FTSE Global China A Inclusion Index Series Ground Rules … · TABLE OF CONTENTS SECTIONS 1.0 ......

Version 0.1 May 2015

GROUND RULES FOR THE

FTSE GLOBAL CHINA A INCLUSION INDEX SERIES

Ground Rules for the FTSE Global China A Inclusion Index Series 2 Version 0.1 May 2015

TABLE OF CONTENTS SECTIONS 1.0 Introduction 1.1 FTSE Global China A Inclusion Index Series 1.2 Statement of Principles 1.3 Index Objective and Intended Use 1.4 These Ground Rules 1.5 Indices Included in the FTSE Global China A Inclusion Index Series 2.0 Management Responsibilities 2.1 FTSE 2.2 Amendments and Exceptions to these Ground Rules 3.0 Queries, Complaints and Appeals 4.0 Security Inclusion Criteria 5.0 Investability Weightings 6.0 Periodic Review of Constituents 6.1 Index Regions and Reviews 6.2 Index Reviews 6.3 China Review Process 6.4 Screens Applied to Eligible Securities 6.5 Reviewing Constituents for the China Indices 7.0 Additions Outside of a Review 7.1 Definition of Fast Entry Level 8.0 Corporate Actions and Events 8.1 Corporate Actions and Events 8.2 Shares in Issue 8.3 Spin-offs 9.0 Announcing Changes 9.1 Changes to Constituents 9.2 Index Methodology Changes 9.3 Recalculations 10.0 Algorithm and Calculation Method 10.1 Prices 10.2 Calculation Frequency 10.3 Algorithm 10.4 China A Inclusion Adjustment Factor 11.0 Further Information APPENDICES A China Share Descriptions B Eligible Markets and Sources of Trading C Index Algorithm & Calculation Method D China A Inclusion Adjustment Factor Algorithm & Intra-Review Factor Changes E The FTSE Global China A Inclusion Additional Indices


SECTION 1 1.0 INTRODUCTION 1.1 FTSE Global China A Inclusion Index Series 1.1.1 The FTSE Global China A Inclusion Index Series is designed to represent the performance of

the China A Shares that are available to international investors. The FTSE Global China A Inclusion Index Series takes into account the QFII and RQFII quota approved by the State Administration of Foreign Exchange (SAFE).

1.2 Statement of Principles

Indices need to keep abreast of changing markets and the Ground Rules cannot anticipate every eventuality. Where the Rules do not fully cover a specific event or development, FTSE will determine the appropriate treatment by reference to the Guiding Principles which summarise the ethos underlying FTSE’s approach to index construction. The Statement of Principles is reviewed annually and any changes proposed by FTSE are presented to the FTSE Policy Group for discussion before approval by FTSE’s internal Governance Board. FTSE’s Statement of Principles can be accessed using the following link: http://www.ftse.com/products/downloads/Statement_of_Principles.pdf

1.3 Index Objective and Intended Use 1.3.1 The indices and index statistics are intended to reflect the investment markets included in the

index definitions and to facilitate the detailed analysis of such markets. 1.3.2 FTSE hereby notifies users of the benchmark that it is possible that factors, including external

factors beyond the control of FTSE, may necessitate changes to, or the cessation, of the benchmark and therefore, any financial contracts or other financial instruments that reference the benchmark should be able to withstand, or otherwise address the possibility of changes to, or cessation of, the benchmark.

1.3.3 Investors who choose to follow this index or to buy products that claim to follow this index

should assess the merits of the index’s rules-based methodology and take independent investment advice before investing their own or client funds. No liability whether as a result of negligence or otherwise is accepted by FTSE for any losses, damages, claims and expenses suffered by any person as a result of:

any reliance on these Ground Rules, and/or any errors or inaccuracies in these Ground Rules, and/or any non-application or misapplication of the policies or procedures described in these

Ground Rules, and/or any errors or inaccuracies in the compilation or any constituent data in the Index.


SECTION 1 1.4 These Ground Rules 1.4.1 This document sets out the Ground Rules for the construction and maintenance of the FTSE

Global China A Inclusion Index Series. 1.4.2 These Ground Rules should be read in conjunction with the Guide to Calculation Methods and

Corporate Actions and Events Guide which can be accessed using the links below: www.ftse.com/products/downloads/FTSE_Global_Equity_Index_Series_Guide_to_Calc.pdf www.ftse.com/products/downloads/FTSE_Corporate_Actions_and_Events_Guide.pdf 1.4.3 Unless specifically detailed in this document, all areas of the methodology regarding the

management of the FTSE Global China A Inclusion Index Series are related to the FTSE Global Equity Index Series Ground Rules. The FTSE Global China A Inclusion Index Series Ground Rules should therefore be read in conjunction with the FTSE Global Equity Index Series Ground Rules. These rules are available on www.ftse.com.

1.5 Indices Included in the FTSE Global China A Inclusion Index Series

The following indices are included in the FTSE Global China A Inclusion Index Series:

1.5.1 FTSE China A Index

This index comprises the Large and Mid Cap A Share constituents that meet the stated eligibility requirements.

1.5.2 FTSE China A All Cap Index

This index comprises the Large, Mid and Small Cap A Share constituents that meet the stated eligibility requirements. Individual Large, Mid and Small Cap Indices are also calculated.

1.5.3 FTSE China A Sector Indices Industry, Supersector, and Sector indices are calculated for the FTSE China A and FTSE China

A All Cap Indices using the Industry Classification Benchmark (ICB). Additional indices are created by combining the FTSE China A Indices and the FTSE Global

Equity Index Series. For each combined index two versions will be calculated: 1.5.4 FTSE All-World China A Inclusion Indices These indices will combine the FTSE China A Index with indices included in the FTSE All-World

Index. The weight of the FTSE China A Index in the FTSE All-World China A Inclusion Indices will be adjusted by the quota available to international investors.

1.5.5 FTSE All-World China A Inclusion (no Quota) Indices These indices will combine the FTSE China A Index with indices included in the FTSE All-World

Index. Constituents of the FTSE China A Index will be adjusted by their investability weights (after foreign ownership restrictions).

Please refer to Appendix E for further details of what indices are available in the FTSE Global

China A Inclusion Index Series.


SECTION 1 1.6 The FTSE Global China A Inclusion Index Series is calculated in Renminbi (Chinese Yuan), US

Dollars, Euros, UK Pounds Sterling, and Japanese Yen. 1.7 Price, Total Return and Net of Tax Indices will be calculated on an end of day basis. The Total

Return Index is based on ex dividend adjustments. The Total Return Indices include income based on ex dividend adjustments. All dividends are applied as declared.

1.8 A series of net of tax Total Return Indices are also calculated based on the maximum

withholding tax rates applicable to dividends received by institutional investors who are not resident in the same country as the remitting company and who do not benefit from double taxation treaties.

The underlying tax rate information is available from FTSE. 1.9 Selected indices of the FTSE Global China A Index Series are calculated and disseminated on a

real time basis. (See Appendix F)


SECTION 2 2.0 MANAGEMENT RESPONSIBILITIES 2.1 FTSE 2.1.1 FTSE is the Benchmark Administrator as defined by the IOSCO Principles for Financial

Benchmarks published in July 2013. 2.1.2 FTSE is responsible for the daily operation of the FTSE Global China A Inclusion Index Series.

FTSE will maintain records of the market capitalisation of all constituents, and will make changes to the constituents and their weightings in accordance with the Ground Rules. FTSE will also carry out the periodic country reviews of the FTSE Global China A Inclusion Index Series and implement the resulting constituent changes as required by the Ground Rules.

2.1.3 Changes to constituent weightings are made by FTSE in accordance with the Ground Rules.

FTSE will also be responsible for publicising such changes to constituent weightings. 2.2 Amendments and Exceptions to these Ground Rules 2.2.1 These Ground Rules shall be subject to regular review (at least once a year) by FTSE to

ensure that they continue to meet the current and future requirements of investors and other index users.

2.2.2 As provided for in Rule 1.2, where FTSE determines that the Ground Rules are silent or do not

specifically and unambiguously apply to the subject matter of any decision, any decision shall be based as far as practical on the Statement of Principles as provided for in Principle 2. After making any such determination, FTSE shall advise the market of its decision at the earliest opportunity. Any such treatment will not be considered as an exception or change to the Ground Rules, or to set a precedent for future action, but FTSE will consider whether the Rules should subsequently be updated to provide greater clarity.


SECTION 3 3.0 QUERIES, COMPLAINTS AND APPEALS A constituent or prospective constituent company (or professional advisor acting on behalf of

the company), a national organisation or a group of no fewer than ten users of the Indices from different organisations acting in their professional capacity may appeal against decisions taken by FTSE.

http://www.ftse.com/products/downloads/Queries_and_Complaints_Policy.pdf

FTSE’s Appeal Process can be accessed using the following link: http://www.ftse.com/products/downloads/Appeals_Against_Decisions.pdf


SECTION 4 4.0 SECURITY INCLUSION CRITERIA 4.1 All China A share classes of equity in issue are eligible for inclusion in the FTSE Global China A

Inclusion Index Series subject to conforming with Rules 4.2 to 4.7 and the criteria set in Appendix A & B.

4.2 The entire quoted equity capital of a constituent company is included in the calculation of its

market capitalisation, subject to the free float restrictions highlighted in Rule 5.1. 4.3 The following are regarded as ineligible: Companies whose business is that of holding equity and other investments (e.g. Investment

Trusts) which are assumed by the Industry Classification Benchmark as Subsector equity investment instruments (8985) and Non-equity investment instruments which are assumed by the Industry Classification Benchmark as Subsector non-equity investment instruments (8995) will not be eligible for inclusion.

Limited Liability Partnerships (LLP), Limited Partnerships (LP), Limited Liability Companies

(LLC) and Business Development Companies (BDC) will not be eligible for inclusion. Where a stapled unit comprises an eligible security and a non eligible security (such as non

equity or an Investment Trust structure) the unit will not be eligible for inclusion. Convertible preference shares and loan stocks are excluded – until converted. Where a company does not list all its shares in an eligible class, or does not list an entire

class, the unlisted shares are not eligible for inclusion, but they may be included in the Review Universe for the purpose of ranking companies by their full market capitalisation.

4.4 Securities designated “Special Treatment (ST or *ST)” are not eligible for inclusion in the

index. If a constituent is designated as ‘Special Treatment’ by the exchange, it will normally be deleted from the index in line with the next semi-annual review.

4.5 Eligible securities are required to pass screens for liquidity, free float and foreign ownership

restrictions before being included in the FTSE Global China A Inclusion Indices (see rules 5.1 and 6.4.2).

4.6 All securities included in FTSE Global China A Inclusion Indices are assigned a nationality in

accordance with the rules as set out in the Nationality Statement. Details can be accessed using the following link: http://www.ftse.com/products/downloads/Determining_Nationality.pdf

4.7 Multiple Lines

Where there are multiple lines of equity capital in a company, all are included and priced separately, provided that: Each individual line is eligible in its own right in all respects under Section 6.

For Large and Mid Cap companies eligible for inclusion in the FTSE China A Index each

individual line’s market capitalisation’s are required to pass the relevant Mid Cap inclusion/exclusion criteria stipulated in Rule 6.5.


SECTION 4

For Small Cap companies eligible for inclusion in the FTSE China A Small Cap Index each individual line’s market capitalisation’s are required to pass the relevant Small Cap inclusion/exclusion criteria stipulated in Rule 6.5.

All partly-paid classes of equity are priced on a fully-paid basis if the calls are fixed and are payable at known future dates. Those where future calls are uncertain in either respect are priced on a partly-paid basis.


SECTION 5 5.0 INVESTABILITY WEIGHTINGS 5.1 Constituents of the FTSE Global China A Inclusion Index Series are adjusted for free float,

foreign ownership limits and RQFII / QFII quota limits. Further details on free float restrictions can be accessed using the following link:

http://www.ftse.com/products/downloads/Free_Float_Restrictions.pdf In order to calculate the free float of a Chinese company its total A Shares will need to be derived. This is calculated by taking the entire quoted equity capital of a company and excluding its B and H Shares. A. Initial weighting Free float restrictions will be calculated using available published information. For equity shares of companies that have a free float greater than 5%, the actual free float will be rounded up to the next highest whole percentage number. Companies with a free float of 5% or below are not eligible for inclusion in the Index, unless they exceed 10 times the inclusion percentage level by investable market capitalisation as stated in Rule 6.5.2. B. Percentage point thresholds Following the application of an initial free float restriction, a constituent’s free float will only be changed if its rounded free float moves to more than 3 percentage points above or below the existing rounded free float. Where a company’s actual free float moves to above 99%, it will not be subject to the 3 percentage points threshold and will be rounded to 100%. A constituent with a free float of 15% or below will not be subject to the 3 percentage points threshold. C. Changes in free float A constituent’s free float will also be reviewed on publication of further information on restricted shareholdings. For changes resulting from a corporate event, refer to the Corporate Actions and Events Guide for further information. Where a change is not corporate event driven, the update in free float will be applied after the close of business on the third Friday of March, June, September and December, whichever comes first. The data cut-off for these quarterly changes will be the close of business on the third Wednesday of the month prior to the review month. Any change in free float will be subject to Rule 5.1 B. D. Foreign ownership restrictions FTSE’s index methodology takes account of the restrictions placed on the equity holdings of foreigners in a company where these have been imposed by a government, regulatory authority or the company's constitution. Where the presence of a foreign ownership restriction creates a limit on foreign ownership (the Foreign Ownership Limit or FOL) that is more restrictive than the calculated free float for a company, the precise Foreign Ownership Limit is used in place of the free float for the purposes of calculating the company’s investability weight. If the foreign ownership restriction is less restrictive or equal to the free float restriction, the free float restriction is applied, subject to Rule 5.1. A.

E. Minimum Foreign Head Room Requirement FTSE defines “foreign headroom” as the percentage of shares available to foreign investors as a proportion of the underlying investability weight (i.e. share availability / investability weight).


SECTION 5

For example, if a company has a foreign ownership limit, of 49%, of which 39% is held by foreign investors, the foreign headroom will be calculated as 20.41% i.e. (49% - 39%)/ 49%.

For a new security that is subject to a foreign ownership limit a minimum headroom of

20% must be available in order to be included in the index.

Where the headroom of an existing constituent falls below 10%, its investability weight will be reduced by 10% at the next semi-annual review i.e. if the current investability weight is 49%, a 10% reduction will result in an adjusted investability weight of 44.1% (49%*0.9).

The investability weight will continue to be reduced at subsequent semi-annual reviews in increments of 10% until the headroom level increases above 10%. Should the investability weight fall to 5% or below under this process, the security will no longer be eligible to remain in the index.

The investability weight of an existing constituent which has been subject to headroom

adjustments will have its most recent 10% adjustment reversed at semi-annual reviews subject to the headroom remaining above 20% i.e. if the adjusted investability weight is 44.1%, the 10% adjustment would be removed and the investability weight would increase back up to 49% (44.1% / 0.9).

F. China A Inclusion adjustment factor The China A Inclusion adjustment factor is updated quarterly in March, June, September and December to reflect the latest information available, using: Constituents, shares in issue and investability weightings of the FTSE China A All Cap

Index after the close of business on the third Friday in March, June, September and December.

Prices adjusted for corporate actions as at the close of business on the second Friday in March, June, September and December.

QFII / RQFII quota as at close of business on the fifth business day of March, June, September and December. The quota information is available at: www.safe.gov.cn.

The algorithm in determining the China A Inclusion adjustment factor is detailed in Appendix D. The new China A Inclusion adjustment factor is implemented after close of business on the third Friday in March, June, September and December.


SECTION 6 6.0 PERIODIC REVIEW OF CONSTITUENTS 6.1 Index Regions and Reviews 6.1.1 Countries are grouped into regions (detailed below) for the purpose of reviews. The review of

each region takes place semi-annually as detailed below.

Regions to be Reviewed Date of Review Data Taken as of Asia Pacific ex Japan Developed Europe Emerging Europe Japan Latin America Middle East & Africa North America

March Last business day in December

September Last business day in June

Note: Advanced Emerging and Secondary Emerging markets are treated as Emerging for the purposes of Sections 6 and 7. To accommodate the different China share classes the China A Shares are reviewed in an “all China” universe by grouping the different Chinese share classes defined in Appendix A. The China A Share constituents selected from this universe constitute the companies in the FTSE Global China A Inclusion Index Series. The remaining Chinese share classes are selected as part of the existing FTSE Global Equity Index Series review process.

6.2 Index Reviews 6.2.1 Countries are usually reviewed semi-annually in March and September, on a region by region

basis, based on data as at the close of business on the last business day of December and June. Any constituent changes resulting from the periodic review will be implemented after the close of business on the third Friday (i.e. effective the following Monday) of March and September.

6.2.2 The review process is designed to reflect market movements since the previous review and to

minimise turnover. 6.2.3 Timings of announcements about changes to the Index Series resulting from the review can

be found in Section 9. 6.3 China Review Process 6.3.1 Select all eligible A Share securities that satisfy Rule 4.1 and other eligible Chinese share

classes as defined in Appendix A. This is defined the Regional Universe. 6.3.2 Value companies by full market capitalisation (shares in issue * price), group secondary lines,

and rank companies (not securities) by full market value. Throughout the review process all of a company’s eligible securities will remain grouped, and companies as a whole, rather than individual securities are assigned to Large, Mid or Small Cap (see Rule 6.5)

6.3.3 Calculate the total market capitalisation of the universe by totalling the full capitalisation of all eligible companies in the region.


SECTION 6 6.3.4 Define the Index Universe - Ranked by full market capitalisation in descending order, calculate

the cumulative market capitalisations of all stocks in the regional universe and their relevant weights. The top 98% of the Regional Universe will be selected and forms the Index Universe.

6.4 Screens Applied to Eligible Securities Eligible securities are subject to the following screens:

6.4.1 Investability Weightings and Multiple Lines as detailed in Sections 4 and 5. 6.4.2 Liquidity

Each security will be tested for liquidity semi-annually in March and September by calculation of its median daily trading per month. For further information please refer to the FTSE Global Equity Index Series Ground Rules.

6.5 Reviewing Constituents for the China Indices 6.5.1 To reduce turnover, existing and potential constituents are subject to a series of ‘buffer zones’

to determine the cut-off points between Large, Mid and Small Cap – the buffers are detailed in the table below. In addition to the percentage cut-offs, new constituents are required to pass basis points entry and exit levels allocated to each specific region and index segment (the non-quota adjusted versions of the FTSE China A Index and FTSE China A Small Cap Index). These basis points entry and exit levels are detailed in Rule 6.5.2.

Turnover Bands (Based on the Index Universe)

Eligible for Inclusion Eligible for Exclusion Large Cap 68%* 72%* Mid Cap 86%* 92%* Small Cap 98%* 101%*

Note: 101% of the Index Universe is approximately 99% of the Regional Universe.

6.5.2 Inclusion and exclusion percentage levels by investable market capitalisation (before

application of the China A Inclusion adjustment factor) for the China region to determine additions and deletions and other changes in the index are shown below. These percentages are based on the respective regional Small Cap Index. Companies will be tested as a whole by taking the aggregate of each eligible line.

Region For Inclusion

(New Stocks) For Exclusion

(Current Stocks) China 0.10% 0.02%

In exceptional circumstances where FTSE believes that strict adherence to the inclusion and exclusion levels listed in the above table and in Rule 6.5.3 would produce either excessive turnover at an index review, or an index that inaccurately represented different size segments, FTSE reserves the right to vary the percentage levels.


SECTION 6 6.5.3 Companies currently not in the FTSE China A Indices:

Companies at or above 68% of the Index Universe by full market capitalisation with a

weight greater than 0.04% of the current combined FTSE China and FTSE China A Indices by full market capitalisation, and with a weight greater than the inclusion percentage levels stated in Rule 6.5.2 for the China region by investable market capitalisation (before application of the China A Inclusion adjustment factor), will be included in the Large Cap Index for the China region.

Companies ranked below 68%, but within the top 86% of the Index Universe by full

market capitalisation with a weight greater than 0.04% of the current combined FTSE China and FTSE China A Indices by full market capitalisation, and with a weight greater than the inclusion percentage levels stated in Rule 6.5.2 for the China region by investable market capitalisation (before application of the China A Inclusion adjustment factor), will be included in the Mid Cap Index for the China region.

Companies ranked below the top 86%, but within the top 98% of the Index Universe by

full market capitalisation or have a weight less than 0.04% of the current combined FTSE China and FTSE China A Indices by full market capitalisation, and with a weight greater than the inclusion percentage levels stated in Rule 6.5.2 for the respective region by investable market capitalisation (before application of the China A Inclusion adjustment factor), will be included in the Small Cap Index for the China region.

Existing constituents: Large Cap constituents will remain in the Large Cap Index if they fall within the top 72%

of the ranking described in Rule 6.3. If they are ranked between 72% and 92% of the Index Universe they will move to the Mid Cap. If they are ranked below 92% of the Index Universe but within the top 101% of the Index Universe, they will move to the Small Cap. If they are ranked below 101% of the Index Universe by full market capitalisation or have a weight less than the exclusion percentage levels stated in Rule 6.5.2 for the China region by investable market capitalisation (before application of the China A Inclusion adjustment factor), they will be excluded from the index.

Mid Cap constituents will move to the Large Cap if they fall within the top 68% of the

ranking described in Rule 6.3. If they are ranked between 68% and 92% of the Index Universe they will remain in the Mid Cap. If they are ranked below 92% of the Index Universe but within the top 101% of the Index Universe, they will move to the Small Cap. If they are ranked below 101% of the Index Universe by full market capitalisation or have a weight less than the exclusion percentage levels stated in Rule 6.5.2 for the China region by investable market capitalisation (before application of the China A adjustment factor), they will be excluded from the index.

Small Cap constituents will move to the Large Cap if they fall within the top 68% of the

ranking described in Rule 6.3. If they are ranked between 68% and 86% of the Index Universe by full market capitalisation and have a weight greater than 0.04% of the current combined FTSE China and FTSE China A Indices by full market capitalisation they will move to the Mid Cap. If they are ranked below 86% of the Index Universe or have a weight less than 0.04% of the current combined FTSE China and FTSE China A Indices by full market capitalisation, but within the top 101% of the Index Universe, they will remain in the Small Cap. If they are ranked below 101% of the Index Universe by full market capitalisation or have a weight less than the exclusion percentage levels stated in Rule 6.5.2 for the China region by investable market capitalisation (before application of the China A adjustment factor), they will be excluded from the index.


SECTION 6 6.5.4 Only China A Share constituents will be selected as the constituents for the FTSE China A All

Cap Index in this review process.


SECTION 7 7.0 ADDITIONS OUTSIDE OF A REVIEW 7.1 Definition of Fast Entry Level 7.1.1 Full market capitalisation of the smallest company that falls wholly within the top 68% of the

Index Universe by full market capitalisation of the China region when ranked according to Rule 6.3.

7.1.2 The Fast Entry level will be set at the time of the semi annual review in March and September

and published by FTSE. In June and December the Fast Entry levels will be adjusted up to 11 May or 11 November (previous trading day’s data will be taken if any of these dates are on a non-trading day), as appropriate, using the performance of the FTSE China All Cap Inclusion (no Quota) Index. An updated figure will be published by FTSE.

7.1.3 A stock will be added to the list of constituents of an existing country outside a review when:

A. A new security (IPO), which satisfies the eligibility criteria and the screens other than the liquidity screen, is eligible for fast entry when its full market capitalisation (i.e. before the application of any investability weighting) using the closing price on the first day of trading is greater than the Fast Entry Level for the relevant region (see Rule 7.1.1). The addition of a new security to the index will be implemented after the close of business on the fifth day of trading. In the event of the fifth day of trading being in close proximity to an index review, FTSE may use its discretion to include a fast entrant at the index review date following advance notice.

B. A new security (IPO) which does not qualify as an immediate fast entrant to the index

will be re-considered for inclusion into the FTSE Global China A Inclusion Index Series at the next review. However, for inclusion at a quarterly review outside the March and September semi-annual reviews, its full market capitalisation at close on 11 May or 11 November (previous trading day’s data will be taken if any of these dates are on a non trading day), as appropriate, must be:

equal to or greater than the entry levels under Rule 6.5.1 (index adjusted to reflect

the change in performance of the regional index since its previous semi-annual review).

and it must qualify under Rules 5.1 and 6.4.2 (including the minimum requirement of a 3 month trading record under).

C. In the case of a demutualisation where upon listing the entire free float of a new eligible

security is immediately transferred to private shareholders the addition of the security will be deferred for one month after trading has commenced - provided that adequate liquidity over the intervening period (as defined under Rule 6.4.2) is demonstrated.

D. Newly eligible securities, for example a non-constituent moving to an eligible market, will

be reviewed for inclusion at the next semi-annual review.


SECTION 8 8.0 CORPORATE ACTIONS AND EVENTS 8.1 Full details of changes to constituent companies due to corporate actions and events can be

accessed in the Corporate Actions and Events Guide using the following link: http://www.ftse.com/products/downloads/FTSE_Corporate_Actions_and_Events_Guide.pdf

Details of corporate action changes to the China A Inclusion adjustment factor can be found in Appendix D. A Corporate ‘Action’ is an action on shareholders with a prescribed ex date. The share price will be subject to an adjustment on the ex date. The index will be adjusted in line with the ex date. These include the following: • Capital Repayments • Rights Issues/Entitlement Offers • Stock Conversion • Splits (sub-division) / Reverse splits (consolidation) • Scrip issues (Capitalisation or Bonus Issue)

A Corporate ‘Event’ is a reaction to company news (event) that may impact the index depending on the index rules. For example, a company announces a strategic shareholder is offering to sell their shares (secondary share offer) – this could result in a free float weighting change in the index. Where an index adjustment is required FTSE will provide notice advising of the timing of the change.

8.2 Shares in Issue Changes to the number of shares in issue for constituent securities are covered in the

Corporate Actions and Events Guide. 8.3. Spin-offs

If a constituent company is split and forms two or more companies by issuing new equity to existing shareholders, then the resulting companies will be eligible to continue as constituents in the same indices within the FTSE Global China A Inclusion Index Series as their predecessor company if:

• they fall within the top 101% of the Index Universe, based on full market capitalisation, at close on the first day of trading. The 101% level for each region will be set at the time of each quarterly review and published by FTSE.

• they have a weight greater than the exclusion percentage levels stated for the respective Small Cap Index by investable market capitalisation.


SECTION 9 9.0 ANNOUNCING CHANGES 9.1 Changes to Constituents 9.1.1 Decisions regarding the addition of new constituents (which are unrelated to existing index

constituents or changes to the investable weighting of existing constituents) are announced at the earliest possible time before their inclusion in the Index Series. However, the announcement may be contingent upon the confirmation of the listing date of the security and passing all the screens.

9.1.2 Quarterly changes are published after the close of business on the Wednesday before the first

Friday of March, June, September and December to give users of the index sufficient notification of the changes before their implementation.

9.1.3 In order to allow users sufficient time to manage any revisions, FTSE will endeavour to make

no further amendments to the published quarterly changes beyond 2 business days following publication. Where further revisions are identified after this date they will normally be addressed at a subsequent review (unless those revisions are resultant of corporate events, in which case they will be applied at the same time as the corporate event). However FTSE reserves the right to determine the most appropriate timing for revisions with reference to the Statement of Principles.

9.1.4 Implementation of any quarterly changes will happen after the close of business on the third

Friday in March, June, September or December. Details of FTSE Regional Advisory Committees meeting dates are available from FTSE.

9.1.5 Announcements made after the close of the index calculation within the individual country

market are normally made on the following business day. 9.2 Index Methodology Changes 9.2.1 Users of the FTSE Global China A Inclusion Index Series are notified of such policy changes

through appropriate media before implementation. 9.3 Recalculations 9.3.1 The FTSE Global China A Inclusion Index Series are recalculated whenever errors or

distortions occur that are deemed to be significant. Users of the FTSE Global China A Inclusion Index Series are notified through appropriate media. For further information refer to the FTSE Recalculation Policy and Guidelines document which is available from the FTSE website using the link below or by contacting [email protected].

http://www.ftse.com/products/downloads/FTSE_Index_Recalculation_Policy_and_Guidelines.pdf


SECTION 10 10.0 ALGORITHM AND CALCULATION METHOD 10.1 Prices 10.1.1 The FTSE Global China A Inclusion Index Series use actual closing mid-market or last trade

prices, where available, for securities with local market quotations. Further details can be accessed using the following link:

http://www.ftse.com/products/downloads/Closing_Prices_Used_For_Index_Calculation.pdf 10.1.2 Reuters real time exchange rates are used in the index calculations which are disseminated in

real-time. Exchange rates used in the End of Day calculations are WM/Reuters Closing Spot Rates, collected at 16:00 London time (further information on The WM/Reuters Closing Spot Rates service is available from The WM Company).

10.2 Calculation Frequency 10.2.1 See the calculation schedule for the FTSE Global Equity Index Series. 10.3 Algorithm 10.3.1 For details on the Algorithm and calculation methods used for the FTSE Global China A

Inclusion Index Series see the FTSE Global Equity Index Series Guide to Calculation Methods. Application of the China A Inclusion adjustment factor can be found in Appendix C.

10.4 China A Inclusion Adjustment Factor 10.4.1 Qualified foreign investors are allowed to invest in A Shares via the QFII or RQFII scheme,

subject to the investment quota approved by SAFE. For the FTSE All-World China A Inclusion Index the investability of A Shares are adjusted by a China A Inclusion adjustment factor, so as to reflect the foreign investment availability to A Shares. The China A Inclusion adjustment factor algorithm can be found in Appendix D.

10.4.2 The China A Inclusion adjustment factor is updated quarterly at the periodic reviews in March,

June, September and December.


SECTION 11 11.0 FURTHER INFORMATION 11.1 A Glossary of Terms used in FTSE’s Ground Rule documents can be found using the following

link: http://www.ftse.com/products/downloads/Glossary.pdf 11.2 For further information on the FTSE Global China A Inclusion Index Series and FTSE Global

Equity Index Series Ground Rules visit www.ftse.com or e-mail [email protected]. Contact details can also be found on this website.

©FTSE International Limited (“FTSE”) 2015. The FTSE Global Equity Index Series and FTSE Global China A Inclusion Index Series is calculated by FTSE International Limited (“FTSE”) or its agent. All rights in the FTSE Global Equity Index Series vest in FTSE. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited (“FTSE”) under licence. “All-World®” is a trade mark of FTSE. All information is provided for information purposes only. Every effort is made to ensure that all information given in this publication is accurate, but no responsibility or liability can be accepted by FTSE or its licensors for any errors or for any loss from use of this publication. Neither FTSE nor any of its licensors makes any claim, prediction, warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the FTSE Global China A Inclusion Index Series or the fitness or suitability of the Index for any particular purpose to which it might be put. All figures and graphical representations in this publication refer to past performance and are sourced by FTSE. Past performance is not a reliable indicator of future results. No part of this information may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission of FTSE. Distribution of FTSE data and the use of FTSE indices to create financial products requires a licence with FTSE and/or its licensors. The Industry Classification Benchmark (“ICB”) is owned by FTSE. FTSE does not accept liability to any person for any loss or damage arising out of any error or omission in the ICB.


APPENDIX A CHINA SHARE DESCRIPTIONS 1.0 “A” Shares, “B” Shares, “H” Shares, “N” Shares, “Red Chips”, “P Chips”, and “S Chips” will be

eligible for the FTSE Global China A Inclusion Index Series. In determining the full market capitalisation of a company for index ranking purposes, all share classes are included, while only the eligible share classes are included in the index weighting.

2.0 Share Descriptions 2.1 “A” shares are securities of Chinese incorporated companies that trade on either the Shanghai

or Shenzhen stock exchanges. They are quoted in Renminbi (Chinese Yuan). They can only be traded by residents of the People’s Republic of China or under the Qualified Foreign Institutional Investor (QFII) rules.

2.2 “B” shares are securities of Chinese incorporated companies that trade on either the Shanghai

or Shenzhen stock exchanges. They are quoted in US dollars on the Shanghai Stock Exchange and Hong Kong dollars on the Shenzhen Stock Exchange. They can be traded by non-residents of the People’s Republic of China and also residents of the People’s Republic of China with appropriate foreign currency dealing accounts.

2.3 “H” shares are securities of companies incorporated in the People’s Republic of China and

nominated by the Central Government for listing and trading on the Hong Kong Stock Exchange. They are quoted and traded in Hong Kong dollars. Like other securities trading on the Hong Kong Stock Exchange, there are no restrictions on who can trade “H” shares.

2.4 A “Red Chip” is a company incorporated outside the People’s Republic of China (PRC) that

trades on the Hong Kong Stock Exchange and is a company that is substantially owned, directly or indirectly, by Mainland China state entities with the majority of its revenue or assets derived from Mainland China.

a) To be assessed as a Red Chip, a non-constituent must satisfy the following criteria at the

time of index entry: The company is incorporated outside the PRC; and The company is listed on the Hong Kong Stock Exchange; and Over 55 per cent of the revenue or assets of the company are derived from the PRC; and The company is controlled by Chinese state entities, i.e. the government, provinces or

municipalities, through strategic holdings which, in aggregate, total more than 35 per cent.

b) An existing Red Chip constituent which fails one or more of the following criteria will

cease to be classified as a Red Chip at the time of the next review: The company is no longer incorporated outside the PRC; or The company is no longer listed on the Hong Kong Stock Exchange; or The percentages of revenue and assets derived from the PRC have both fallen below 45

per cent; or The aggregate holding of Chinese state entities, i.e. the government, provinces or

municipalities, has fallen below 25 per cent.


APPENDIX A 2.5 A “P Chip” is a company* controlled by mainland individuals, with the establishment and origin

of the company in mainland China. It must be incorporated outside of the People’s Republic of China (PRC) and traded on the Hong Kong Stock Exchange with a majority of its revenue or assets derived from mainland China. * Provided that the company does not satisfy FTSE’s Red Chip definition. a) To be assessed as a P Chip, a non-constituent must satisfy the following criteria at the

time of index entry: The company is incorporated outside the PRC; and The company is listed on the Hong Kong Stock Exchange; and Over 55 per cent of the revenue or assets of the company are derived from the PRC; and The company is controlled by mainland individuals**. ** If the shareholder background cannot be determined with publicly available information, FTSE will assess the P Chip status of a company with the help of other criteria including: 1. Whether the establishment and origin of the company are in Mainland China; and 2. Whether the company’s headquarters is in Mainland China. b) An existing P Chip constituent which fails one or more of the following criteria will cease

to be classified as a P Chip at the time of the next review: The company is no longer incorporated outside the PRC; or The company is no longer listed on the Hong Kong Stock Exchange; or The percentages of revenue and assets derived from the PRC have both fallen below 45

per cent; or The company is no longer controlled by mainland individuals. c) In cases where the data could support an assignment as either a Red Chip or a P Chip,

the company will be classified as a Red Chip.

2.6 A “S Chip” is a company* controlled by mainland individuals, with the establishment and origin

of the company in mainland China. It must be incorporated outside of the People’s Republic of China (PRC) and traded on the Singapore Stock Exchange with a majority of its revenue or assets derived from mainland China. a) To be assessed as a S Chip, a non-constituent must satisfy the following criteria at the

time of index entry:

The company is incorporated outside the PRC; and The company is listed on the Singapore Stock Exchange; and Over 55 per cent of the revenue or assets of the company are derived from the PRC; and The company is controlled by mainland Chinese entity, company or individual **. ** If the shareholder background cannot be determined with publicly available information, FTSE will assess the S Chip status of a company with the help of other criteria including: 1. Whether the establishment and origin of the company are in Mainland China; and 2. Whether the company’s headquarters is in Mainland China.


APPENDIX A

b) An existing S Chip constituent which fails one or more of the following criteria will cease to be classified as a S Chip at the time of the next review:

The company is no longer incorporated outside the PRC; or The company is no longer listed on the Singapore Stock Exchange; or The percentages of revenue and assets derived from the PRC have both fallen below 45

per cent; or The company is no longer controlled by a Mainland Chinese entity, company or individual.

2.7 “N” shares are companies* controlled by mainland individuals, with the establishment and origin of the company in mainland China. It must be incorporated outside of the People’s Republic of China (PRC) and traded on the New York Stock Exchange, the NASDAQ exchange, or the NYSE MKT with a majority of its revenue or assets derived from mainland China. a) To be assessed as an N share, a non-constituent must satisfy the following criteria at the

time of index entry: The company is incorporated outside the PRC; and The company is listed on the New York Stock Exchange, the NASDAQ exchange, or the

NYSE MKT; and Over 55 per cent of the revenue or assets of the company are derived from the PRC; and The company is controlled by mainland Chinese entity, company or individual **. ** If the shareholder background cannot be determined with publicly available information, FTSE will assess the N share status of a company with the help of other criteria including: 1. Whether the establishment and origin of the company are in Mainland China; and 2. Whether the company’s headquarters is in Mainland China. b) An existing N share constituent which fails one or more of the following criteria will cease

to be classified as an N share at the time of the next review:

The company is no longer incorporated outside the PRC; or The company is no longer listed on the New York Stock Exchange, the NASDAQ

exchange, or the NYSE MKT; or The percentages of revenue and assets derived from the PRC have both fallen below 45

per cent; or The company is no longer controlled by a Mainland Chinese entity, company or individual.


APPENDIX B ELIGIBLE MARKETS AND SOURCES OF TRADING Please note: Source of volume data for all markets is Thomson Reuters. FTSE, Thomson Reuters and any other source of data cannot accept liability for any incorrect information, including the consequences of relying on this information. Asia Pacific ex Japan

Country Exchange Location Market Section(s) China (the People’s Republic of China) Shanghai

Shenzhen

Main Board Main Board, Small and Medium Enterprise Board


APPENDIX C INDEX ALGORITHM & CALCULATION METHOD For details on the Algorithm and calculation methods used for the FTSE Global Equity Index Series see the Guide to Calculation Methods. Application of the China A Inclusion quota adjustment factor index is calculated using the algorithm described below.

Where, 1, 2, … , is the number of securities in the Index. is the latest trade price of the component security (or the price at the close of the

Index on the previous day). is the exchange rate required to convert the security’s currency into the Index’s base

currency. is the number of shares in issue used by FTSE for the security, as defined in these

Ground Rules. is the Investability Weighting Factor to be applied to a security to allow amendments to

its weighting, expressed as a number between 0 and 1, where 1 represents a 100% free float. This factor is published by FTSE for each security in the underlying index.

is the China A Inclusion Quota Adjustment Factor to be applied to the FTSE China A All

Cap Index constituents. See Appendix D for details. is the divisor, a figure that represents the total issued share capital of the Index at the

base date. The divisor can be adjusted to allow changes in the issued share capital of individual securities to be made without distorting the Index.


APPENDIX D CHINA A INCLUSION QUOTA ADJUSTMENT FACTOR ALGORITHM Quarterly Update of the China A Inclusion Quota Adjustment Factor The updated China A Inclusion quota adjustment factor is applied after the close of business on the third Friday in March, June, September and December based on the starting constituents of the next working day. The China A Inclusion quota adjustment factor is given by:

min∆ ∆

∑ , 1

Where, 1, 2, … , is the number of securities in the FTSE China A All Cap Index. is the price of the component security adjusted for corporate actions as at the close of

business on the second Friday of each quarter. is the exchange rate required to convert a security’s currency into the Index’s base

currency, as at the close of business on the second Friday of each quarter. is the number of shares in issue on the next trading day following the third Friday of

each quarter. is the Investability Weighting Factor on the next trading day following the third Friday

of each quarter. is the total investable market capitalisation of the current FTSE China A All Cap

Index, with the China A Inclusion adjustment before quarterly update applied, as at the close of business on the second Friday of each quarter.

∆ is the change in QFII quota amount over the past three months as at close of

business on the last business day of February, May, August and November. ∆ is the change in RQFII quota amount over the past three months as at close of

business on the last business day of February, May, August and November. is the exchange rate required to convert the QFII quota currency into the Index’s base

currency, as at the close of business on the second Friday of each quarter. is the exchange rate required to convert the RQFII quota currency into the Index’s

base currency, as at the close of business on the second Friday of each quarter.


APPENDIX D Intra-Review China A Inclusion Adjustment Factor Changes As part of the FTSE All-World China A Inclusion Indices if one or more constituents in the FTSE China A All Cap Index has an addition, deletion, merger (other than stock), capital repayment, rights issue, a change in the number of shares in issue or a change in free float, the China A Inclusion adjustment factor is adjusted. It is adjusted so that the total investable market capitalisation of the FTSE China A All Cap Index constituents, after applying the China A Inclusion factor adjustment, remains unchanged pre and post the event. Please note that the China A Inclusion adjustment is only applied when the total available QFII / RQFII quota has not yet exceeded the total investable market capitalisation of the non-quota adjusted FTSE China A All Cap Index. Once exceeded the China A-share constituents in the FTSE All-World China A Inclusion and FTSE All-World China A Inclusion (no quota) Indices will have the same index weighting. Corporate Events Treatment Table for A Share Companies (unless otherwise stated) Corporate Event Market Cap

Neutral Description Action for China A Inclusion

Adjustment Factor Additions & Deletions Company Addition Yes An A Share company is added to

the FTSE China A All Cap Index Factor decreased to neutralise the increase in total unadjusted investable market cap.

Constituent Deletion Yes An A Share company is deleted from the FTSE China A All Cap Index

Factor increased to neutralise the decrease in total unadjusted investable market cap.

Mergers & Acquisitions Merger between two index constituents (for stock)

No Company A acquires Company B for stock

1. Company A will increase shares;

2. Company B will be deleted. Merger between two index constituents (for cash/stock)

Yes Company A acquires Company B for a combination of cash/stock


2. Company B will be deleted; Factor adjusted to neutralise the change in total unadjusted investable market cap.

Index constituent acquiring a non-constituent (if >10% & 2bn)

Yes Index constituent Company A acquires non constituent


2. Factor decreased to neutralise the increase in total unadjusted investable market cap.

Non-constituent acquiring an index constituent (cash or stock)

Yes Non-constituent B acquires an index constituent Company A

1. Company A will be deleted; 2. If Company B is eligible and A

Share, it is added to the index;

3. Factor adjusted to neutralise the change in total unadjusted investable market cap.


APPENDIX D Corporate Events Treatment Table for A Share Companies Continued (unless otherwise stated) Corporate Event Market Cap

Neutral Description Action for China A Inclusion

Adjustment Factor Spin-offs Spun-off company is added to the index

No Company A (A share) spins off Company B, with Company B added to the index

Company B is added to the index with the same adjustment factor as Company A.

Spun-off company is not added to the index (capital repayment)

Yes Company A spins off Company B, with Company B not added to the index

1. Company B is not added to the index;

2. Factor increased to neutralise the decrease in total unadjusted investable market cap.

Capital Repayments Index constituent pays a special dividend or capital repayment

Yes - Factor increased to neutralise the decrease in total unadjusted investable market cap.

Rights Issues Index constituent has a rights issue

Yes - 1. Rights will be taken up; 2. Factor decreased to neutralise

the increase in total unadjusted investable market cap.

Splits, Consolidation, Bonus & Script Issues Index constituent has either a split, consolidation, bonus or script issue (or a combination of the above)

No - None

Investability Weighting Change Index constituent investability weighting decreases

Yes Company A reduces its investability weighting (i.e. free float)


Index constituent investability weighting increases

Yes Company A increases its investability weighting (i.e. free float)

Factor decreased to neutralise the increase in total unadjusted investable market cap.

Shares in Issue Change Index constituent shares in issue decreases

Yes Company A has a decrease in shares in issue


Index constituent shares in issue increases

Yes Company A has an increase in shares in issue

Factor decreased to neutralise the increase in total unadjusted investable market cap.


APPENDIX E The FTSE Global China A Inclusion Additional Indices Additional indices are created by combining constituents of the FTSE China A Index / FTSE China A All Cap Index and selected FTSE indices on a quota adjusted (Inclusion) and non-quoted adjusted basis (no Quota). Blended Index Underlying Index A Share

Component Base

CurrencyFTSE China Inclusion Index FTSE China Index FTSE China A

IndexCNY

FTSE China All Cap Inclusion Index FTSE China All Cap Index FTSE China A All Cap Index

CNY

FTSE China ex B Share Inclusion Index FTSE China ex B Share Index

FTSE China A Index

CNY

FTSE China International Inclusion Index

FTSE China International Index

FTSE China A Index

USD

FTSE China International ex B Share Inclusion Index

FTSE China International ex B Share Index

FTSE China A Index

USD

FTSE Greater China Inclusion Index FTSE Greater China Index FTSE China A Index

USD

FTSE Greater China ex B Share Inclusion Index

FTSE Greater China ex B Share Index

FTSE China A Index

USD

FTSE Greater China International Inclusion Index

FTSE Greater China & FTSE China International Index

FTSE China A Index

USD

FTSE Greater China International ex B Share Inclusion Index

FTSE Greater China ex B Share & FTSE China International Index

FTSE China A Index

USD

FTSE Asia Pacific ex Japan China A Inclusion Index

FTSE Asia Pacific ex Japan Index

FTSE China A Index

USD

FTSE Asia Pacific China A Inclusion Index

FTSE Asia Pacific Index FTSE China A Index

USD

FTSE Emerging Markets China A Inclusion Index

FTSE Emerging Index FTSE China A Index

USD

FTSE Emerging Markets incl. China Overseas Inclusion Index

FTSE Emerging & FTSE China Overseas Index

FTSE China A Index

USD

FTSE All-World ex US China A Inclusion Index

FTSE All-World ex US Index

FTSE China A Index

USD

FTSE All-World China A Inclusion Index FTSE All-World Index FTSE China A Index

USD

FTSE Global All Cap China A Inclusion Index

FTSE Global All Cap Index FTSE China A All Cap Index

USD


APPENDIX F Real Time Indices Reuters real time cross exchange rates are used in all calculations during the calculation period, other than for the closing value for each index. The WM/Reuters Closing Spot RatesTM are used in calculating the closing value for each of these indices. Index Calculation Times

FTSE Emerging Markets China A Inclusion Index 00:30 to 21:10

FTSE Emerging Markets All Cap China A Inclusion Index 00:30 to 21:10

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