By Dipo Olowookere
The eligibility criteria for adding companies trading their shares on the Nigerian Stock Exchange (NSE) to the NSE Pension Index has been reviewed.
The new requirements, which take effect from Wednesday, July 1, 2020, according to the exchange, are in line with changes in the regulatory and market requirements.
In 2015, the exchange, in order to deepen the market, introduced the Pension Index to the investing public. The index provided benchmarks tracking mechanisms for Pension Fund Administrators and other users that follow the PENCOM guidelines.
The NSE pension tracks the top 40 companies in terms of market capitalisation and liquidity. It is a total return index and is weighted by adjusted market capitalisation, a capping factor and a free float factor.
In a statement issued by the exchange on Tuesday, it was stated that the new changes to the index considered the amendment to guidelines specified in the Pension Reform Act 2014 and Amended Regulation on Investment of Pension Fund Assets.
Chairman of the Index Governance Committee of the NSE, Mr Abimbola Abdulazeez Babalola, stated that, “The review of the index was made imperative by the need to ensure that it continues to represent the appropriate benchmark for evaluating the Pension Fund Assets equity portfolios and remain suitable for all market stakeholders.
“The review further takes into consideration the changes in guidelines as specified in the Pension Reform Act 2014 and Amended Regulation on Investment of Pension Fund Assets as advised by the National Pension Commission (PENCOM) as well as market requirements in the amendments.”
Business Post reports that the criteria to have the top 40 companies that fulfilled all the requirements in the latest 6 months’ period was left unchanged, same as the requirement that stocks listed on the Pension Index are picked for further tests based on their market capitalisation from the most liquid sectors, with a minimum of 6 months holding period.
However, the liquidity test was amended to require stocks to pass two parameters of (1) the number of times the stock traded during the half-year; (2) its turnover velocity.
Also, for stocks to be under the NSE Pension Index, its free float consideration must align with the exchange’s free float rules and definition.
According to the NSE, for the profitability criteria, “Dividend payment or bonus issue is now at least one and no longer two out of the five years.”
