Index Methodology
Summary
May 2014

MSCI Global Investable Market Indexes Methodology
Summary
Introduction
This document is a summary of selected provisions of the MSCI Global Investable Market Indexes
Methodology. It is provided for informational purposes only in order to highlight key elements of themethodology’s framework. It does not contain nor purport to contain all elements of the methodology.
For a complete understanding of the methodology, please refer to the full methodology book available
at MSCI’s web site at the following link:
http://www.msci.com/eqb/methodology/meth_docs/MSCI_May14_GIMIMethod.pdf

Index Maintenance Overview
The MSCI Global Investable Market Indexes are maintained with the objective of reflecting the evolutionof the underlying equity markets and segments on a timely basis, while remaining replicable and stable.
In particular, index maintenance involves: Semi-Annual Index Reviews (SAIRs) in May and November (Figure 1)
 Quarterly Index Reviews (QIRs) in February and August (Figure 2)
 Ongoing event-related changes; which are generally implemented in the indexes as they occur.

Figure 1. SAIR Process

Comprehensive
Update of theEquity Universe

Comprehensive
Update of theMarket Investable
Equity Universe

Update of theSegment Numberof Companies andMarket SizeSegment Cutoffs

Allocation ofCompanies toAppropriate SizeSegments

Assessment of
Conformity with
Final SizeSegment
Investability
Requirements for
New and Existng
Constituents

3.1.3-3.1.4

2.3.4, 3.1.5

2.3.5, 3.1.6

Methodology Book Sections:

2.1, 3.1.1

2.2, 3.1.2

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Figure 2. QIR Process

Limited Update of
the Equity
Universe (i.e., only
sizable companies
may be added)

Limited Update of
the Market
Investable Equity
Universe (i.e., only
sizable companies
may be added
and/or illiquid
securities may beremoved)Update of theMarket SizeSegment Cutoffs

Allocation ofCompanies toAppropriate SizeSegments
Applying Wider
Buffers

Assessment of
Conformity with
Final SizeSegment
Investability
Requirements for
Migrations and
New Securities

3.2.1.2

3.2.1.3

3.2.1.4

Methodology Book Sections:

3.2.2

3.2.2, 3.2.3

Index Review Process
Update Equity Universe
The Equity Universe is updated during SAIRs by (1) identifying eligible equity securities and (2) classifying
these eligible equity securities into the appropriate country (Table 1).
Table 1. Security Eligibility and Country Classification

Eligible Equity Securities

Security Country Classification

Includes listed equity and equity-like securities

Real estate investment trusts in some countries and certain
income trusts in Canada are also eligible for inclusion

Determined by the country of incorporation of the issuing
company and the primary listing of the securityExcludes: mutual funds, ETFs, equity derivatives, limited
partnerships and most investment trusts

Each company and its securities are classified in only one
countryCountry specific rules are implemented for some markets (e.g.
Russia, China, US)In cases where the country of incorporation and primary listingof the security point to different markets, additional factors are
considered to determine country classification.

For details, please refer to Appendix I of the methodology

For details, please refer to Appendix III of the methodology

In the case of QIRs, only sizable companies are added, particularly those that meet investability
requirements (see Table 2) and satisfy the following size requirements1:

1

Section 3.2.2 of the methodology book

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A full company market capitalization that exceeds 1.8 times the Interim Market Size-Segment
Cutoff (defined later in the document);
A security free float-adjusted market capitalization that exceeds 1.8 times one-half the InterimMarket Size-Segment Cutoff.

Determine Market Investable Equity Universes
The Market Investable Equity Universes are updated during the Index Reviews. Investability
requirements are applied at the overall company level such as full company market capitalization
represented by the aggregation of all eligible listed and unlisted securities of a company and at theindividual security level, such as free float-adjusted market capitalization (“float MCap”) and liquidity
measures.
Table 2. Market Investability Requirements
Requirements

Non-Constituents

Review

Equity Universe Minimum
Size Requirement (UMSR)

USD162 Million (revised at each
SAIR)

SAIR

Equity Universe MinimumFree Float–Adjusted
Market Capitalization½ of UMSR

SAIR

Existing ConstituentsNot Evaluated

Review

Meth.
Book
SectionNA

2.2.1
3.1.2.1

Not EvaluatedNA

Smaller FM: ¼ UMSR

2.2.2
3.1.2.2
5.2.1.1

Minimum Liquidity
Requirement:
12 Month Annual Traded
Value Ratio (ATVR)

3 Month ATVR

DM: ≥ 20%
EM & FM Average Liq: ≥ 15%

SAIR/
QIR

FM Low Liq ≥ 5%

FM Low Liq ≥ 2/3 of 5%

5.2.2

FM Very Low Liq ≥ 2.5%

FM Very Low Liq ≥ 1%

DM: ≥ 20%, last four quarters

SAIR/
QIR

DM: ≥ 90%, last four quarters
EM: ≥ 80%, last four quarters

DM: NA

DM: ≥ 5%, most recent quarter
EM: ≥ 5%, most recent quarter

SAIR/
QIR

DM: ≥ 80%, most recent quarter
EM: ≥ 70%, most recent quarter

SAIR

DM: NA
EM: NA

FM: 50%

FM: 10%MSCI Index Research© 2014 MSCI Inc. All rights reserved.
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SAIR/
QIR

Not Evaluated

2.2.3
3.1.2.3
3.2.3

SAIR/
QIR

FM: NA

EM: NA≤ USD10,000

SAIR/
QIR

FM: NA

FM: NA

Maximum Stock Price

2.2.3
3.1.2.3

FM: NA

12 Month Frequency of
Trading (FOT)SAIR

EM & FM Average Liq: ≥ 2/3 of 15%

EM: ≥ 15%, last four quarters

3 Month Frequency of
Trading (FOT)

DM: ≥ 2/3 of 20%

2.2.3
3.1.2.3
3.2.3

SAIR

5.2.2

NA

2.2.3

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Table 3. Market Investability Requirements (cont’d)Requirement

Non-Constituents

Review

Existing Constituents

Global Minimum Foreign
Inclusion Factor (FIF)

DM & EM: ≥ 0.15; If < 0.15, float
MCap must be ≥ 1.8x minimum
Float MCap of the InterimStandard Index Cutoff

SAIR

Not Evaluated (see section on finalsize-segment requirements)

Review

Meth.
Book
SectionNA

2.2.4
2.3.5.1
3.1.2.4

Larger FM: ≥ 0.15; If < 0.15, full
Mcap ≥ Interim Size-Segment
cutoff; float MCap must be ≥ 1.8x
½ UMSR

5.2.1.2

Smaller FM: ≥ 0.15; If < 0.15, full
Mcap ≥ Interim Size-Segment
cutoff float MCap must be ≥ 1.8x
½ UMSR
Minimum Length of
Trading≥ 3 months before
implementation date, except
IPOs with company and float
MCap ≥ 1.8x of the InterimStandard Index Cutoffs post
sizable offering

SAIR

Minimum Foreign Room
Requirement≥ 15%; if ≤ 25%, included with a
0.5 FIF adjustment

SAIR/
QIR

Not Evaluated

NA

2.2.5
3.3.4.1

Not evaluated (see section on final
size segment requirements)

NA

2.2.6
3.1.2.5

Note:
1.

DM and EM refer to Developed Markets and Emerging Markets, respectively.

2.

All investability requirements apply at the individual security level with the exception of the Equity UMSR.

3.

If a security fails to meet Minimum Liquidity Requirements, it may be represented by a relevant eligible (i.e., passes
liquidity requirements) Depositary Receipt trading in the same region (i.e., EMEA, Asia Pacific or Americas).

4.

Existing constituents of a Standard Index in Emerging Markets having a weight of more than 10% in the respective
country index that fail liquidity requirements may remain in the index with an adjustment factor of 0.5. Please refer tothe methodology book, Section 3.1.2.3.

Determine Segment Number of Companies (NOC) and the Market Size-Segment
Cutoffs
In each market, MSCI first creates a Large Cap Index, a Standard Index (Large + Mid) and an Investable
Market Index (Large + Mid + Small Cap). The Mid Cap Index is then derived from the difference between
the Standard Index and the Large Cap Index, while the Small Cap Index is derived from difference
between IMI and the Standard Index. The resulting Large Cap, Mid Cap and Small Cap Indexes are nonoverlapping. In order to create size components that can be meaningfully aggregated into composites,
individual market size segments are designed to balance the following two objectives:
1. Achieving global size integrity by including companies of comparable and relevant sizes in agiven size segment across all markets in a composite index.
2. Achieving consistent market coverage by representing each market’s size segment in its
proportional weight in the underlying investable equity universe.

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The following general process is followed prior to assigning companies to appropriate size-segments:
Determine Size and Coverage Target Area

Define Market
Coverage Target
Range for Each
Size-Segment

Determine Market Size-Segment Cutoffs

Determine the
Global Minimum
Size Range for Each
Size-Segment

Determine theSegment Number ofCompanies

Determine Market
Size-Segment
Cutoffs

The size and coverage area is derived from the Market Coverage Target Range (or Coverage Range) and
the Global Minimum Size Range for each size-segment (see figure 3). The Global Minimum Size Range isdefined based on the Global Minimum Size Reference (GMSR). The definition of the GMSR is provided inTable 4.
Figure 3. Size and Coverage Target Area
Full Market Capitalization
Upper Bound:
GMSR x 1.15
GlobalMinimum
Size
Range

Lower Bound:
GMSR x 0.5

Size and Coverage
Target Area

Market Coverage Target Range
Large Cap Index (65% to 75%)
Standard Index (80% to 90%)

Cumulative
Free FloatAdjusted
MarketCoverage

Investable Market Index (98.5% to 100%)

Mid Cap Index (difference between Standard and Large)
Small Cap Index (difference between IMI and Standard)

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Table 4. Global Minimum Size Reference

SAIR

QIR/Daily

Methodology Book Section 3.1.3

Methodology Book Section 3.2.1.1

1.

GMSR is reset based on the fully updated DM Equity Investable
Universe.

2.

At each respective size Index (IMI, Standard, Large) GMSR for
DM is the full market capitalization (“MCap”) of the company atthe same rank that determined the GMSR at the previous SAIR
as long as the cumulative free float coverage is between thefollowing:

Large Cap: 70% and 72%

Standard: 85% and 87%

IMI: 99% and 99.25%

3.

If not, the rank is reset to the company that reaches acumulative free float-adjusted coverage at or within the specified
range above. GMSR is set to the full MCap of this company.

4.

For EM and Larger FM, the GMSR is set at ½ of DM GMSR. For
Smaller FM the GMSR is set at ¼ of DM GMSR.

1.

At QIRs, daily GMSR as of the price cutoff date is used.

2.

Daily GMSR is based on the existing DM Equity Investable
Universe.

3.

The calculation algorithm is the same as described in the GMSR
calculation for SAIRs.

Determine Segment Number of Companies and Respective Market Size-Segment Cutoffs
The Market Size-Segment Cutoffs (Cutoff) used for segment allocation of companies are based on the
Number of Companies (NOC). NOC is reviewed only at the SAIRs. At QIRs, NOC is only adjusted to reflect
deletions from the MSCI Investable Equity Universe2.
The objectives of the NOC Review at SAIRs are to:

Reflect the changes in the MSCI Equity Investable Universe (Initial NOC)

Achieve the size and coverage requirements specified above (Final NOC)

Current NOC• NOC prior toanyadjustments

2

Initial NOC

Final NOC

• NOC adjusted
for the changes
in theInvestable
Universe• NOC adjusted
for compliancewith size andcoveragerequirements

Section 3.2.3 of the methodology book

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More specifically, the following outlines the process to determine the NOC during SAIR:
#

Step

Note

1

Determine the Current
NOC

This is the NOC as of the Price Cutoff Date of the SAIR prior to any Index Review related
adjustments and would be the same NOC reflected in the daily files made available the day
after the Price Cutoff Date.

2

Determine the InterimMarket Size-Segment
Cutoff (“Interim Cutoff”)

The Interim Cutoff corresponds to the full market capitalization of the company ranked at theCurrent NOC (as noted in step 1) reflecting updated Number of Shares (NOS) data for thatIndex Review. It is based on the current Investable Equity Universe.

3

Determine the InitialNOC

The Initial NOC is equal to the number of companies in the updated Equity Investable Universe
with full company market capitalization above or equal to the Interim Cutoff, excluding noncurrent constituents with full company market capitalization below 0.5x GMSR.

4

Make adjustments to theInitial NOC if needed

Depending on the location of the Market Size-Segment Cutoff derived from the Initial NOC
relative to the Size and Coverage Area, an increase in, or reduction of, the Segment NOC may
be required (see Table 5 and Table 6).
No adjustments needed if:


The full market cap of the company at the Initial NOC is either within the size andcoverage area or within the lower or upper size range boundary proximity area.

The full market cap of the company at the Initial NOC is above the upper bound of the
GMSR (or 1.15x GMSR) and there are no investable companies between this cutoff andthe upper boundary of the GMSR

Table 5. Changing NOC to Comply with the Size and Coverage Target Area
Full Market Capitalization

Nb. of Companies

1.15x GMSR

Upper Size Range Boundary Proximity Area

GMSR

0.575X GMSR
Low er Size Range Boundary Proximity Area
0.50X GMSR

80%

85%

90%

Cumulative Free Float-Adjusted Market Coverage

Additions

No Changes

Deletions

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Table 6. Making Adjustments to the Final NOC

Position Relative the Size-Coverage
Area

Required
Adjustment
to the NOC3

Magnitude of the Adjustment> 1.15x GMSR and there areinvestable companies between thecompany corresponding to theInitial NOC and 1.15x GMSR

Increase

Add all companies with full MCap > 1.15x GMSR

< the lower boundary of the Market
Coverage Target Range

Increase

Add all companies with full MCap > upper limit of the lower size
range boundary proximity area, if any, that are required to reach thelower boundary of the market coverage target range< 0.5x GMSR

Decrease

Delete no more than 5% of the Initial NOC to bring the market sizesegment cutoff into compliance with size and coverage target area. If
this brings the market size-segment cutoff into compliance or if at
least half of the free float MCap that lies between the smallest
company before the adjustment of the Initial NOC and the lower
bound of the global minimum size range is removed then no further
reduction is necessary.
If not, a reduction of not more than 20% of the Initial NOC is madeto remove no more than half of the free-float adjusted MCap that lies
between the smallest company before the adjustment of the Initial
NOC and the lower bound of the Global Minimum Size Range.

> the upper boundary of the Market
Coverage Target Range

Decrease

Delete no more than 5% of the Initial NOC to bring the market size
segment cutoff into compliance with size and coverage target area.
Only companies with full MCap lower than the lower limit of theUpper Size Range Boundary Proximity area can be removed.

Note: In market segments with a small number of companies (i.e., 20 or less initial NOC), the deletion of the first twocompanies is not subject to the limits described above.

Once the NOC is determined, the Cutoff is set to the full company market capitalization of the company
with the rank corresponding to that NOC. The Cutoffs used at the time of SAIRs as well as for ongoingindex maintenance are bounded by the Global Minimum Size Range.
At the QIRs, the market size-segment cutoff is determined at the full MCap of the company ranked in
the market investable equity universe (not including newly eligible companies) at the segment NOC (i.e.,
first two steps of the SAIR process).
 The NOC is not reviewed at a QIR, with the exception of the adjustment resulting from deletionof companies due to failing short-term liquidity requirements (see methodology book, section
3.2.3)
 The Market Size-Segment Cutoff is not limited by the Global Minimum Size Range

3

Additions are made in descending order of full market capitalization.

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Assigning Companies to Appropriate Size-Segments
In order to manage index turnover, buffer zones are used for migration of companies between SizeSegment Indexes. An existing constituent may be allowed to remain in its current size-segment even if
its full company market capitalization falls above or below its Market Size-Segment, as long as its fullcompany market capitalization falls within the upper or lower buffer zone of the respective Market SizeSegment Cutoff (see note 1 below on determining buffer zones). However, companies located in thebuffer zones may migrate to another Size-Segment as required in order to reach the necessary Segment
NOC (see priority rule 5 below). Companies are initially assigned to the Standard, Large Cap and IMI
segments and then assigned to the Mid and Small Cap segments.
During Index Reviews, the following diagram shows the prioritization rules involved in the allocation
process:
Figure 4. Size-Segment Allocation Priority Rules
1.

Size-Segment Range
Under ConsiderationSize-Segment Under
Consideration Lower Buffer

2.

Current constituents and companies
allocated in prior index review that failed
final size-segment requirements greaterthan size-segment cut off.
Newly investable companies with full MCap
greater than cut off.

Lower Size-Segment Upper
Buffer3.

Lower
Size-Segment Range

Companies in lower size segment andcompanies allocated to this lower sizesegment in prior index review that failed
final size-segment requirements greaterthan the lower size-segment upper buffer.

4.

Current constituents and companies
allocated in prior index review that failed
final size-segment requirements in thebuffer of the lower size-segment indescending capitalization order.

5.

Largest companies in the upper buffer ofthe lower size-segment.

Size-Segment Cut Off

NB: Applicable to SAIR (based on 3.1.5). QIR prioritization rules are similar (#2 being inapplicable to QIR (based on 3.2.1.3)
Notes:
1.

Buffer zones are determined as follows:a.

Upper Buffer Zone of Size-Segment: Multiply the next immediate larger size-segment cutoff by 1.5x for SAIR and 1.8x
for QIR to determine the upper bound of the zone. The cutoff and this upper bound define the zone. For example, todetermine the upper bound of the upper buffer zone of the small cap size segment during SAIR, take the Standard
Cutoff and multiply it by 1.5x.

b.

Lower Buffer Zone of Size-Segment: Multiply the size-segment cutoff by 0.67x for SAIR and 0.5x for QIR to determine
the lower bound of the zone. The cutoff and this lower bound define the zone.

2.

For migration rules applicable to potential constituents of the Small Cap Size-Segment and the concept of the Small
Cap Entry Buffer Zone, please refer to the methodology book, section 3.1.5.1.

3.

For QIRs, notwithstanding the above priority rules, note that the following companies are retained in their sizesegment and the NOC is increased or decreased accordingly (methodology book, section 3.2.1.3)

a.

Companies migrating from lower size segment but are below GMSR

b.

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Assess Conformity with Final Size-Segment Investability Requirements
In order to enhance the replicability of Size-Segment Indexes, additional size-segment investability
requirements are set for the Investable Market and the Standard Indexes as defined in the table below:
Table 7. Final Size-Segment Investability Requirement

Non-Constituents & Migrating
Constituents

Existing Constituents> Float MCap Cutoff (set to 1/2 ofthe Market Size-Segment Cutoff)

SAIR: DM&EM: ≥ 2/3 of the threshold set
for non-constituents> 1.8x Float MCap Cutoff if
FIF<0.15

Larger FM: 2/3 x ½ x UMSR

Requirement

Minimum Free Float-Adjusted Market
Capitalization Requirement

Meth.
Book
Section
2.3.5.1
3.1.6.2

Smaller FM: 2/3 x ¼ x UMSR
QIR: Not evaluatedGlobal Minimum FIF

See above

SAIR: Small Cap: ≥ 0.15

3.1.6.2

QIR: Not evaluated
Note:
1.

Existing Standard Index constituents in the lower buffer (i.e., within area of Small Cap Size-Segment or SAIR allocation
priority #4, see Figure 5) that fail additional investability requirements of the Standard Index are moved to Small Cap
instead of being deleted from the IMI.

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 Indexes as partof the QIR, unless they meet the criteria outlined in section 3.2.2 of the Global Investable Market
Indexes methodology book. During Index Reviews, current constituents with less than 25% foreign
room are subject to an adjustment factor based on Table 8 below.
Table 8. Adjustment Factors for Index Constituents

Post Review Adjustment Factor
Current Adjustment Factor≥ 25%≥ 15, < 25%≥ 7.5%, < 15%≥ 3.75%, < 7.5%

< 3.75%

1

1

1

0.5

0.25

0

0.5

1

0.5

0.5

0.25

0

0.25

1

0.5

0.25

0.25

0

Notes:
1.
2.
3.
4.
5.

Exceptions to the < 3.75% rule: Security must have an eligible DR (level II and III DRs listed on NYSE, NASDAQ and London Stock
Exchange. Must also have a 12 month ATVR > 20% for DM and > 15% for EM and FM.
An upward movement of the adjustment factor following a previous reduction in foreign room will only be considered 12 months after
the weight reduction unless the upward movement of the adjustment factor is primarily driven by a change in FOL.
A security deleted from the index given a foreign room < 3.75% will only be considered for inclusion 12 months after its deletion
unless it is primarily driven by FOL.
In the case of #2 and #3, increases in adjustment factor or re-inclusion due to FOL increase will only be considered in an index
review if the FOL increase occurred prior to the price cutoff date of the previous index review.
Minimum free float requirements for Index Constituents are checked before the application of the adjustment factor. In contrast,
minimum free float requirements for Non-Constituents are checked after the application of the adjustment factor.

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End Notes
Market Investability Requirements
Equity Universe Minimum Size Requirement (UMSR) and Minimum Free Float-Adjusted Market Capitalization
1.

Sort companies in DM Equity Universe in descending order of full market capitalization (“Full MCap”)

2.

Calculate cumulative coverage of the free float-adjusted market capitalization (“Float MCap”) at each company.

3.

Once cumulative Float MCap coverage of 99% is achieved, the Full MCap of the company at that point defines UMSR. This rank is noted
for the UMSR adjustment during the next SAIR.



During the next SAIR, the coverage at the noted rank will determine the new UMSR as well as the new rank as follows:o

99% to 99.25%, UMSR is set to the current Full MCap of the company at that rankoBelow 99%, UMSR and rank is reset to the Full MCap and rank of the company at the 99% coverage.

oAbove 99%.25%, UMSR and rank is reset to the Full MCap and rank of the company at the 99.25% coverage.

Same UMSR is used for both DM and EM.

Minimum Float MCAP requirement is equal to 50% of UMSR

Annual Traded Value Ratio and Frequency of TradingMonthly median traded values (MMTV) = median daily traded value x number of days in the month the security tradedoDaily traded value = number of shares traded intra-day x closing priceMonthly median traded value ratio (MMTVR) = MMTV / free float adjusted security MCap

12-Month ATVR = average of the MMTVR for the previous 12 months (or months this data is available – 6, 3 or 1 month) x 12 (toannualize)3-Month ATVR = average of the MMTVR for the previous 3 months (or 1 month if unavailable) x 12



ATVR values and thresholds are not rounded

FOT = Number of days a Security Traded vs. Number of market trading days during a 3 month period

Adjustments are done where ATVR/FOT are decisive elements for inclusion or exclusion:oSuspended securities: suspension days are excludedoLarge public offerings: trading volumes after public offering are usedoDeleted Securities (last 12 months): excludes trading volumes of month security deletion was announced and deleted.

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Foreign Inclusion Factor
Free Float: Proportion of shares outstanding that is available for purchase in the public equity markets by international investors (accounts
for free float and/or foreign ownership limits)For securities with free float greater than 15% and not subject to FOL, the FIF is equal to the estimated free float, rounded up to theclosest 5%For securities with free float less than 15% and not subject to FOL, the FIF is equal to the estimated free float, rounded to the closest 1%.



For securities subject to FOLs, the FIF is equal to the lesser of:ooEstimated 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%.

Foreign Room

Proportion of shares still available to foreign investors relative to the maximum allowedConformity with minimum free float-adjusted MCap for constituents will be assessed before the application of adjustment factor (see table
on final size segment investability)

Index Data Cutoff Dates
The following are the general guidelines on cutoff dates used for the Index Reviews.
Table 9. Data Cutoff Dates

February QIRMay SAIR

August QIR

November SAIR

Equity Universe
Update (includes FIF
and NOS)End of November

End of February

End of May

End of AugustPrice Cutoff Date

Any of the last 10
business days of January

Any of the last 10
business days of April

Any of the last 10
business days of July

Any of the last 10
business days of OctoberForeign Room
Updates to Existing
Equity Universe

End of December

End of March

End of June

End of September

Data for Calculating
Liquidity
Requirements

End of December

End of March

End of June

End of September

Note:
1.

For details, please refer to the Global Investable Market Indexes methodology book, sections 3.1.9 and 3.2.5.

2.

A business day is defined as a day from Monday to Friday where markets cumulatively constituting of more than 80%of the market capitalization of the MSCI ACWI Index are expected to be open.

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As of September 30, 2013, as reported on January 31, 2014 by eVestment, Lipper and Bloomberg

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