ISEQ Free-float Calculation Methodology - Frequently Asked Questions

Q1.       What is Free-float?

A1.       Free-float is the proportion of an issuers share capital that is available for purchase in the public equity markets by investors.

Q2.       How is Free-float calculated?

A2.       In the calculation of free-float, two types of shareholding are excluded; firstly shares held by interested parties and secondly long term, strategic shareholdings of a significant portion of the issued shares.Further details of the calculation methodology are available on the ISE website, see:

http://www.ise.ie/Prices,-Indices-Stats/ISEQ®-Benchmark-Index-Data/Free-float/
.

Q3.       What is the free-float calculation schedule?

A1.       The dates on which free-float will be calculated for each constituent of the ISEQ indices will be quarterly on:

Free-float adjustments will then be applied to the calculation of the indices on the third Friday of the last month in each calendar quarterly; i.e. March, June, September and December. This quarterly adjustment procedure is often referred to as “Chaining”.

Q4.       Why use a free-float methodology?

A4.       A free-float based methodology has become best industry practice for the calculation of benchmark indices such as the ISEQ. It ensures that investors are not at a disadvantage when trying to match the constituent weighting of a stock where a significant portion of its listed shares are not available for active trading in the market.

Q5.       What additional advantages are there?

A5.       It facilitates investment in the underlying stocks as some investors or investment strategies are now restricted to free-float indices.

Q6.       Where else is the free-float methodology used?

A6.        Free-float index calculation has become the industry norm for domestic and European benchmark indices. The indices using free-float include FTSE 100, the German DAX, Italy’s MIB, the French CAC, Eurostoxx 50 and the S&P Euro. The introduction of a free-float methodology ensures the ISEQ indices are in line with best industry practice.

The EU’s Markets in Financial Instruments Directive (MIFID), to be implemented on1^st November 2007requires that liquid instruments are identified not only by turnover but also by the free-float market capitalisation of the company. As such free-float calculation is relevant to all market participants.

Q7.      What effect does free-float have on the ISEQ index constituent companies?

A7.      The effect on the company relates only to the proportion of market capitalisation used in the calculation of the ISEQ indices. The total market capitalisation of the company remains the same and will continue to be published within ISE public reports, on the ISE website, and in other public media as it always has. Example illustrates the calculation:

            As can be seen above, the market capitalisation of the company does not change.
The weighting of the company in the ISEQ index is adjusted to reflect the company specific proportion of the total free-float market capitalisation of the ISEQ index.

Q8.      What affect does free-float have on the ISEQ indices?

A8.      The total market capitalisation used for the calculation of the ISEQ indices will change to reflect the available free-float of underlying constituents. The ISEQ indices calculation methodology will remain the same. The following example based on an elaboration of Q7 details the calculation:

            The base-value divisor is adjusted to ensure that the free-float market capitalisation does not impact the value of the ISEQ index.

Q9.      How will the changeover to free-float be implemented onJune 18^th, 2007?

A9.      Following the market close on June 15^th, 2007the free float values will be applied to the constituents to calculate the total free-float market capitalisation of the ISEQ indices. The base-values are also adjusted to ensure no change in ISEQ values when the market opens on June 18^th, 2007.

Q10.    What will happen after the free-float implementation onJune 18^th,2007?

A10.    The ISEQ indices will continue to be calculated as at present. Free-float adjustments will be applied at quarterly chaining events in September and December 2007 and thereafter quarterly.

Q11.    Where will free-float values be published?

A11.    The ISE will publish free-float values on the ISE website and in its ISEQ Index Pack information product.

Q12.    Where are free-float values sourced from?

A12.    Free-float information is received directly from ISEQ constituent companies and comparative analysis is done on the information received from two other market sources.

Q13.    Can a practical sample of a given company’s free-float be illustrated?

A13.    The free-float calculation for Issuer X is shown below in two scenarios, one where it has treasury shares the other with no treasury shares.