI
Colombia IMI*

2

Existing
constituentsthat areInvestable3

Nonconstituentsthat areInvestable

4

Existing
constituents thatare Eligible
but not Investable

Investable securities are ranked
by Size (float-adjusted market cap)

5

Non-constituentsthat areEligible but not
Investable

Eligible securities are ranked
by Liquidity (3-mo ATVR)

6
Constituentsthat are not
Eligible

7

Nonconstituentsthat are not
Eligible

Remaining securities are selectedbased on Liquidity (3-mo ATVR)* Excludes securities listed in the Colombian Global Market Segment.

Information Classification: GENERAL

11

Index Weighting
The selected index constituents are assigned
weights in proportion to their free floatadjusted market capitalization.

Price

At the Annual Review in November, securities identified
as deletions due to failing the liquidity requirements(but otherwise meet other requirements) are deleted
in two phases to enhance index replicability.

Foreign
Inclusion
FactorNOS

Nov Review:
retained at half-weight(inclusion factor of 0.5)

Feb Review:
deleted fully

Weighting based on
Float-Adjusted Market Cap

Information Classification: GENERAL

12

Overview – Free Float Estimation Methodology
MSCI defines the Foreign Inclusion Factor (FIF) as the proportion of shares outstanding that are deemed
to be available for purchase in the public equity markets by foreign investors.
FIF is generally determined as follows:1

Free Float Estimation
MSCI assesses free float by acategorization of investor types into
non-strategic (e.g. ownership byindividuals and funds) and strategic(e.g. gov’t and corporate holdings)

2

Assessment of
Investability Restrictions

3

Any applicable investment
restrictions (e.g. Foreign
Ownership Limits or FOL)
are assessed

Assignment of FIF
FIF is equal to the lower of:▪
Estimated free float (rounded up tonearest 5% if free float >15%; rounded
to nearest 1% if free float <15%)▪
FOL (if any) rounded to nearest 1%

Review Schedule
Corporate Events– float may bereviewed at the timeof significant
corporate events

Quarterly Index Reviews– float may be reviewed at the
February, August, and November
Index Reviews for sizeable
events or FOL changes
Information Classification: GENERAL

Annual Float Review– float of all securities
is fully reviewed aspart of May Index
Reviews
13

Annual vs Quarterly Index Reviews
The November Annual Index Review involves a full reviewof the composition of the MSCI COLCAP Index

The February, May and August Quarterly Index
Reviews reflect less index changes

Equity Universe is refreshed

No refresh of Equity Universe

All securities are assessed against Investability
and Eligibility Screens▪
Potential deletion of failing existing constituents

No Investability and Eligibility Review▪
Generally no deletion of existing constituents*

Security selection is refreshed▪
Additions to MSCI Colombia IMI are included▪
Potential replacement of securities,
subject to selection priority▪
Potential additions to meet Target Count,subject to selection priority

Security selection is not fully reviewed▪
Additions to MSCI Colombia IMI are included▪
Further additions only if below Target Count,subject to selection priority

Security weighting is updated▪
Potential updates in FIF/ NOS**▪
Phased deletion of illiquid constituents

Security weighting is updated▪
Potential updates in FIF/ NOS*** An MSCI COLCAP Index constituent will be kept in the index even if it is deleted from the MSCI Colombia IMI, unless if e.g. it is deleted due to zero FIF.
** Potential updates in FIF/ NOS are subject to rules described in the MSCI Global Investable Market Indexes Methodology.

Information Classification: GENERAL

14

Key Dates at Each Index Review
End-August

At each Index Review, therebalancing results are derived
from data as of set cutoff dates.

• Equity Universe Cutoff• FIF/ NOS Data Cutoff*
OctoberThis schedule shows the typical
timeline during the November
Annual Index Review.
Timeline during the Quarterly
Index Reviews in February, May,
and August follow the same gaps
in the calendar.

• End-of-Month: Liquidity Data Cutoff
Nine business days before end-November• Price Data Cutoff for the MSCI COLCAP Index• Results of the MSCI COLCAP Index rebalancing
are available in product files**First business day of December***• Effective date of the Annual Index Review* Potential updates in FIF/ NOS, including after the Equity Universe Cutoff Date, are subject to rules described in the MSCI Global Investable Market Indexes Methodology.
** Additional product/ technical details will be communicated subsequently.
*** Index Reviews are typically implemented as of the close of the last business day of the month and effective at the first business day of the following month. Exceptions,
if any, may be made on account of market holidays and are announced in advance. For example, the effective date for the May 2021 Index Review is on May 28, 2021.

Information Classification: GENERAL

15

Summary – Methodology Comparison
The below table compares the key aspects of the bvc COLCAP Index Construction Methodology
vs the MSCI COLCAP Index Construction Methodology
bvc COLCAP Index

MSCI COLCAP Index

Review
CalendarReconstitution: end-Oct;
Reweighting: end-Jan, Apr, Jul

Annual full review: end-Nov;
Quarterly reviews: end-Feb, May, Aug

Equity Universe

Local listings in Colombia- Excludes the Colombian Global Market Segment

Local listings in Colombia- Excludes the Colombian Global Market Segment

TargetComposition

At least 20 issuers

At least 25 securities and 20 issuers at annual review(23 and 18 at quarterly reviews)

Inclusion Rules

Top securities are included based on trading
activity measures(frequency of trading, rotation, volume)

Screening based on size and liquidity criteria
MSCI Colombia IMI constituents are prioritized for inclusion;
Additional securities are only added to meet target count(investable securities first, then eligible securities)
Ranking is based on size/ liquidity depending on step

Weighting

Weighted by free float- Cap of 20% max sec and issuer weight

Weighted by free float

Information Classification: GENERAL

16

On-going Maintenance Methodology
CORPORATE EVENTS TREATMENT

Information Classification: GENERALOn-going Maintenance Methodology
Outside of the regular quarterly Index Reviews, certain changes to the MSCI COLCAP Index may be
implemented as a result of corporate events.
▪

Note that constituents of the MSCI COLCAP Index which are also part of the MSCI Colombia IMI
will be maintained in accordance with the MSCI Corporate Events Methodology, while those which
are not part of the MSCI Colombia IMI may be subject to different corporate events treatment

Additions to the MSCI COLCAP
Index following an event will bemade only if the securities arealso added to the MSCI
Colombia IMI*MSCI Colombia IMI
deletions will besimultaneously
deleted from the
MSCI COLCAP Index* Excludes additions listed in the Colombian Global Market Segment

Information Classification: GENERAL

18

Comparison of Treatment of Key Events
Existing bvc COLCAP Index

MSCI COLCAP Index

Early
Inclusions

IPOs may be included at the next closest quarterly review
subject to fast track inclusion rule

Early inclusions (e.g. IPOs, large secondary offerings) may be added to
the MSCI COLCAP Index intra-quarter, if they are early inclusions to the
MSCI Colombia IMI

Offerings andPlacements

NOS increases are implemented at the time of theoffering

NOS increases for existing MSCI COLCAP Index constituents due toofferings may be implemented subject to meeting certain thresholds*

Mergers andAcquisitions

Mergers and acquisitions impacting index constituentsare reflected at the time of the event, except cases where
an index constituent is acquiring a non-constituent which
are assessed at the next closest quarterly review

Mergers and acquisitions impacting constituents of the MSCI Global
Investable Market Indexes (GIMI) are implemented at the time of theevent according to the MSCI Corporate Events Methodology.
Constituents which are not part of the MSCI GIMI may be subject todifferent corporate events treatment.

Suspensions

Index constituents will be deleted after prolonged
suspension (at least 90 days)

Index constituents will be deleted after prolonged suspension(at least 50 continuous days for those that are also part of the MSCI
Colombia IMI; at least 100 continuous days otherwise)

Delistings and Existing constituents that are delisted or suspended due
Bankruptcies to bankruptcy will be deleted.

Existing constituents that are delisted or under bankruptcy wheretrading resumption is unlikely will be deleted as soon as practicable

Dilutive Rights
Issues

Impact of highly dilutive rights issues** will be reflected for MSCICOLCAP Index constituents that are also part of the MSCI Colombia IMI

No differentiated treatment for dilutive rights issues* Constituents that are also part of the MSCI Colombia IMI are maintained based on 5% or 10% thresholds for Large/ Mid Caps o r Small Caps, respectively;
while constituents that are not part of the MSCI Colombia IMI are maintained based on a 25% threshold** MSCI defines highly dilutive rights Issues as rights issues with terms 5 for 1 or more, or rights issues that trigger an upward migration between
size-segments of the MSCI Colombia IMI.

Information Classification: GENERAL

19

Expected Impact
SIMULATED INDEX CHANGES

Information Classification: GENERAL

Simulated Impact
To maintain continuity at the time of index launch, MSCI would treat current constituents of the
bvc COLCAP Index as existing constituents for the purpose of rebalancing under the Annual Index Review
maintenance rules of the MSCI COLCAP Index.
Based on simulation, this would result in one addition and one deletion, and a one-way turnover of 4.7%.
Most of the simulated turnover is due to differences in index weight.

4.7%

Existing

BVC COLCAP Index

One-way
Turnover*New

MSCI COLCAP Index
25 securities, 20 issuers

25 securities, 20 issuers

11
Add Del* For comparison, one-way turnover for the October 2020 and July 2020 reviews of the existing bvc COLCAP Index were at 1.4% and 4.7%, respectively.
One-way turnover measures the percentage of a portfolio that would simultaneously be bought and sold to replicate changes in the index it tracks.

Information Classification: GENERAL

21

Simulated Index
Security

MSCI Colombia IMI (8)Simulated Constituents from theInvestable Equity Universe (16)Simulated Constituent from the
Eligible Equity Universe (1)BANCOLOMBIA PREF
ECOPETROLINTERCONEXION ELEC (NEW)BANCOLOMBIAGP INV SURAMERICANAGRUPO ARGOSCORP FIN COLOMBIANACEMENTOS ARGOS (NEW)GRUPO ENERGIA BOGOTAGRUPO NUTRESAGRUPO AVAL ACCIONES PREF
BANCO DAVIVIENDA PREF
CELSIAGRUPO ARGOS PREF
GP INV SURAMERICANA PREF
BANCO BOGOTACANACOL ENERGY (CO)PROMIGASCEMENTOS ARGOS PREF
CEMEX LATAM HOLDINGSBOLSA DE VAL DE COLOMBIAMINEROSORGANIZACION TERPELCORP FIN COLOMBIANA PREF
ALMACENES EXITOEMPRESA TELECOM BOGOTA

Simulated based on data as of December 4, 2020.

Simulated MSCI COLCAP bvc COLCAP Index
Index Weight
Weight
15.1%
13.9%
12.0%
11.6%
11.5%
12.1%
8.6%
7.3%
6.0%
6.1%
4.1%
4.2%
3.2%
3.1%
2.7%
2.7%
8.1%
8.5%
5.5%
6.8%
4.8%
4.7%
3.4%
3.0%
2.5%
2.6%
2.3%
2.3%
2.4%
2.3%
1.9%
3.3%
1.8%
1.3%
1.1%
1.4%
1.0%
1.0%
0.5% 0.5%
0.3%
0.4%
0.5%
0.3%
0.4%
0.3%
0.3%
0.2%
0.2%
0.1%

Information Classification: GENERAL

Note: Simulated Index
composition as shown
here is only to illustratepotential impact.
Actual index composition
will be assessed at the
point of transition.
Information containing any
historical information, dataor analysis should not betaken as an indication or
guarantee of any future
performance, analysis,
forecast or prediction.
Past performance does notguarantee future results.
22

Transition
TIMELINE AND DETAILS

Information Classification: GENERAL

Timeline
The bvc COLCAP Index will transition to the MSCI COLCAP Index in one step,coinciding with MSCI’s May 2021 Index Review (effective as of May 28, 2021)
MSCI will launch a Provisional Index* in Q1
ahead of the actual transition date to help
the market prepare. Timing and exact
details will be shared post consultation.

Jan
2021

The existing bvc COLCAP Index will
be rebalanced normally at the scheduled
January rebalancing (no impact)

Feb
2021

Mar
2021

The new MSCI COLCAP Index will
officially replace the existing bvc
COLCAP Index coinciding with
MSCI’s May 2021 Index Review**

Apr
2021

May
2021

In preparation for the transition, the existing bvc
COLCAP Index will not be rebalanced in April toprevent excess and/ or reverse turnover later* i.e. Illustrative Index reflecting changes that would occur if the new methodology were immediately implemented** The starting index level of the new MSCI COLCAP Index will continue from the last index level of the existing bvc COLCAP Inde x
at the point of transition. Additional technical details will be communicated subsequently.

Information Classification: GENERAL

24

Discussion

Information Classification: GENERAL

Discussion Points
Do you agree with the Index Construction and On-going Maintenance Methodology?

Do you agree with the proposed transition,i.e. one-step coinciding with MSCI’s May 2021 Index Review?

Do you agree that the April rebalancing of the existing bvc COLCAP Index
should be cancelled?

Information Classification: GENERAL

26

Appendix

Information Classification: GENERALInvestability and Eligibility Thresholds

Threshold legend:

Existing
constituents
Nonconstituents* Cutoff is based on the MSCI Colombia
Investable Market Index (IMI) Cutoff
updated at each Index Review[For reference, MSCI Colombia IMI Cutoff
is at USD 367 Mln at the Nov 2020 Review]** Details on the computation of Annual
Traded Value Ratio (ATVR), Frequency of
Trading (FOT), and Foreign Inclusion Factor(FIF) can be found in the MSCI Global
Investable Market Indexes Methodology

Investability>
Thresholds

Eligibility
Thresholds >Applied at
Company Level

Applied atSecurity Level

Applied atSecurity Level

Applied atSecurity Level

Full
Market Cap

FloatAdjusted
Market Cap

Liquidity**

Free Float**(FIF)

50% of Cutoff*

25% of Cutoff

25% of Cutoff

12.5% of Cutoff

25% of Cutoff

12.5% of Cutoff

12.5% of Cutoff

6.25% of Cutoff

Information Classification: GENERAL

7.5% 3-mo ATVR,
7.5% 12-mo ATVR,
40% 3-mo FOT
2.5% 3-mo ATVR,
2.5% 12-mo ATVR,
20% 3-mo FOT

2.5% 3-mo ATVR,
2.5% 12-mo ATVR,
20% 3-mo FOT
1% 3-mo ATVR,
1% 12-mo ATVR,
10% 3-mo FOT

Min of 15% FIF;
If FIF < 15%,
float mcap
should be atleast 1.8x of thefloat mcap req

Min of 15% FIF;
If FIF < 15%,
float mcap
should be atleast 1.8x of thefloat mcap req

28

Illustration: Stock Bonus Treatment▪ Stock dividend/bonus: 1 for 10. One shares bonus for ten existing shares. Ex date July 28.
1-for-10 stock dividend - Ex on July 28
07/25

07/28

07/29

Index and portfolio

Index

Portfolio

Index and portfolio

Price

2.20

2.00

2.00

2.10

PAF*

1

1.1***

-

1

NOS**

1,000

1,000

1,100

1,100

MCap

2,200

2,200

2,200

2,310

▪

*PAF = Price Adjustment Factor**NOS = Number of Shares*** [Shares Issued + Shares Before] / [Shares Before]▪ Such events are characterized by free distribution of new shares to existing shareholders on a pro -rata basis.
▪ The free float-adjusted market capitalization value remains unchanged and does not warrant portfolio adjustment▪ PAF applied on the ex date and Number of shares increased as of the close of the ex-date (effective the next day)
Note: Ex-date = date the shareholders are not entitled anymore to a corporate action
Further details are available in the MSCI Corporate Events Methodology

Information Classification: GENERAL

29

Illustration: Primary Offerings/ Placements Treatment▪ Placements: Existing constituent does a Public offering of 1000 new shares placed to institutional
investors at Colombian Peso 1.5 per share, which will be effective in the MSCI Indexes on May 26
Public offering of 1000 at Colombian Peso 1.5 per share effective May 26
05/25

05/26

05/27

Index and portfolio

Index

Portfolio

Index and portfolio

Price

1.55

1.56

1.56

1.54

NOS*

2,000

2,000

2,000

3,000

FIF

0.50

0.50

0.50

0.70

Full Market Cap

3,100

3,120

3,120

4,620

FIF market Cap

1,550

1,560

1,560

3,234

▪

*NOS = Number of Shares▪ In the case of a primary offering, new shares are issued and cash is flowing in the company. The
event results in portfolio adjustment at the time of implementation in the index
Further details are available in the MSCI Corporate Events Methodology

Information Classification: GENERAL

30

About MSCIMSCI is a leading provider of critical decision support tools and services for the
global investment community. With over 45 years of expertise in research, data
and technology, we power better investment decisions by enabling clients tounderstand and analyze key drivers of risk and return and confidently build more
effective portfolios. We create industry-leading research-enhanced solutions thatclients use to gain insight into and improve transparency across the investment
process. To learn more, please visit www.msci.com.
The process for submitting a formal index complaint can be found on the index
regulation page of MSCI’s website at: https://www.msci.com/index-regulation.

Information Classification: GENERAL

31

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