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MSCI plans index methodology transfer

GLOBAL - MSCI has announced the details of its Global Investable Market indices methodology and the plan for the transitioning of its Standard and Small Cap indices.

The transition plan involves two-phases, to be implemented as of the close of 30 November 2007 and the close of 30 May 2008 respectively.

Final additions and deletions of constituents for each phase will be announced at least four weeks in advance of implementation in the case of the Standard and Small Cap Indices.

The enhancements to the current Standard and Small Cap Index methodologies, included in the MSCI Global Investable Market indices methodology, aim to reflect the changing nature of international equity markets and the evolution of investment processes globally.

By targeting a range of around 85% coverage of the free float-adjusted market capitalisation in each market, the enhanced standard indices will cover the large- and mid-cap segments of the investable equity universe, while striving to achieve a balance between appropriate market representation in size segment composites within countries and reasonable size integrity across countries.

The enhanced Small Cap indices will cover the small cap segment of the investable equity universe by targeting for inclusion all companies with a market capitalisation below that of the companies in the enhanced Standard Indices and within the top 99% of the investable equity universe in each market in both developed and emerging markets, subject to a global minimum size requirement.

Together the enhanced Standard and Small Cap Indices will create an investable market index in each market to provide broad coverage of the large-cap, mid-cap and small-cap companies in the investable equity universe, and along with style segments, result in an integrated investable market index family.

MSCI Barra's executive director Ted Niggli says that the adjustments to the methodology were spurred by the increased correlation of large-cap securities internationally and a noticeable performance disparity across sizes.

He told IPE: "The significant improvement over the past years in the liquidity of many securities and easy access of multiple international markets has driven many investors to seek indices that represent different slices of the opportunity set - they want indices that better reflect small caps, mid caps and others."

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