Securities under prolonged suspension
consultation - September 2014

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Agenda Background Proposal
 MSCI current methodology versus proposal Rationale Questions
 Appendix
 Appendix I: Comparisons of current implementation and proposal with
November 2013 and February 2014 index reviews Appendix II: Proposed timing of deletion
 Appendix III: Suspensions related to restructuring©2014 MSCI Inc. All rights reserved.

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Background Prolonged suspensions can create Index replicability issues as securities cannot
be traded by existing and new clients.
 MSCI’s current methodology focuses on securities suspended due to financial
difficulty (e.g., liquidity issues, debt repayment issues, companies under legal
investigation, etc.). However the financial situation of such companies is often
not transparent which leads to securities being maintained in the Indexes for an
extended period of time.
 The methodology for prolonged suspensions is not consistent between ACWI
and China A.
 MSCI proposes to change the methodology for all Indexes for the treatment of
securities under prolonged suspension by simplifying the rules and deleting
securities on a more timely basis.

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Proposal
 Securities would be deleted if they are suspended for more than: 50 business days - All Investable Market Index (IMI) constituents.*
 100 business days – Constituents of the MSCI Global Micro Cap Indexes.*

 Evaluate securities for deletion on a monthly basis.
 Securities would be evaluated for deletion 2 business days prior to the last working day ofthe month and announced on the same day.
 Deletions would be effective as of the close of the last business day of the month.
 Securities suspended less than 50 days at the announcement date will be evaluated fordeletion in the following month, if the security remains suspended.

 Delete securities regardless of the reasons for suspension, except:
 Securities pending corporate events (may require further public disclosures on the reasonsfor suspension per Appendix 3 of this document).

 Delete securities at 0.00001 of any local currency (close to zero price).
Please note that these proposals may or may not lead to any changes to the MSCI indexes.
* When an overlap occurs between the IMI and Micro Cap rules, the larger size-segment will apply for deletion at 50 business days.

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MSCI current methodology versus proposal
Current Methodology
Criteria

Global Investable Market Indexes(GIMI)

Proposal

China A

Applicable threshold

Threshold to review
1) 40 business days if the suspension is due
to financial difficulty.
2) However if the financial situation is nottransparent, MSCI may maintain the
security for a longer period of time anddelete the security at a future index
review.

Threshold to delete
120 business days

Threshold to delete
50 business days (GIMI, China A)
100 business days (Micro Cap)

Deletion effective date

In practice: coinciding with a regularlyscheduled Index Review.

Index Review effective
date

As of the close of the last business
day of the monthDeletion announcement dateIndex review announcement

Index Review
announcement

2 business days prior to the lastbusiness day of the month.*

Frequency of evaluation

1) Daily a few days before 40 business days.
2) Securities kept for a longer period of time(above) are evaluated on a quarterly basis.

QuarterlyMonthly (end of month)

Deletion price

Lowest quotable price

Lowest quotable price0.00001 of any local currency (close
to zero price)((Exceptions

Corporate events

None1) Corporate events and/or
restructuring (requires public
disclosures).
2) China A: all corporate events
and/or restructuring (without
further disclosures).

* Securities that are suspended less than 50 days at this date will be evaluated for deletion in the following month.

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Benefits of the proposal
The proposal intends to: Simplify the rules for securities under prolonged suspension: Remove the requirement of “financial difficulty” for deletion.
 Bring consistency to the rules applied both within GIMI, and between GIMI and China A.

 Remove suspended securities from the Indexes in a timely manner1:
 Securities that resume trading after deletion for prolonged suspension and meet the eligibility
criteria are considered as new companies at the next Index Review.
 Hence the proposal intends to strike a balance between the risk of securities resuming trading
and being added back to the Indexes at the next Index Review (reverse turnover) versus
maintaining securities in the Indexes for prolonged periods (replicability)2.

 Allow securities to remain in the Indexes if they are likely to resume trading: Securities pending corporate events.
 Securities pending restructuring if the reasons for suspension are publicly disclosed, in order todetermine that the companies are not under financial difficulty.
 For MSCI China A constituents, restructuring is considered a corporate event and does not
require further public disclosures3.
1 Refer to Appendix I in this document for a comparison of past deletions under the current and proposed methodology.
2 Refer to Appendix II in this document for details on the proposed thresholds for deletion.
3 Refer to Appendix III in this document for details on restructuring as it relates to China A.

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Questions
 Proposal and thresholds:
 With regards to suspension, do you have a preference towards deleting securities
quickly (enhancing replicability) versus maintaining securities (avoiding reverse
turnover)?
 Do you agree with the 50 day / 100 day thresholds for IMI / Micro Cap securities
respectively?
 In case of overlap between the IMI and Micro Cap thresholds, in your view whichshould take precedence?

 Frequency: The proposal intends to delete securities under prolonged suspension on a monthly
basis. Should securities be evaluated on a different frequency (e.g. daily, quarterly)?

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Questions
 Reasons of suspensions: Are the reasons of suspension important: Should securities be deleted after meeting the proposed thresholds, regardless of the reasons of suspension(i.e. even corporate events)?
 Alternatively, is there a case for an additional upper limit at which securities are deleted regardless of thereasons of suspension?

 After suspensions: Securities deleted due to prolonged suspension that resume trading and pass therespective eligibility criteria are currently considered for addition to the Indexes at thenext Index Review. Should a longer period of time be given before such securities canbe considered for addition?

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Appendix
I. Comparisons of current implementation and proposal with
November 2013 and February 2014 index reviews
II. Proposed timing of deletion
III. Suspensions related to restructuring©2014 MSCI Inc. All rights reserved.

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Appendix I: Comparison of current implementation andproposal
Deletions due to prolonged suspension at February 2014 and November 2013 index reviews:
Index
Review

Country

Feb 2014

AUMIRABELA NICKEL

Feb 2014

CN

Feb 2014

SecuritySize Segment

Start of suspension

Days suspended at
Days suspended at
Difference in days
deletion effective datedeletion under proposal suspended at deletion(Index Review)

Small

4-Oct-13

107

RONGFENG HLDG GROUP A

Domestic Small

5-Jul-13

CN

SHANDONG JINING RUYI A

Domestic Small

26-Jul-13

Investable
MarketFeb 2014
Indexes (IMI) Feb 2014

CN
CN

SHANG JINFENG INVEST A
WISON ENGINEERING SVCS

Domestic Small
Small

28-Jun-13
2-Sep-13

65
Resume trading after 202
days after corporate
172 event.
Resume trading after 157
days after corporate
157 event.
Resume trading after 188
days after corporate
177 event.
131
66

Nov 2013

ID

BAKRIELAND DEV

Small

30-May-13

130

68

62

Nov 2013

KR

TERA RESOURCE

Small

15-Jul-13

98

57

41

Nov 2013

MX

Small

29-Jul-13

88

70

18

Nov 2013
Feb 2014
Feb 2014
Feb 2014
Feb 2014

MX
GB
IT
NO
SG

CORPORACION GEO B
URBI DESARROLLOSURBANOSHIRCO
BANCA POPOLARE DI SPOLENORSE ENERGY CORP
ANWELL TECHNOLOGIES

Small
Micro
Micro
Micro
Micro

25-Jul-13
12-Aug-13
18-Sep-13
20-Sep-13
6-Aug-13

90
146
119
117
150

72
104
119
117
108

18
42
0
0
42

Nov 2013

AU

VENTNOR RESOURCES

Micro

3-Apr-13

171

108

63

Global Micro Nov 2013
Cap Indexes
Nov 2013

GB

HIBU

Micro

24-Jul-13

91

117

-26

GB

SILVERDELL

Micro

1-Jul-13

108

111

-3

Nov 2013

HK

Micro

28-Mar-13

175

112

63

Nov 2013

HK

CHINA ASEAN RESOURCESRUIFENG PETRO CHEM
HLDGS

Micro

28-Mar-13

175

112

63

Nov 2013

SE

MINERAL INVEST INTL

Micro

1-Jul-13

108

111

-3

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N/A

N/A

N/A
65

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Appendix II: Proposed timing of deletion
 As there is a tradeoff between replicability and reverse turnover, the proposed
threshold is selected at the point where the risk of a security under prolonged
suspension resuming trading drops the most.
 Based on a 3 year analysis of suspended securities, this is determined at:
 50 business days for IMI securities:
 This is at the point with the largest reduction in absolute risk of trading resumption (9% drop from 40 days).
 An increased evaluation period (e.g. 80 business days) has diminishing reductions in risk while increasing the period of
potential replication issues.
 While the proposed threshold has increased (from 40 to 50 days of suspension), note that the frequency of evaluation is also
increased from quarterly to monthly. Additionally, the threshold changes from a threshold to review to a threshold to delete.

 100 business days for Micro Cap securities:
 Increase in evaluation period reflects different characteristics of Micro Cap securities, such as frequent end of suspension
between 40-90 business days, reduced liquidity and potential infrequent trading.
Security deleted after x business days of suspension
Factors

40

50

60

70

80

90

100

Proposed timing of deletion for Investable Market Index (IMI) constituents under suspension
Risk of trading resumption

72%

63%

60%

56%

49%

49%

47%

Decrease in risk from 10 day increase

N/A

-9%

-3%

-4%

-7%

0%

-2%

Proposed timing of deletion for Micro Cap Index constituents under suspension
Risk of trading resumption

85%

78%

78%

67%

67%

67%

56%

Decrease in risk from 10 day increase

N/A

-7%

0%

-11%

0%

0%

-11%

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Appendix III: Suspensions related to restructuring Restructuring is generally considered negatively in many global markets, in asimilar line with financial difficulty.
 MSCI’s proposal requires further public disclosures when the suspension is due torestructuring.
 In the absence of such disclosures, MSCI will not consider it as a corporate event and the
security will be considered for deletion.

 In the domestic China market, the majority of long term suspensions are related
to restructuring. However, restructuring is not related to financial difficulty.
 Over a 3 year period, all suspensions related to restructuring resulted in a corporate event(e.g. M&A, placements) or were subsequently cancelled and the security resumed trading.
 Companies that experience financial difficulty are assigned with the “special treatment” or
ST status which are ineligible in the MSCI Equity Universe per Appendix XI of the MSCI
Global Investable Market Indexes Methodology.
 MSCI proposes to maintain China A securities that are suspended due to “restructuring” asthey can be considered as corporate events.

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