CONSULTATION ON PROPOSEDCORPORATE EVENTSMETHODOLOGICAL CHANGES
October 2018
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 results of the consultation.
© 2018 MSCI Inc. All rights reserved.
Please refer to the disclaimer at the end of this document.

SUMMARY OF PROPOSALSMSCI opens a consultation on proposals around its Corporate Event Methodology and related
treatment with regards to the following:1) PRICE LIMIT BREACH ON CORPORATE EVENTS IMPLEMENTATION DAY
2) RIGHTS ISSUES WITH INCOMPLETE INFORMATION ON THE EX-DATE
3) US OPTIONAL DIVIDEND TREATMENT
4) NEW METHODOLOGICAL FRAMEWORK FOR:a) GLOBAL ADVANCE NOTIFICATION FOR DELETIONSb) CANADIAN ACQUISITIONSc) TREATMENT OF DELETION FOR SECURITIES ALREADY DELISTED
Selected Topics:‒ Long Term Capital Gains in India‒ Direct Route Listing‒ Cross Border Corporate Events
MSCI invites feedback from market participants on or before November 9, 2018, and will
announce the results of the consultation on or before November 21, 2018. Changes if any would
be implemented with sufficient advance notification.
2

CONSULTATION TOPIC 1:
APRICE LIMIT BREACH ON CORPORATE EVENTSIMPLEMENTATION DAY© 2018 MSCI Inc. All rights reserved.
Please refer to the disclaimer at the end of this document.

BACKGROUND & OBJECTIVE
Securities trading at their daily price limit on the implementation day of a corporate event poses time
sensitive replicability issues.
Currently, MSCI reviews and determine on a case by case basis whether the already announced
implementation should be maintained or postponed.
 MSCI is proposing to adopt a methodological framework for these situations to improve clarityand limit potential replicability issues for investors.

Recent examples of securities breaching the price limits on an implementation date:
KOREA
INDIA
VIETNAMVIETNAMCHINA

BGF RETAILGRASIM
VINHOMES JSC
VINCOM RETAIL JSC
FOXCONN INDUSTRIAL CO A

Mid Cap
Large Cap
Large Cap
Large Cap
Large Cap

SPIN-OFF
SPIN-OFF
IPO
IPO
IPO

4

METHODOLOGY CHANGE PROPOSALS
Proposed treatment:
 To postpone the implementation of selected index changes resulting from corporate events if the
security is trading at its daily price limit on the stock exchange of reference at 12PM local time on theimplementation day, irrespective of whether the security resumes normal trading later on.
 This treatment would apply to additions, migrations and selected deletions from/to the MSCIStandard Index Indexes.
NOTE: The above proposed treatment would not apply to:- Events considered neutral from a Standard Index perspective. For example: Shares acquisitions between two
Standard Index constituents or spin-offs where Spun-offs and Parent securities are Standard constituents.
- Deletions due to M&As: MSCI would amend the deletion price to the offer consideration.
- Deletions due to delisting/bankruptcies: MSCI would amend the deletion price to the lowest system price.

Proposed announcement policy:
1. MSCI would send a standardized announcement shortly after 12PM notifying clients about the
postponement of the event due to daily price limit breach. Prior to market close anotherannouncement would be sent with complete details of the revised implementation.
2. When the security resumes to normal trading without breaching the daily price limit, MSCI would
send an announcement in “confirmed” status leaving 2 full business days advance notification.
5

POTENTIAL IMPACT OF THE PROPOSAL & DISCUSSION
POINTS
Potential Impact of the proposal:
 In the past year, 84 corporate events triggered additions, deletions or migrations impactingStandard Index constituents. 21 had a country of listing in Korea, India, Vietnam and China.
 For all such events, MSCI would 1) monitor on the implementation day if the security is trading at
its daily price limit at 12PM and 2) would postpone the implementation of additions/migrations/deletions if the security is not trading due to price limit breach in order to avoid potential
replicability issues.
 Addition/migration/deletion may trigger ad-hoc rebalancing in some derived indexes such as
10/40, 25/50. In cases where MSCI would postpone the addition/migration/deletion, thechanges related to these ad-hoc rebalancing would still be implemented.
Discussion points:
 Do you agree that MSCI should postpone additions, migrations and selected deletions if the
security is trading at its daily price limit on a corporate events implementation day?
 Do you agree with the proposal that the decision to change the implementation effective dateshould be based on the trading status at 12PM local time?
 Is it a concern that this proposal would lead to changes being announced intraday with limited
advance notification?
6

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

SELECT MARKETS CURRENTLY APPLYING DAILY PRICE
LIMITSCountry

Exchange

Price Limit
mechanism?

INDIA

NSE / BSE

Yes

VIET NAM

Ho Chi Minh /Hanoi SEYes

20% / 7%

KOREA

Korea Exchange

Yes

30%

CHINA

Shenzhen SE /Shanghai SE

Yes

Yes

JAPAN

Tokyo SE

Threshold, if any

Duration of Price Limit

Hours of Trading Total Hours ofprior to 12PM Regular Trading

5% /From 1st to 10th trading day / 11th
2%, 5%, 10% or 20%1 trading day onwards

2h45

6h15

1st day / 2nd trading day onwards

3h0

6h00

From 1st trading day

3h00

6h30

44% / 10%

1st day / 2nd trading day onwards

2h30

6h00

[+230% ; -75%]
On 1st trading day

From 2nd trading day price limit
is determined based on security’s
previous day closing price.

3h00

6h00

1 based on the stock exchange classification

8

PAST EXAMPLES OF PRICE LIMIT ISSUE Korea - BGF RETAIL (Mid Cap) - Spin off of
BGF RETAIL Ex Date: Dec 8, 2017
 Spun-off not added to the Standard Index
Trading
Day
1
2
3
4
5
6
7
8
9
10
11

Date

Price

8-Dec
11-Dec12-Dec13-Dec14-Dec15-Dec18-Dec19-Dec20-Dec21-Dec22-Dec28,55020,00016,40015,35015,20015,25015,05014,50014,15014,15014,900% changein price
254,000
193,140-30%
9,030,912-18%
4,709,779-6%
3,043,685-1%
2,522,013
0%1,373,196-1%
1,782,524-4%
1,002,973-2%784,4370%
1,094,862
5%

Volume

Price
Limit
Yes
Yes
No
No
No
No
No
No
No
No
No

 India - GRASIM INDUSTRIES (Large Cap) Spin off of Aditya Birla Capital.
 1st trading day of spun-off: Sept 1, 2017
 Spun-off not added to the Standard Index
Trading
Day

Date

Price

Volume% changein price

Price
Limit

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16

1-Sep
4-Sep
5-Sep
6-Sep
7-Sep
8-Sep
11-Sep12-Sep13-Sep14-Sep15-Sep18-Sep19-Sep20-Sep21-Sep22-Sep

237.5
225.6
214.4
203.7
206.9
201.2
193.8
187.0
196.4
206.2
203.2
199.9
198.6
195.4
195.4
190.2

4,658,997
309,923
192,377
267,160
4,241,770
5,412,431
5,588,615
36,566,461
4,592,680
6,454,750
19,039,812
6,389,800
4,287,615
2,925,035
3,559,653
5,176,182-4.989%-4.986%-4.991%1.595%-2.754%-3.677%-3.508%4.999%
4.990%-1.431%-1.624%-0.650%-1.636%
0.026%-2.661%

Yes
Yes
Yes
No
No
No
No
Yes
Yes
No
No
No
No
No
No

9

CONSULTATION TOPIC 2:ARIGHTS ISSUES WITH TERMS UNAVAILABLE
ON THE EX-DATE© 2018 MSCI Inc. All rights reserved.
Please refer to the disclaimer at the end of this document.

BACKGROUND & OBJECTIVE
Background: In some countries, typically Chile and Germany, companies sometimes publicly announce thesubscription price of their rights issues only after the ex-date, during the subscription period.
 Currently, rights issues, where terms are not (or only partially) available on the ex-date arereflected by a Price Adjustment Factor (PAF) of 1 on the ex-date in the MSCI Indexes.
 MSCI waits for the results of the rights issue announced post-subscription period to implement
any changes in number of shares (NOS) and Foreign Inclusion Factor (FIF) giving two full businessdays advance notification.
Objective:
 In order to allow global investors replicating an MSCI Index to participate in rights issues which
offer an economic benefit, MSCI proposes to implement a PAF and to increase the NOS for “inthe money”1 rights issues if the full terms (subscription price and terms) are announced during
the election period providing two full business days advance notice, when feasible.
1 “in the money” refers to rights issues with subscription price below the market price, whereas “out of the money” refers to rights

issues with subscription price greater or equal to market price11

METHODOLOGY CHANGE PROPOSALS
Methodology proposal:
MSCI proposes to determine whether the rights issue offers an economic benefit to shareholders assoon as the subscription price is publicly announced by comparing it to the security’s closing market
price on the day the subscription price is announced.
 “In the money”: To apply a PAF with two full business days advance notification2 from theannouncement of the subscription price and increase NOS as of the close of the PAF
implementation date.
 “Out of the money”: To Apply a PAF of 1 with 2 full business days advance notice from theannouncement of the subscription price and an increase in NOS after the results have beenannounced if the change is greater than 5%/10%/25% for Standard, Small Caps and Micro Caps.
Example: PAF + NOS increase, if “in the
Implementation
money”
announced inPAF of 1, if “out of the money”“Confirmed” status+1 dayEx-dateBeginning of thesubscription period

Subscription priceannounced bycompany

NOS increase, if“out of the money”+2 daysEnd of subscription
period2 The PAF would be applied at the latest on the last day of the subscription period, which in some cases in Germany, may limit theadvance notification to less that 2 full business days.
12

IMPACT OF THE PROPOSAL & DISCUSSION POINTS
Impact of the proposal:
 MSCI would no longer apply a PAF of 1 on the ex-date.
 MSCI would implement “in the money” rights issues during the subscription period.
 Changes related to “out of the money” rights issue would continue to be implemented after the
results of the subscription period are announced if they are above the implementationthresholds.
Discussion points:
 Do you agree that a PAF should be apply to the security’s market price during the subscription
period if the rights issue is “in the money”?
 Do you agree that MSCI should determine whether or not a rights issue is in the money bycomparing the subscription price with the closing market price of the security on the day thesubscription price is announced?
 Should MSCI use a different market price to be compared with the subscription price (e.g. the exdate)?

13

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

SIMULATION OF THE ADVANCE NOTIFICATION AS
PROPOSED
Standard

Small
Cap

Micro
Cap

Pricing madeavailable duringsubscription period?

Delta between pricing
day & last subscription
day (business days)1

10

6

4

NA

YES

19-21

Germany

6

1

1

4

YES

0-4

Switzerland

1

-

1

-

NO

NA

#
events

Chile

Country• In Chile, under the proposed methodology,
2 full business days advance notice would
have been given for all 10 cases.
• In Germany, it would have resulted in:
3 intraday (same day implementation for a
Micro Cap and next day implementation for
2 Micro caps).

Simulated advance notification provided during thesubscription period for “in the money” rights issues
10
8
Germany

6

Chile

10

4

2
0

1
Intraday2
1 business day

3
2 business day

15

RIGHTS ISSUES SAMPLE
Security Name

Size
Country
Sgmt

Ex DatePricing
Date

Subs.
Price

Subscription
PeriodTerms

In the Days between pricing &Money? last day of subs. period

CORPBANCAMid

CL

May-07-2012 May 11 2012

6.25

0.17181

May 11 to Jun 9 2012

Yes

19

CENCOSUD

Large

CL

Jun-18-2012

Jun 22 2012

2600

0.1073

1

Jun 22 to Jul 21 2012

Yes

19

LA POLAR

Small

CL

Aug-29-2012

Sep 3 2012179.443.01671

Sep 3 to Oct 2 2012

Yes

20

SONDA

Small

CL

Nov-30-2012

Dec 5 20121430

0.12971

Dec 5 to Jan 4 2013

Yes

21

LATAM AIRLINES GROUP

Large

CL

Dec-17-2012 Dec 21 2012

11000

0.01561

Dec 21 to Jan 19 2013

Yes

19

CORPBANCAMid

CL

Jan-11-2013

Jan 16 2013

6.25

0.160231

Jan 16 to Feb 14 2013

Yes

20

VAPORES(CIA SUD AMERIC.)

Small

CL

Aug-14-2013 Aug 20 2013

24.9

0.77431

Aug 20 to Sep 18 2013

Yes

20

CERVEZAS

Mid

CL

Sep-09-2013

Sep 13 2013

6500

0.1601

1

Sep 13 to Oct 12 2013

Yes

19

LATAM AIRLINES GROUP

Large

CL

Nov-15-2013 Nov 21 2013

7872.77

0.1282

1

Nov 20 to Dec 19 2013

Yes

19

PRIME OFFICE

Small

DE

Jan-29-2014

Feb 5 2014

2.8

8

23

Jan 29 to Feb 11 2014

Yes

3

MEDIGENE

Micro

DE

Jul-01-2014

Jul 10 2014

5

2

7

Jul 1 to July 14 2014

No

1

FAIR VALUE REIT

Micro

DE

Apr-21-2015

Apr 29 2015

7.9

1

2

Apr 21 to May 5 2015

Yes

3

MEDIGENE

Micro

DE

Jun-16-2015 June 26 2015

8.3

2

5

Jun 16 to Jun 30 2015

No

1

DEUTSCHE WOHNEN

Mid

DE

May-21-2015 May 27 2015

21.5

1

7

May 21 to Jun 3 2015

Yes

4

THAI UNION FROZEN PROD

Mid

TH

Jul-2-2015

Jul-17-2015

16

1

6

Not available

Yes

NA

CIA SUD AMERICANA

Small

CL

Oct-4-2017

Oct-9-2017

30.55

1

0.199

Oct 10 to Nov 8 2017

Yes

21

VALORA HOLDING

Small

CH

Nov-13-2017 Nov-21-2017

310

1

5

Nov 13 to Nov 20 2017

Yes

NA

BIOFRONTERA

Micro

DE

Jan-30-2018

4

2

13

Jan 30 to Feb 12 2018

Yes

0

Feb-9-2018

16

CONSULTATION TOPIC 3:A

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

BACKGROUND & OBJECTIVE
Background:

Optional dividends paid by US listed companies are designed as a mix of cash and sharessubject to election and pro-ration.



The current country specific methodology does not fully reflect what investors receive.



On average, for each US Dollar distributed, MSCI reflects USD 1.76 of distribution in its Indexes.

Objective: MSCI is proposing to change the current methodology for US optional dividends to reflect more
precisely what is received by shareholders.
 Based on simulation of the proposed methodology on same past events, for each US Dollar
distributed, MSCI would have reflected on average USD 1.04 of distribution in its Indexes.
 MSCI’s proposal would lead to a simpler implementation in one step versus two currently.

18

CURRENT METHODOLOGY & MARKET PRACTICESCurrent methodology

1. Reinvestment on the ex-date of the full amount in the MSCI DTR Indexes, assuming it is an all
cash dividend amount.
2. Wait for the election/pro-ration results, which is always a mix of cash and shares and increase thenumber of shares giving two full business days advance notification, regardless of the size.
Facts observed from past US Optional dividends- Based on 16 optional dividends implemented in the past 6 years; 4 Mid, 9 Small and 3 Micro caps 

16/16 times, the cash amount distributed was capped by the company and is publicly available.
16/16 times, the elected cash component reached its capped amount.
12/16 times, the pro-ration was 20% cash/80% shares (others: 2x 24%/76%, 25%/75%, 70%/30%)
Default options varies: 62% stock, 25% not disclosed, 13% cash
15/16 times, the dividend amount was above 5% of the company’s market price.

NOTE: The final share consideration is calculated by the company using a moving average of thecompany market price during the election period.

19

METHODOLOGY CHANGE PROPOSALSMSCI proposes to implement US optional dividends on the ex-date as follows: If dividend amount > 5% of company’s closing market price at T-4 from ex-date:
Apply a Price Adjustment Factor (PAF) “Special Cash + Stock Dividend” on the ex-date and increase
the Number of Shares (NOS) as of the close of the ex-date.
 If dividend amount ≤ 5% of company’s closing market price at T-4 from ex-date:
Apply a PAF “Stock Dividend”, increase the number of shares (NOS) as of the close of the ex-dateand reinvest the cash component on the ex-date in the MSCI Daily Total Return (DTR) Indexes only.

MSCI proposes to determine the terms of the US optional dividend as follows (see example slide 24)1) Cash component terms would be derived assuming the cash consideration distributed is equal tothe capped amount set by the company. e.g. 20% of total dividend amount per share2) Stock dividend terms would be calculated as follows:
Number of shares to be issued = Total dividend amount – Cash component amount x
1Pre-event NOS
Theo-Ex Price
Pre-event NOS
NOTE: Any difference in Number of Shares would be resolved at a subsequent Index Review.

20

POTENTIAL IMPACT OF THE PROPOSAL & DISCUSSION POINTS
Potential Impacts of the proposals

 With this proposal, US optional dividends would be reflected in 1-step on the ex-date versus in
2-steps currently (PAF on ex-date and NOS increase after election results).
 The amount reflected in the MSCI Indexes would be on average 4.1% higher than what is
actually distributed versus 76% currently.

Discussion points
 Do you agree with MSCI’s proposal based on 1) the assumption that the cash component will
match its cap and 2) estimated terms for the shares component using a theo-ex price?

21

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

CURRENT VS PROPOSED METHODOLOGY
Total dividend
Total amount
Total amountamount reflected reflected in NOS
actually
in PAF on ex-date increase (USD)
distributed (USD)
A
B

Total amountreflected in MSCI
Indexes (USD)
A+B

Delta
Index vs Actual
(USD)

Delta
%

Delta
%
Proposedmethodology-1.4%

Security Name

Size
Segment

GAMING & LEISURE PPTYS

Small Cap

1,053,210,924

1,053,210,924

835,233,198

1,888,444,122

835,233,198+79.55%

IRON MOUNTAINMid Cap

694,880,720

694,880,720

636,772,500

1,331,653,220

636,772,500+90.98%0.5%

ALEXANDER & BALDWINMid Cap

782,431,559

782,431,559

608,727,708

1,391,159,267

608,727,708+77.75%-0.6%

CORRECTIONS CORP AM.

Small Cap

663,377,910

663,377,910

514,115,200

1,177,493,110

514,115,200+76.17%-1.1%

EQUINIXMid Cap

623,306,850

623,306,850

462,511,659

1,085,818,509

462,511,659+78.46%

2.8%

IRON MOUNTAINMid Cap

696,784,000

696,784,000

543,746,400

1,240,530,400

543,746,400+71.91%

6.7%

PARK HOTELS & RESORTS

Small Cap552,299,023

552,299,023

434,588,000

986,887,023

434,588,000+78.73%

8.2%

FOUR CORNERS PPTY TRUST Small Cap

344,645,231

344,645,231

296,947,137

641,592,368

296,947,137+85.61%-2.7%

GEO GROUP

Small Cap

349,092,800

349,092,800

294,974,052

644,066,852

294,974,052+82.32%17.3%

RYMAN HOSPITALITY PROP

Small Cap

301,900,261

301,900,261

256,342,000

558,242,261

256,342,000+82.71%

0.8%

CARETRUST REIT

Small Cap

131,923,680

131,923,680

107,870,629

239,794,309

107,870,629+81.72%-0.6%

SUNSTONE HOTEL

Small Cap

262,958,180

262,958,180

84,982,827

347,941,007

84,982,827+32.33%0.2%

LADDER CAPITAL CORP A

Small Cap

80,218,601

80,218,601

57,087,017

137,305,618

57,087,017+71.72%

1.5%

FIVE OAKS INV CORP

Micro Cap

19,378,704

19,378,704

14,595,886

33,974,590

14,595,886+75.30%21.7%

SARATOGA INVESTMENT

Micro Cap

16,477,577

16,477,577

12,895,705

29,373,282

12,895,705+78.26%

8.7%

SARATOGA INVESTMENT

Micro Cap

12,534,807

12,534,807

10,164,675

22,699,482

10,164,675+81.13%

3.6%+75.96%

+4.1%

Size
Segment

Average Delta
Index vs Actual(USD)

Average Delta Index vs
Actual (USD)
Proposed methodology1

Standard

562 Million

15.7 Million

Small Cap

320 Million

8.7 Million

Micro Cap

12.5 Million

2.0 Million

Overall

323 Million

9.2 Million

1 The difference was calculated using the past 16 optional dividends and is due tothe market price used. The company uses a moving average market prices during
the election period to calculate the number of shares to be issued, whereas the
proposal would use the security’s closing market price on T-4 from the ex-date.

23

ILLUSTRATION OF THE PROPOSAL ON A PAST US
OPTIONAL DIVIDEND
Security Name
Ex DateP(t-4)
P(t) i.e. ex-date

ALEXANDER & BALDWIN INC
Nov-28-2017
USD 44.87
USD 28.74

Number of shares (pre-event)
Post event NOS
Total dividend amount per share
Cap on cash component

49,147,711
71,763,668
USD 15.92
20%

Cash component terms:
Dividend per share * capped cash component = USD 15.92 * 20% = USD 3.184
Proposed methodology
Stock dividend terms:
Current methodology
 Step 1: Stock Dividend amount (USD):
Pre-event Number of shares * Dividend per share * (1 - capped cash component)= 49,147,711 * USD 15.92 * (1-20%) = USD 625,945,247
 Step 2: Number of new shares to be issued
Stock Dividend amount / Theo-Ex P(t) = USD 625,945,247 / (44.87-15.92) = 21,621,597 new shares
 Step 3: Terms of stock dividend
Number of new shares to be issued / Pre-event NOS = 21,621,597 / 49,147,711 = 0.43993 : 1
PAF implementation on the ex-date:[ (P(t)+ 0.43993 P(t) + 3.184 ] / P(t)Vs [ P(t) + 15.92 ] / P(t)Number of shares increase as of the close of ex-dateCurrent NOS: 49,147,711
New NOS:70,769,308
Vs 71,763,668 (after results are announced)
24

CONSULTATION TOPIC 4:aa) GLOBAL ADVANCE NOTIFICATION FOR DELETIONSab) NEW TREATMENT FOR CANADIAN ACQUISITIONSsc) TREATMENT OF DELETION FOR SECURITIESALREADY DELISTED© 2018 MSCI Inc. All rights reserved.
Please refer to the disclaimer at the end of this document.

METHODOLOGY CHANGE PROPOSALS SUMMARYMSCI is consulting regarding three connected proposals of methodology changes regarding the current
approach to treat deletions from the MSCI Indexes.
Current methodology is to delete target securities coinciding with their last trading day, even if two
full business days advance notification cannot be provided (except if it is a US security).
 The proposal is to provide globally and systematically 2 full business days advance notification fordeletion of target securities, even if the deletion cannot anymore coincide with the last trading day.

A

Currently, the methodology for Canadian acquisitions is country specific and leads to many
intraday implementations as well as uncertainty about the implementation date.
 Proposal is to change the current methodology to provide more clarity and provide systematicallytwo full business days advance notification.

BC

By systematically providing two full business days advance notification for acquisitions, MSCI, insome instances, maintains already delisted securities in its Indexes.
 The proposal is to maintain already delisted securities in the MSCI Indexes at the offer
consideration (instead of a mix of carry forward of the last traded price and offer price).

26A) STOPPING INTRADAY IMPLEMENTATIONS OFACQUISITIONS GLOBALLY
Background: Following a client consultation in February 2016 regarding the treatment of US acquisitions, MSCI
started to systematically provide two full business days advance notification for US acquisitions.
 MSCI deletes the target security at the offer consideration instead of the last trading price if it isalready delisted at the time of the implementation in the MSCI Indexes.
 The rationale is to provide sufficient advance notification to allow global investors located indifferent time zones to replicate deletions from the MSCI Indexes.
Proposal:
MSCI is proposing to align the current US acquisitions country specific announcement policy across all
markets and all size segments.
Impact of the proposal:
 Simplified and streamlined announcement policy for acquisitions.
 Main impact would be for Canadian acquisitions (to be covered in point B). In other countries, stock
exchanges generally announce the last trading day of target securities with sufficient advance
notification, which allows MSCI to provide 2 full business days advance notification – see appendix.
Discussion points:
Do you agree with having one global announcement policy of 2 full business days advance notification
to treat acquisitions in the MSCI Indexes?
27B) CANADIAN ACQUISITION: CURRENT METHODOLOGY
Current Methodology:
 For Canadian acquisitions (where the target is classified in Canada), done via mutual agreements,
MSCI estimates the expected deletion date, by adding 3 business days to the announced expectedcompletion date announced via company’s press release (available 73% of the time).
 MSCI waits for the delisting notice to be provided by TSX and coincides the implementation of theevent with the last trading day of the target security, most of the time providing less than two fullbusiness days notice (only 2% of the events are announced with 2 full business days notice).
Facts observed from past Canadian acquisitions:60
Expected completion date is:40‒ Available 73% of the times
20‒ Announced on average 5 business days prior to the0actual completion date
‒ Accurate 87% of the time (Chart 1)
50‒ Delisting takes place 70% of the times within 2 days
40
after the actual completion date and 98% within 4
30days after (Chart 2).
20
NOTE: Completion date is most of the time not10
equivalent to the last trading day of the company.

Chart 1: Accuracy of expected completion date87%
No of Cases
60
3%
2

10%
7

T-1

46%

T

T+1

Chart 2: Number of business days between
completion day and Delisting day
No of Cases

44

24%
23

20%

19

7%
7

3 Days4 Days0<= 1 Day

2 Days%2%2>= 5 Days

28B) PROPOSAL
Proposal:

 MSCI proposes to systematically provide 2 full business days advance notification for Canadianacquisitions via agreement by removing the dependency on the official delisting notice by TSX.
 As the expected completion date publicly disclosed in advance by the company is typicallyaccurate (available 73% of the time), MSCI would use this trigger to determine the effective
date of the implementation in the MSCI Indexes.
 MSCI would set the effective date of the event implementation as the expected completion
date +1.
 When no expected completion date is provided (27% of the times), MSCI would wait for thecompletion of the event to be publicly announced to confirm the event implementation with
two full business days advance notification.

29B) IMPACT AND DISCUSSION POINTS
Impact of the proposal: Due to the increased advance notification, an estimated 20% of the Canadian target securities
would be deleted after the delisting using the offer consideration instead of the last traded price.
 All acquisitions for agreement would be implemented as per the global announcement policy with
two full business days advance notification.
Discussion points:
 Do you agree to replace delisting date by the completion date +1 as the effective date of theimplementation of Canadian acquisitions?
 This additional advance notification would lead in 20% of cases to delete the target security at theoffer price versus last traded price currently for all events. Is this a concern for you?

30C) MAINTENANCE OF ALREADY DELISTED TARGETSECURITIES IN THE MSCI INDEXES
Current methodology:
A target security is maintained at the last traded price (carry forward) and deleted from the MSCI Indexes
at the offer consideration.
Example: Cash and shares acquisition of Time Warner by AT&T for $76 billion (incl. $36 billion in shares).
Date

Communication timing

Jun 13
Stock exchange announcement of thelast trading day of Time Warner (TW)Jun 15 MSCI “confirmed” announcement sent
Jun 18Jun 19 MSCI Effective date
Jun 14Market TW Price used in
Offer
price
MSCI Indexes Consideration
97.95
97.95
98.77

98.77

-

98.77
100.29-100.01
100.29

NOTE: Since 2016, 16 Standard securities (14 US)
were maintained at the last trading price vs offer
consideration: e.g. Becton Dickinson, Level 3
Communications, Spectra Energy, LinkedIn,
Cablevision Systems, Rexam, BE Aeropspace,
Keuring Green Mountain etc..

Maintaining in the Index a delisted security at its last traded price can lead to potential replication issues
in these circumstances:- Target companies have large market capitalizations and/or weights- High volatility of the acquirer’s market price- Full share acquisition or acquisitions with large proportion of share consideration versus cash
- Last traded price diverges significantly from the offer price Proposal: To maintain already delisted securities subject to an acquisition at the offer consideration
regardless if it is for cash, shares or a mix of cash & shares.
 Discussion points: Do you agree to maintain already delisted index constituents at the offer
consideration instead of its carried forward last trading price?
31

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

GLOBAL ACQUISITIONS IMPLEMENTED WITH LESS THAN
2 FULL BUSINESS DAYS ADVANCE NOTIFICATION
Since January 2015:
Country Wise No of Cases
Canada93
China (all ADR)
11
UK
7
Norway5Germany
3Australia
3
Israel3
Turkey1
Spain
1France1Hong Kong
1
Total Cases
129% Cases
72%
9%
5%
4%
2%
2%
2%
1%
1%
1%
1%
100%

Deletion Price No of Cases % Cases
Last traded price
97
75%
Offer price32
25%
Total Cases
129
100%

Family Wise
Standard
Small Caps
Micro Caps
Total Cases

No of Cases
9
39
81
129

% Cases
7%
30%
63%
100%

33

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

LONG TERM CAPITAL GAINS TAX IN INDIA
 MSCI currently does not recognize capital gains taxes in the MSCI Net Daily Total Return (DTR)
Indexes.

 In India, while short term capital gains continue to be taxed at 15%, Long Term Capital gains1
are taxed 10% since April 1, 2018.
 In India, capital gains taxes on shares received as part of stock dividends are calculated at thetime the shares are sold with a cost basis of INR 0.

Discussion Points : Do you account for this tax liability (if any) upon the sale of the shares or on accrual basis?
 Is India’s capital gains tax approach different from other countries? If yes, in what regards?
For example, is there any specificities in India in regards to capital gains tax applied to corporate
events such as stock dividends or spin-offs?

1 gains above INR 100,000 on the sale of shares held for at least 1 year

35

DIRECT LISTING
 In Direct Listing, a company lists its existing shares publicly without the support of underwriters
and without issuing new shares.
 It is difficult to anticipate 1) who will be the selling shareholders (and therefore the free float), 2)
whether or not some shares are subject to lock-up, 3) the market capitalization as no offer price(or range) is made available prior to the listing and 4) if the liquidity will be sufficient.
 Typically, smaller companies prefer this route as the cost to go public is lower compared to
traditional IPOs.
Discussion points:
 Do you believe companies which start trading publicly via direct route should be assessed forearly addition to the MSCI Indexes based on the current methodology for regular IPOs1?
 Shall companies using Direct Listing be considered for early addition to the MSCI Indexes using a
different approach/specific methodology?
1 For regular IPOs, MSCI determines if the company qualifies for early addition based on the closing market price on the first (orsecond) day. If the company full market capitalization is above 1.8 times the Standard Index Interim Size Segment cutoff and the
security free float adjusted market capitalization is above half of 1.8 times the above cutoff, MSCI will add the security as of the closeof the 10th trading day. Companies which did not qualify for early addition will be considered for future potential addition as part offorthcoming Index Reviews.
36

CROSS MARKETS CASES IMPLEMENTATION Following the recent event of OLD MUTUAL spinning off QUILTER and followed by a country
reclassification of OLD MUTUAL from United Kingdom (GB) to South Africa effective in June 2018.
 MSCI added OLD MUTUAL to South Africa and deleted OLD MUTUAL from the UK using the London
Stock Exchange (LSE) price. The South African listed security was treated as the continuation of OLD
MUTUAL which listed in the UK.
 This implementation created some replication difficulties related to potential settlement risk,
regulatory risks and time difference between the exchanges faced by clients.
 Alternatively, OLD MUTUAL could have been deleted from the UK using its LSE closing market priceand OLD MUTUAL could have been added in South Africa as a new security using the ZAR price. This
would have led to 1) erase the price and volume history, 2) additional trading for ACWI clients and3) the new security would have not been added to several derived Indexes.
Discussion points:
 Did you face any issue while replicating MSCI’s treatment of OLD MUTUAL corporate event?
 Any suggestions on any alternative approach?

37

ABOUT MSCIFor more than 40 years, MSCI’s research-based indexes and analytics havehelped the world’s leading investors build and manage better portfolios.
Clients rely on our offerings for deeper insights into the drivers of
performance and risk in their portfolios, broad asset class coverage andinnovative research.
Our line of products and services includes indexes, analytical models, data,
real estate benchmarks and ESG research.
MSCI serves 99 of the top 100 largest money managers, according to themost recent P&I ranking.
For more information, visit us at www.msci.com.

38

NOTICE AND DISCLAIMER
This document and all of the information contained in it, including without limitation all text, data, graphs, charts (collectively, the “Information”) is the property of MSCI Inc. or its subsidiaries (collectively, “MSCI”), or MSCI’s licensors, direct or indirect
suppliers or any third party involved in making or compiling any Information (collectively, with MSCI, the “Information Providers”) and is provided for informational purposes only. The Information may not be modified, reverse-engineered, reproduced
or redisseminated in whole or in part without prior written permission from MSCI.
The Information may not be used to create derivative works or to verify or correct other data or information. For example (but without limitation), the Information may not be used to create indexes, databases, risk models, analytics, software, or inconnection with the issuing, offering, sponsoring, managing or marketing of any securities, portfolios, financial products or other investment vehicles utilizing or based on, linked to, tracking or otherwise derived from the Information or any other MSCI
data, information, products or services.
The user of the Information assumes the entire risk of any use it may make or permit to be made of the Information. NONE OF THE INFORMATION PROVIDERS MAKES ANY EXPRESS OR IMPLIED WARRANTIES OR REPRESENTATIONS WITH RESPECT TO
THE INFORMATION (OR THE RESULTS TO BE OBTAINED BY THE USE THEREOF), AND TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, EACH INFORMATION PROVIDER EXPRESSLY DISCLAIMS ALL IMPLIED WARRANTIES (INCLUDING, WITHOUT
LIMITATION, ANY IMPLIED WARRANTIES OF ORIGINALITY, ACCURACY, TIMELINESS, NON-INFRINGEMENT, COMPLETENESS, MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE) WITH RESPECT TO ANY OF THE INFORMATION.
Without limiting any of the foregoing and to the maximum extent permitted by applicable law, in no event shall any Information Provider have any liability regarding any of the Information for any direct, indirect, special, punitive, consequential(including lost profits) or any other damages even if notified of the possibility of such damages. The foregoing shall not exclude or limit any liability that may not by applicable law be excluded or limited, including without limitation (as applicable), any
liability for death or personal injury to the extent that such injury results from the negligence or willful default of itself, its servants, agents or sub-contractors.
Information containing any historical information, data or analysis should not be taken as an indication or guarantee of any future performance, analysis, forecast or prediction. Past performance does not guarantee future results.
The Information should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. All Information is impersonaland not tailored to the needs of any person, entity or group of persons.
None of the Information constitutes an offer to sell (or a solicitation of an offer to buy), any security, financial product or other investment vehicle or any trading strategy.
It is not possible to invest directly in an index. Exposure to an asset class or trading strategy or other category represented by an index is only available through third party investable instruments (if any) based on that index. MSCI does not issue,
sponsor, endorse, market, offer, review or otherwise express any opinion regarding any fund, ETF, derivative or other security, investment, financial product or trading strategy that is based on, linked to or seeks to provide an investment return related
to the performance of any MSCI index (collectively, “Index Linked Investments”). MSCI makes no assurance that any Index Linked Investments will accurately track index performance or provide positive investment returns. MSCI Inc. is not an
investment adviser or fiduciary and MSCI makes no representation regarding the advisability of investing in any Index Linked Investments.
Index returns do not represent the results of actual trading of investible assets/securities. MSCI maintains and calculates indexes, but does not manage actual assets. Index returns do not reflect payment of any sales charges or fees an investor may pay
to purchase the securities underlying the index or Index Linked Investments. The imposition of these fees and charges would cause the performance of an Index Linked Investment to be different than the MSCI index performance.
The Information may contain back tested data. Back-tested performance is not actual performance, but is hypothetical. There are frequently material differences between back tested performance results and actual results subsequently achieved byany investment strategy.
Constituents of MSCI equity indexes are listed companies, which are included in or excluded from the indexes according to the application of the relevant index methodologies. Accordingly, constituents in MSCI equity indexes may include MSCI Inc.,
clients of MSCI or suppliers to MSCI. Inclusion of a security within an MSCI index is not a recommendation by MSCI to buy, sell, or hold such security, nor is it considered to be investment advice.
Data and information produced by various affiliates of MSCI Inc., including MSCI ESG Research LLC and Barra LLC, may be used in calculating certain MSCI indexes. More information can be found in the relevant index methodologies on www.msci.com.
MSCI receives compensation in connection with licensing its indexes to third parties. MSCI Inc.’s revenue includes fees based on assets in Index Linked Investments. Information can be found in MSCI Inc.’s company filings on the Investor Relations
section of www.msci.com.
MSCI ESG Research LLC is a Registered Investment Adviser under the Investment Advisers Act of 1940 and a subsidiary of MSCI Inc. Except with respect to any applicable products or services from MSCI ESG Research, neither MSCI nor any of its products
or services recommends, endorses, approves or otherwise expresses any opinion regarding any issuer, securities, financial products or instruments or trading strategies and MSCI’s products or services are not intended to constitute investment advice ora recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. Issuers mentioned or included in any MSCI ESG Research materials may include MSCI Inc., clients of MSCI or suppliers to MSCI, andmay also purchase research or other products or services from MSCI ESG Research. MSCI ESG Research materials, including materials utilized in any MSCI ESG Indexes or other products, have not been submitted to, nor received approval from, theUnited States Securities and Exchange Commission or any other regulatory body.
Any use of or access to products, services or information of MSCI requires a license from MSCI. MSCI, Barra, RiskMetrics, IPD, and other MSCI brands and product names are the trademarks, service marks, or registered trademarks of MSCI or its
subsidiaries in the United States and other jurisdictions. The Global Industry Classification Standard (GICS) was developed by and is the exclusive property of MSCI and Standard & Poor’s. “Global Industry Classification Standard (GICS)” is a service markof MSCI and Standard & Poor’s.

39