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Index Revisions

Background

Many indices calculated by JPXI, including TOPIX, use the free-float adjusted market capitalization-weighted method.
In this method, a share deemed to be available for trading in the market is considered as free-float, and weights of constituents of stock price indices are calculated according to the percentage of free-float shares in the number of listed shares used for index calculation (which is basically the same as the number of issued shares). As this method thereby allows investment management according to the liquidity of constituents, it is used in the calculation of major stock price indices around the world.
TSE will revise the calculation method of free-float weight (FFW) so that stock price indices better reflect actual liquidity, based on the final report of the Expert Study Group on Capital Markets in Japan of the Financial System Council, published in December 2019.

Outline

In addition to the current treatment of free-float shares, the number of free-float shares will be calculated with "equity securities held for investment purposes other than pure investment" as indicated in "Explanation about corporate governance, etc." in annual securities reports (i.e. strategic shareholdings) newly designated as non-free-float shares.
To keep the impact of this revision on trading to a minimum, changes in the FFW due to the revision of the calculation method will be carried out in three stages on the last business days of April, May, and June 2022.*
For JASDAQ-listed issues for which FFW ratios are not currently calculated, changes to the calculation of stock price indices will be carried out in three stages beginning April 4, 2022, after the application of an FFW based on the current FFW calculation methodology.

  • For issues whose FFW decrease by more than 0.1, to ensure the further reduction of impact on trading and to reflect the efforts of listed companies with a lot of room to increase free-float shares, the upper limit of total fluctuation over the three stages of April, May, and June 2022 will be set to 0.1. Any extra will be applied at the time of the periodic review conducted according to the fiscal year end of these issues after July 2022, with an upper limit also of 0.1.

For more information about the calculation method for post-transition FFW , please refer to the below:

Free Float Weight Calculation Methodology
FAQ for the Free-Float Weight icon-pdf