Background on index review
In order to maintain their indexes up to date, MSCI generally have two major reviews:
- Quarterly Index Reviews (QIRs) in February and August
- Semi-Annual Index Reviews (SAIRs) in May and November
While QIRs are aimed at reflecting significant market events or moves of (new) companies, SAIRs are used to update indexes on the basis of a fully refreshed equity universe. The re-balance is based on rules-based analytical criteria (e.g. market performance or market capitalization as well as accessibility), but also on extensive consultations preceding the re-balancing per se.
Highlights
November 2015
- Following the conclusion its last SAIR in November 2015, MSCI announced the inclusion of companies traded outside of their country of classification, i.e. foreign listed firms into its indexes, initially at half their free float-adjusted market cap.
- Seventy-four securities, of which 21 are foreign listed securities, were added to and 60 securities were deleted from the MSCI ACWI Index. This impacted especially the EM index, where 14 tech-oriented Chinese names were added to its USD 3.5 trillion market-cap index.
May 2016
- With the upcoming SAIR, MSCI is expected to continue with the second phase of the foreign listed firms' implementation, which will significantly increase the weights of the American Depository Rights (ADRs) that are already included in MSCI China, and in turn substantially affect the country weights in the EM index.
- MSCI China is estimated to attract significant inflows by May 2016 (USD 40 bn, analyst estimates), while countries like Korea, India or Taiwan are expecting a decrease in their country weights, and consequently cumulative capital outflows (USD 10 bn, analyst estimates).
- Other things to watch for are the ongoing consultations regarding re-classification of MSCI Peru (from EM to Frontier), MSCI Pakistan (from Frontier to EM) as well as placing Nigeria under a "special treatment", where, among other things, some individual stocks that no longer meet MSCI's criteria may be deleted from indexes.
Using MSCI Derivatives can help you to facilitate this transition for outsource rebalancing, replicate & manage in- and outflows of funds, hedge existing equity exposure and enhance portfolio performance.
Eurex MSCI Derivatives
Eurex's MSCI Derivatives deliver a broad range of advantages and opportunities:
- We offer 59 MSCI Futures and 15 Options, with Market Maker on-screen liquidity, as well as good support by a number of banks and brokers to facilitate off-book transactions - particularly in the more widely used benchmarks.
- Eurex has become the "go-to" market for MSCI World & MSCI Europe Futures. In Q1/16 725,000 contracts have been traded in these futures (more than three times that of Q1/15) - confirming investors' demand for transparent and order book priced instruments.
- Alongside these liquid benchmark futures contracts, Eurex is also the leading exchange for MSCI Options globally. Check out this interview with Susquehanna on Market-Making in MSCI Options.
- U.S.-based traders can access more than 20 MSCI Futures.
- Eurex Trade Entry services & Flexible Contracts provide additional flexibility: MSCI Futures are available out to three years; American- and European-style MSCI Options can be traded out to five years.
- Open interest in MSCI Futures & Options (including Flexible Options) increased to more than 500,000 contracts, which in notional terms is more than EUR 5 billion in Futures, as well as EUR 5 billion in Options.
- All transactions are centrally cleared via Eurex Clearing.
If you have any further questions, please do not hesitate to contact
