Guideline Change | RAFI Indices | Effective Date 03/03/2020

Today, on the 2^nd March 2020, Solactive announces the following changes to the guidelines of the indices listed in the table at the end of this announcement (the ‘Affected Indices’):

Background for guideline change

With regard to an index component of the Affected Indices and the occurrence of an extraordinary corporate action in the form of a spin-off the standard treatment specified in the Solactive Guideline for Extraordinary Corporate Actions will be applied. This treatment leads to addition of the spun-off company to the index.

In order to maintain the reliability and accuracy of the Affected Indices the treatment of a spin-off event has been further developed so that only spun-off companies will be added to the Affected Indices that trade on an exchange in a country that is already represented in the Affected Indices at the effective date of the spin-off event by another index component (not affected by the spin-off). If a spun-off company is not traded on an exchange in a country that is already represented in the Affected Indices at the effective date of the spin-off event by another index component (not affected by the spin-off) the spun-off company will not be added to the Affected Index and the event will be treated as a cash distribution in accordance with the guideline of the Affected Indices.

Changes to the Index Guidelines

A new Section 3.5.5 will be added:

“3.5.5 Spin-Off

A spun-off company is eligible for inclusion if its security line is traded on an exchange of any country that is currently in the index, (for example, in a Developed Index, a spin-off of a UK company that is traded on a US exchange would be eligible for the index). The spun-off company is added, the market will adjust the price of the parent company such that the sum of the parent and spun-off company’s weight is approximately equal to the weight of the parent prior to spin-off. Based on the transaction terms on the ex-date, the shares of the spun-off company is calculated as follows:

Shares of Spun-off Company = Shares of Parent Company * Transaction Terms

The parent company and spun-off company will remain in the Index with unchanged calculation parameters.

The spun-off company will be added to the Index file with a price of zero prior to the ex-date. If the spun-off company does not start to trade on the ex-date, a theoretical price for the spun-off company will be implemented as a fixed price until it commences trading, from which time official prices will be used. The price of the spun-off company is calculated as follows:

Price of Spun-off Company = [(Close Price Parent Company Prior to Ex-Date) – (Open Price Parent Company on Ex-Date)] * Transaction Terms

If the first trading day of the spun-off company is unknown on the ordinary rebalancing date, the spun-off company will be removed from the Index with a price of zero.

In case the spun-off company is already an index constituent, the additional shares demerged from the parent company will be added to the spun-off company (share increase of the index member) on the ex-date.

If a spun-off company is not eligible (for example, the spun-off company is traded OTC or on an ineligible country’s exchange), that company’s shares are not added to the Index but instead, the weight of the spun-off company is redistributed as a special cash distribution on the ex-date.”

In addition, the following changes will be implemented:

• Section 2.14:

The sentence

“Let ADTV be the maximum of the 30-day and 90-day median daily traded value in USD as of the last business day of January.“

is corrected to

“Let ADTV be the maximum of the 30-day and 90-day median daily traded value in USD at each quarterly rebalance.” 

In alignment with the rebalance frequency the liquidity rule check is performed quarterly, not annually. The index guidelines were corrected to reflect this treatment.

• A new Section 3.5.6 will be added. This section outlines the treatment of Mergers and Acquisitions and corresponds in content to the treatment provided for in the Solactive Guideline for Extraordinary Corporate Actions, which applies in accordance with Section 2.9.

List of Affected Indices