The
Straits Times Index
- An Introduction
The
Straits Times Index (STI) replaced the Straits Times Industrials
Index (STII) on the 31st August 1998 and started life where
the STII ended --- at 885.26 points. The index was constructed
by SPH, in conjunction with the SGX and SPH's consultant,
Associate Professor Tse Yiu Kuen from the National University
of Singapore.
The STI was launched right after a major sectoral re-classification
of listed companies by the Singapore Exchange. The re-classification
did away with the "industrials" category and this alone demanded
that the STII be replaced.
The primary objective of the index is to reflect the daily
trading activity of stocks on the Singapore Exchange (SGX).
At the time of launch, the constituent stocks accounted for
78 per cent of the average daily traded value over a 12-month
period and 61.2 per cent of the total market capitalisation.
The
STI is value-weighted and covers most sectors.
Real-time calculation of the index is done by the SGX.
Methodology
SPH, in conjunction with SGX and SPH's consultant, Associate
Professor Tse Yiu Kuen from NUS, will review the Straits Times
Index formally at least once a year and also on an ad-hoc
basis whenever necessary.
The key selection criterion is liquidity as measured by a
stock's average daily traded value. The committee also strives
to have the percentage share of a sector's representation
in the index by market capitalisation reflect the sector's
share in the total SGX. Within each sector, stocks with a
bigger market capitalisation are preferred over smaller stocks.
The target of capturing 60 per cent of the total market capitalisation
is set.
Constructing
the index
- Rank
all the stocks listed on the SGX by liquidity as measured
by their average daily traded value over a period of 12
months. Include their rankings over periods of 6 months
and 36 months. This comparison gives the committee members
an idea of the stock's liquidity over the short, medium
and long term but the primary ranking is the 12-month one.
- Rank
the stocks by their current market capitalisation and add
that column to the table.
- Sort
the stocks by their industry sectors.
- With
the above information, select the constituents.
-
Apply a weight based on their respective free float percentage,
to the constituents.
Structural
changes
When the SGX reviews and changes the industry composition
of the market, SPH will decide if changes to the index need
to be made. The need for the index to be reflective of the
market will be balanced with minimizing turnover to preserve
the continuity of the index.
Market-driven
changes
Addition
of new issues - New issues undergo a seasoning period
of 6 months before they are considered for addition to the
index. However, if a new issue substantially changes the market
profile, it may be exempted from the seasoning period.
Deletions
- A constituent that is suspended will be removed
from the index only if it is unlikely that the company will
return to normal trading. Please refer to the section on How
the index is calculated for the treatment of such a deletion.
Mergers
and Acquisitions - If 2 constituents merge or if
one constituent is acquired by another, either the product
of the merger or another company, may become a constituent.
The same treatment is applied if either party to the merger
or acquisition is a constituent. A merger or acquisition between
2 non-constituent companies will be treated like a new issue.
How
the index is calculated.
Constituent stocks that are traded in foreign currencies will
be converted to local dollars using exchange rates provided
by a live feed from Bloomberg Financial Services.
To
view: sti_method.pdf
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