Index Calculation Methodology
The launch of the Derivatives Market is one of the Financial Sector Development Program (FSDP) key initiatives under the Kingdom’s Vision 2030. This market enhances Saudi Exchange’s products offering and complements recent developments to the financial market infrastructure. Below you will find more information about the market characteristics. Additionally, we have provided some useful links that will direct you to more educational content.
Capped Indices Calculation Methodology
Capped indices (Tadawul All Share Index “TASI” and Parallel Market Index “NOMUC”) have a limit on the weight of any single security within that index, where its sets a maximum percentage on the relative weighting of a component that is determined by its market capitalization.
The capped index is used to prevent any single security from having a dominating influence on an index.
Index value for capped indices is calculated as follows:
Index = (Today’s total free float capped market capitalization / previous day total free float capped market capitalization) x index value of the previous day.
Capped FF Market Capitalization = sum of ((free float market capitalization of company “A” x capping factor) + (free float market capitalization of company ”B” x capping factor) + …) and so for all companies included in the index.
Capping Factor is a derived factor used to reduce the Free Float Market Cap of equities in an index so that the weights of all index constituents remain under a set capping threshold, and it is applied at the constituent level. With the application of capping factor, the weight of dominant constituent(s) is contained and the excess weight is distributed over the remaining index constituents so that the total index weight remains at 100%.
Uncapped Indices Calculation Methodology
The Industry Group indices are calculated by multiplying the index value of the previous day by the change in the free float market capitalization of all index constituents.
The below formula explains how uncapped equity indices are calculated:
Index = (Today’s total free float market capitalization / previous day total free float market capitalization) x index value of the previous day.
The total free float market capitalization= free float market capitalization of company “A” + free float market capitalization of company ‘B” + …… and so for all companies included in the index.
Free float market capitalization for company “A” = Closing price for company “A” x the number of free float shares of company “A”.
Free Float Shares
The index calculation methodology includes equities that can be traded on Tadawul. The following shares are excluded (considered as Non Free Float) from all Tadawul indices’ calculations:
a. A government entity owning 5% and more in a listed company.
b. Restricted shares (shares that are not allowed to be traded during a period).
c. Shares acquired through buy-back by a listed company.
d. Shares owned by members of the Board of Directors.
e. Shares representing controlling ownership (30% or more).
Tadawul maintains indices at the end of each quarter to update the following:
- Changes in the numbers of free float shares.
- Exclusion of suspended companies.
- The rebalance date and constituents’ inclusion or exclusion is announced on Tadawul website three (3) trading days before the rebalance date.
- Capped Indices rebalancing and capping factors’ revisions will be carried out at the end of each quarter, aligned with quarterly index maintenance cycle at Tadawul.
- Intra-Quarter rebalancing can be considered due to a corporate event, such as Merger / Acquisitions or any other event that may ‘significantly’ affect the stability of the Index.
Detailed Index Methodology Document
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