1. Data Acquisition on Reference Date
The process begins with data acquisition on what’s known as the reference date – usually June 30 of every year. SIX records, among other things:
- Market Capitalization (Market capitalization based on the free-float over the past 12 months)
- Order Book Turnover (Liquidity over the past 12 months on the SIX Swiss Exchange)
SIX evaluates this data in order to create what’s known as a selection list.
2. Selection Lists
SIX uses the selection list to create a ranking in order to determine which companies it has to incorporate in the index and which companies it can remove. The overall ranking is based equally on the ranking according to:
- Free-Float Market Capitalization (only the freely tradable portion Free-Float is considered)
- Order Book Turnover (how often and extensively a stock was traded)
For inclusion in or exclusion from an index, SIX has defined buffer zones for ranks 19 through 22. This means that the first 18 components are included directly in the index. Among the candidates ranked 19 to 22, priority is given to including those that are currently already in the index. Then, new components from the buffer zone are included until the index contains 20 components. The buffer zones ensure greater stability in the compilation of the index.
This structured process ensures that compilation of the index is objective, rules-based, and transparent.
3. Presentation of Results to the Index Commission
SIX subsequently presents the results of the analysis and application of the selection criteria to the Index Commission. This body is comprised of independent experts and representatives from the financial markets. The Index Commission reviews the recommendations and plays a pivotal role in quality assurance and in validating the changes.
4. Formal Approval, Communication, and Implementation
The Index Commission is an advisory body, and the formal approval is made by the Swiss Index Committee, an internal management committee at SIX. SIX publishes this final decision at the beginning of July as a media release and via the SIX Index Newsletter.
SIX implements the changes at the end of the day on the third Friday in September. The index adjustment takes effect on the following Monday. It is important that communication occurs with sufficient lead time, as many index funds, ETFs, and other investment products are based on the indices. Complete information on the index composition is usually available to SIX customers five days prior to the third Friday. Issuers of financial products must be prepared for potential index adjustments to ensure there is no discrepancy between their investment products and the indices. In most cases, issuers also adjust their portfolios directly in the evening of the third Friday in September. This one reason why trading volumes on the exchanges are generally higher at the time.