Markit Index Standard Treatment

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Markit Index Standard Treatment 30 October 2018

Markit Index Standard Treatment 1

1 Introduction 4 2 Terminology and Notation 5 2.1 Date (t) 5 2.2 Ex-Date (XD) 5 2.3 Payment Date (PD) 5 2.4 Effective Date (ED) 5 2.5 Closing Price (Pt, Closei) 5 2.6 Opening Price (Pt, Openi) 5 2.7 Price Adjustment Factor (P_AFti) 6 2.8 Number of Shares (NOSHti) 6 2.9 Number of Shares Adjustment Factor (NOSH_AFti ) 6 2.10 Gross Dividend Amount (Divti) 6 2.11 Subscription Price (Psubi) 6 2.12 Tax Rate (T_Ratei) 6 2.13 Foreign Exchange Rate (FXti) 7 3 Index Calculations 8 3.1 Market Values 9 3.2 Index Calculation 9 3.2.1 Divisor Methodology 9 3.2.2 Stock Level Methodology 10 4 Corporate Events and Treatments 11 4.1 Concepts 11 4.1.1 Divisor Methodology 11 4.1.2 Stock Level Methodology 11 4.2 Treatment procedure 11 4.3 List of Corporate Events 12 5 Divisor Treatment Specifications 13 5.1 Cash Dividend 13 5.2 Special Cash Dividend 14 5.3 Stock Dividend 15 5.4 Optional Dividend 16 5.5 Stock Split 16 5.6 Reverse Stock Split / Consolidation 17 5.7 Share Redenomination 17 5.8 Merger / Acquisition 18 5.9 Demerger / Spin-off 19 5.10 Bankruptcy 21 5.11 Change of Listing 21 5.12 Suspension 22 5.13 Share Conversion 22

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5.14 Write-Up of Capital 24 5.15 Write-Off of Capital 24 5.16 Change to No Par Value 25 5.17 Rights Issue 25 5.17.1 Highly Dilutive Rights Issue: 26 5.18 Share Buy-Back 27 6 Stock Level Treatment Specifications 28 6.1 Cash Dividend 28 6.2 Special Dividend 29 6.3 Stock Dividend 30 6.4 Optional Dividend 31 6.5 Bonus 31 6.6 Stock Split 31 6.7 Consolidation / Reverse Split 32 6.8 Share Redenomination 32 6.9 Merger 32 6.10 Acquisition 34 6.11 Demerger / Spin-off 34 6.12 Takeover 36 6.13 Bankruptcy 36 6.14 Change of Listing 36 6.15 Suspension 37 6.16 Share Conversion 37 6.17 Write-Up of Capital 38 6.18 Write-Off of Capital 39 6.19 Change to No Par Value 39 6.20 Rights Issue 39 6.20.1 Highly Dilutive Rights Issue 40 6.21 Capital Return or Capital Repayment 41 6.22 Share Buy-Back 42 7 Tax Table 43 8 Summary 45 Annex: Eligible Stock Exchanges 46

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1 Introduction

The primary function of an index is to accurately measure the change in value of a group of securities. Markit uses transparent and standard rules for index calculation and corporate event treatments. This ensures that index users can easily replicate Markit’s indices in order to support investments and trading activities. The scope of the Markit Index Standard Treatment (“MIST”) documentation is to define the core corporate events and their standard treatment for equity indices calculated and maintained by Markit. The treatment described in this document is Markit’s recommendation based on market standards and what is deemed to be best practice as well as the simplest and most practical approach. In general, there are two sets of methodology used by Markit for index calculation and relevant corporate action treatments: (1) Divisor Methodology and (2) Stock Level Methodology. These two methodologies essentially differ in how they distribute the effect of corporate actions: the Divisor Methodology can distribute the effect proportionally across to all stocks within index. The Stock Level Methodology impacts the stock level exclusively.

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2 Terminology and Notation

2.1 Date (t)

Date 풕 is the time included in the index specification around an index session. Each index session has an opening and a closing component denoted as “t,open” and “t,close”, correspondingly. Date 풕 is defined as the current index session, where for instance 풕 − ퟏ is the previous index session and 풕 + ퟏ is the next index session.

2.2 Ex-Date (XD)

The ex-date (푿푫) is the first date on which a listed security is considered without entitlement to participate in the capital change event, for example a dividend or a distribution. This is the date from which the seller and not buyer of a stock is entitled to a recently announced dividend. After the ex-date, a listed security is said to trade ex-dividend – meaning dividend excluded.

2.3 Payment Date (PD)

The payment date (푷푫) is the date in which the company effectively makes the payment to shareholders.

Note: For some markets, the exact dividend amount to be paid is not know on the ex-dividend date, therefore some Total Return indices may require to include the dividend on the payment date rather than the 푿푫 for such markets. Examples are Japan and South Korea.

2.4 Effective Date (ED)

The Effective Date (푬푫) is the Date 풕 in which the corporate event is applied in the index calculation.

i 2.5 Closing Price (Pt,Close)

A close price refers to the closing price of Stock 푖 as at day 풕. The close price comes directly from the market data feeds.

i 2.6 Opening Price (Pt,Open)

풊 The open price (푷풕,푶풑풆풏) is the theoretical opening price of stock 푖 on day 풕. The opening price indicates how the stock price has theoretically changed for the next opening session based on the closing price as at Date 풕 and the information of corporate events effective on day 풕 + ퟏ. In general, if there is no corporate event related to stock 푖 effective on 풕 + ퟏ, the values of the 풕 + 풊 풊 ퟏ opening stock price ( 푷풕+ퟏ,푶풑풆풏 ) and the 풕 closing stock price ( 푷풕,푪풍풐풔풆 ) are the same.

Note: The opening price is a derived price and not raw input data.

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i 2.7 Price Adjustment Factor (P_AFt)

풊 The Price Adjustment Factor (푷_푨푭풕) is a multiplier associated to the closing price of stock 푖 as 풊 at day 풕 (푷풕,푪풍풐풔풆). It is calculated at the end of the day 풕 and is used to adjust the closing stock price as at the closing of date 풕 to obtain a theoretical opening stock price on next index 풊 풊 풊 calculation day 풕 + ퟏ; i.e. 푷풕+ퟏ,푶풑풆풏 = 푷풕,푪풍풐풔풆×푷_푨푭풕 In the case that no corporate event related to stock 풊 is effective on day 풕 + ퟏ, the price 풊 adjustment factor: 푷_푨푭풕 is equal to 1.

i 2.8 Number of Shares (NOSHt)

풊 The Number of Shares (푵푶푺푯풕) is the number of stock 풊 shares held in the index during business day t.

Note that: the Number of Shares of stock 풊 at the close on any index day 풕 is always the same as the Number of Shares of stock 풊 at the open on the same day.

i 2.9 Number of Shares Adjustment Factor (NOSH_AFt )

풊 The Number of Shares Adjustment Factor (푵푶푺푯_푨푭풕) is a multiplier associated to Number of 풊 Shares of stock 푖 held in day 풕 (푵푶푺푯풕) . It is calculated at the end of the day 풕 and is used to adjust the stock holding as at the closing of date t to obtain a theoretical stock holding at the opening on next index calculation day 풕 + ퟏ; i.e. 풊 풊 푵푶푺푯풕+ퟏ = 푵푶푺푯풕×푵푶푺푯_푨푭풕 In the case that no corporate event related to stock 푖 is effective on day 풕 + ퟏ, the price 풊 adjustment factor: 푵푶푺푯_푨푭풕 is equal to 1.

i 2.10 Gross Dividend Amount (Divt)

풊 The Gross Dividend Amount (푫풊풗풕) is the value of dividend scheduled to be paid (before Tax) for holding 1 unit of stock 푖 with the ex-date on day.

i 2.11 Subscription Price (Psub)

풊 The subscription price (푷풔풖풃) is the price at which new Shares are offered for a corporate event associated to stock 풊.

2.12 Tax Rate (T_Ratei)

The tax rate (푻_푹풂풕풆i) is the associated tax rate applied on dividend received on stock 푖 to calculate the deducted tax amount. The tax rates are usually determined by the country where the company is incorporated. The Tax Table in the Section 7 provides the rates applied by Markit for specific countries.

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i 2.13 Foreign Exchange Rate (FXt)

풊 The Foreign Exchange Rate (푭푿풕) is the associated foreign exchange rate applied on stock 푖 to translate its value to the index currency.

In the case of corporate events, the associated companies sometimes specify the FX rate used for the ex-date (풕) in their terms. If this information is not available, then Markit uses the official quote from WM Reuters at 4:00 pm UK time as the FX Rate as at t-1 for index business days if there is no data available from the company regarding the FX Rate.

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3 Index Calculations

In general, the index calculation process is as below:

— Step1: Sourcing Input data

The index calculation process starts by consolidating the raw data associated with equity indices. The main input data consists of Prices, FX Rates, and Corporate Event Information.

— Step2: Determining Adjustment Factors

The Adjustment Factors for both, Prices and Number of Shares held in the Index are calculated to reflect the effect of relevant corporate events. The Adjustment Factors are implemented for the open position for the next business day for all indices with a divisor.

— Step3: Calculating Market Values

Market Values are the intermediate values for calculation derived using the data of Adjustment Factors, Prices and Number of Shares held in the index and any Fees or Transaction costs that are contained in the index methodology.

— Step4: Concluding Index Values

The final step is to conclude the index values using the intermediate values Market Values.

Step 3 and Step 4 will be introduced below in this section and Step 2 will be explained in more details in the subsequent sections.

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3.1 Market Values

The closing Market Value of any index constituent, say stock 푖, is the product of: 1) the closing price of this stock as day 푡, 2) the number of shares held in the index at the close of the same day and 3) the associate FX rate as at day 푡 to translate the stock currency into index currency less the market value of fees or transaction costs. Where FX rates for 푡 are not available, 푡 -1 for index business days FX rates will be used.

풊 풊 풊 풊 푴푽풕,푪풍풐풔풆 = (푷풕,푪풍풐풔풆×푵푶푺푯풕×푭푿풕,푪풍풐풔풆) − 푭풆풆풔

The opening Market Value of any index constituent, say stock 푖, is the product of: 1) the opening price of this stock as day 푡, 2) the number of shares held in the index at the close of the same day and 3) the stock 푖 associated foreign exchange rate as at day 푡 − 1.

풊 풊 풊 풊 푴푽풕,푶풑풆풏 = 푷풕,푶풑풆풏×푵푶푺푯풕×푭푿풕−ퟏ,푪풍풐풔풆

The equation above can be derived as:

풊 풊 풊 풊 풊 풊 푴푽풕,푶풑풆풏 = (푷풕−ퟏ,푪풍풐풔풆×푷_푨푭풕−ퟏ )×( 푵푶푺푯풕−ퟏ× 푵푶푺푯_푨푭풕−ퟏ)×푭푿풕−ퟏ,푪풍풐풔풆 .

In general, we refer both closing Market Value of any index constituent and closing Market Value of any index constituent as Constituent Market Value, while we use Index Market Value refers to the sum of the Market Values of all constituents included in this index.

Correspondingly, the closing Index market Value is:

풊 푰풏풅풆풙_푴푽풕 ,푪풍풐풔풆 = ∑ 푴푽풕,푪풍풐풔풆

Correspondingly, the opening Index market Value is:

풊 푰풏풅풆풙_푴푽풕 ,푶풑풆풏 = ∑ 푴푽풕,푶풑풆풏

3.2 Index Calculation

3.2.1 Divisor Methodology

When an index is calculated using the Divisor Methodology, in addition to Index Market Value, another key component of equity indices is the “Index Divisor” (referred to as “Divisor”).

The starting value of the “Divisor” is set as equal to 푴푽풕ퟎ ,푪풍풐풔풆 by the index level at the inception 푰풏풅풆풙풕ퟎ

At index inception date 풕ퟎ:

푴푽풕ퟎ ,푪풍풐풔풆 푫풊풗풊풔풐풓풕ퟎ = 푰풏풅풆풙풕ퟎ

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On each index business day 풕 other than 풕ퟎ:

푰풏풅풆풙_푴푽풕,푶풑풆풏 푫풊풗풊풔풐풓풕 = 푫풊풗풊풔풐풓풕−ퟏ× 푰풏풅풆풙_푴푽풕−ퟏ,푪풍풐풔풆

The “Divisor” is an essential tool used to maintain the continuity of index values across changes due to corporate actions.

Finally, the index is determined as:

푰풏풅풆풙_푴푽풕 ,푪풍풐풔풆 푰풏풅풆풙풕 = 푫풊풗풊풔풐풓풕

3.2.2 Stock Level Methodology

When an index is calculated using the Stock Level Methodology, the index level is determined as:

푰풏풅풆풙_푴푽풕 ,푪풍풐풔풆 푰풏풅풆풙풕 = 푰풏풅풆풙풕−ퟏ× 푰풏풅풆풙_푴푽풕−ퟏ ,푪풍풐풔풆

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4 Corporate Events and Treatments

4.1 Concepts

4.1.1 Divisor Methodology The impact of corporate actions can be distributed cross all the constituents within the index by way of a divisor in order to keep the index value constant.

4.1.2 Stock Level Methodology Corporate actions are applied at the security level. There is no divisor used to impact all constituents or keep the index value constant.

4.2 Treatment procedure

Corporate events are treated via “Adjustment Factors”. For the occurrence of a corporate event associated to an index constituent, the position of this index constituent within the index is adjusted by its adjustment factors.

Two types of “Adjustment Factors” are specified within Markit’s systems:

풊 — Price Adjustment Factor (푷_푨푭풕)

풊 — Number of Shares Adjustment Factor (푵푶푺푯_푨푭풕)

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4.3 List of Corporate Events

The following different types of corporate actions are defined below:

No. Event Type CAPITAL RESTRUCTURE DIVIDENDS

1 DIVIDEND Cash Dividend

2 DIVIDEND Special Dividend

3 DIVIDEND Stock Dividend or Script Dividend

4 DIVIDEND Optional Dividend

5 DIVIDEND Bonus

6 CAPITAL CHANGE Stock Split

7 CAPITAL CHANGE Reverse Stock Split / Consolodation

8 CAPITAL CHANGE Share Redenomination

9 MERGER & ACQUISITION Merger MERGER & ACQUISITION 10 De-merger/ Spin-Off MERGER & ACQUISITION 11 Takeover MERGER & ACQUISITION 12 Acquisition

13 EXCEPTIONAL MARKET CONDITION Bankruptcy

14 EXCEPTIONAL MARKET CONDITION Change of Listing

15 EXCEPTIONAL MARKET CONDITION Suspension

16 EXCEPTIONAL MARKET CONDITION Share Conversion

17 EXCEPTIONAL MARKET CONDITION Write-Up of Capital

18 EXCEPTIONAL MARKET CONDITION Write-Off of Capital

19 EXCEPTIONAL MARKET CONDITION Change to No Par Value

20 CAPITAL INCREASE Rights Issue

21 CAPITAL RETURN Capital Return or Capital Repayment

22 CAPITAL RETURN Share Buy-Back

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5 Divisor Treatment Specifications

5.1 Cash Dividend

Dividends are payments made by a corporation to its shareholders. Sometimes, when a corporation earns a profit, that money can be put to two uses: it can be either re-invested in the business or it can be paid to the shareholders as a dividend. The Gross Dividend Amount is the amount before applying tax rates. The Net Dividend Amount is the amount less applicable taxes.

For example:

Company 풊 announces to pay a regular dividend; the ex-date is day 풕. 풊 Specifically, the gross dividend amount is 푫풊풗풕 in the same currency as the stock currency; 풊 the tax rate applicable to this dividend is 푻_푹풂풕풆 . For FX, 푡 -1 for index business days will be used.

Treatment:

— The Price index does not take into account the Cash Dividend:

풊 푷_푨푭풕−ퟏ = ퟏ

풊 푵푶푺푯_푨푭풕−ퟏ = ퟏ

— The Total Return index requires adjustment for the Cash Dividend:

풊 풊 풊 풊 푷풕,푶풑풆풏 = 푷풕−ퟏ,푪풍풐풔풆 − 푫풊풗풕×푭푿풕−ퟏ

푷풊 풊 풕,푶풑풆풏 푷_푨푭풕−ퟏ = 풊 푷풕−ퟏ,푪풍풐풔풆

풊 푵푶푺푯_푨푭풕−ퟏ = ퟏ

— The Net Total Return index requires adjustment for the Net of Tax Cash Dividend:

풊 풊 풊 풊 풊 푷풕,푶풑풆풏 = 푷풕−ퟏ,푪풍풐풔풆 − 푫풊풗풕×푭푿풕−ퟏ×(ퟏ − 푻_푹풂풕풆 )

푷풊 풊 풕,푶풑풆풏 푷_푨푭풕−ퟏ = 풊 푷풕−ퟏ,푪풍풐풔풆

풊 푵푶푺푯_푨푭풕−ퟏ = ퟏ

Note:

There are exceptions to the general rules on: — The date to implement dividends

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For example, Korean dividends are implemented on the Pay Date while Japan dividends are incorporated on the 푿푫 but leave the option to adjust later for the difference between the estimated and the effective payment if this procedure is required by the client. In general, if a dividend amount is not available on the 푿푫, then Markit applies the dividend amount one day prior to the pay date (푷푫).

— Determining cash dividend gross amounts.

On the cash dividend gross amounts, Markit includes the amounts deducting the 10% withholding tax for the UK and deducts the franking for Australian dividends. Property Income Distributions (PIDs) paid by REITS in the UK are not taxed at source and the withholding tax is not included in the dividend gross amount used by Markit.

5.2 Special Cash Dividend

Special Cash dividends are dividends that occur outside of the normal payment pattern established historically by the corporation. Whether a dividend is funded from operating earnings or from other sources of cash does not affect the determination of whether it is a special dividend. Instead, it is considered a special dividend when the market perceives it as a special dividend with dividends being paid outside the normal payment pattern.

Note: Different from regular Cash Dividends, a tax rate in some circumstances may not apply in the case of Special Dividends. For example, when the cash payout is a return of capital or a distribution resulting from the disposal of an asset, tax will not be applicable for the special dividend.

Example:

Company 풊 announces to pay a special dividend; the ex-date is day 풕. 풊 Specifically, the gross dividend amount is 푫풊풗풕 in the same currency as the stock currency; 풊 the tax rate applicable to this dividend is 푻_푹풂풕풆 . For FX, 푡 -1 for index business days will be used.

Treatment:

— The Price index and the Total Return index require adjustments for the Special Dividend as below:

풊 풊 풊 풊 푷풕,푶풑풆풏 = 푷풕−ퟏ,푪풍풐풔풆 − 푫풊풗풕×푭푿풕−ퟏ

푷풊 풊 풕,푶풑풆풏 푷_푨푭풕−ퟏ = 풊 푷풕−ퟏ,푪풍풐풔풆

풊 푵푶푺푯_푨푭풕−ퟏ = ퟏ

— In the case that tax is applicable for this special dividend, the Net Total Return index requires adjustments for the Net of Tax Special Dividend as below:

풊 풊 풊 풊 풊 푷풕,푶풑풆풏 = 푷풕−ퟏ,푪풍풐풔풆 − 푫풊풗풕×푭푿풕−ퟏ×(ퟏ − 푻_푹풂풕풆 )

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푷풊 풊 풕,푶풑풆풏 푷_푨푭풕−ퟏ = 풊 푷풕−ퟏ,푪풍풐풔풆

풊 푵푶푺푯_푨푭풕−ퟏ = ퟏ

— In the case that tax is not applicable for this special dividend, the Net Total Return index requires adjustments for the Special Dividend as below:

풊 풊 풊 풊 푷풕,푶풑풆풏 = 푷풕−ퟏ,푪풍풐풔풆 − 푫풊풗풕×푭푿풕−ퟏ

푷풊 풊 풕,푶풑풆풏 푷_푨푭풕−ퟏ = 풊 푷풕−ퟏ,푪풍풐풔풆

풊 푵푶푺푯_푨푭풕−ퟏ = ퟏ

5.3 Stock Dividend

A stock dividend is a distribution of shares to shareholders. In some instances the stock dividend can be optional, whereby the shareholder may choose to receive shares instead of a cash payment. In this case, shares will be issued for the cash value.

Example:

Company 풊 announces to pay a stock dividend; the ex-date is day 풕. 풊 Specifically, every 1 unit of stock held pays the shareholders of 푫풊풗_푹풂풕풊풐풕 unit(s) of new shares in the same company.

Treatment:

A price adjustment is done on the opening of the event ex-date, and the number of shares is adjusted (increased) either:

— On the ex-date for those cases where a stated amount of stock is announced; or

— On the pay-date, only if an undetermined amount of stock is announced based on earnings and profits to be distributed at a future date.

When there is no cash alternative, the stock dividend represents a script / bonus issue and the adjustment factor should be calculated in the same way.

풊 풊 ퟏ 푷풕,푶풑풆풏 = 푷풕−ퟏ,푪풍풐풔풆× 풊 (ퟏ + 푫풊풗_푹풂풕풊풐풕)

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푷풊 풊 풕,푶풑풆풏 ퟏ 푷_푨푭풕−ퟏ = 풊 = 풊 푷풕−ퟏ,푪풍풐풔풆 (ퟏ + 푫풊풗_푹풂풕풊풐풕)

풊 풊 풊 푵푶푺푯풕 = 푵푶푺푯풕−ퟏ×(ퟏ + 푫풊풗_푹풂풕풊풐풕)

풊 풊 푵푶푺푯풕 풊 푵푶푺푯_푨푭풕−ퟏ = 풊 = ퟏ + 푫풊풗_푹풂풕풊풐풕 푵푶푺푯풕−ퟏ

5.4 Optional Dividend

A company offers its shareholders the choice of receiving the dividend in cash or in shares. Markit assumes that investors select the cash option a) on the ex-date for those cases where a stated equivalent of stock is announced and b) on the pay-date for those cases where an undetermined amount of stock is announced based on earnings and profits to be distributed at a future date. Thus, the dividend is treated in the same way as Cash Dividend in the Section 5.1.

5.5 Stock Split

A stock split increases the number of all shares outstanding by a multiple while decreasing the price by the same multiple causing the action to be market cap neutral.

Example:

Company 풊 announces a stock a stock split event; the ex-date is day 풕. 풊 Specifically, every 1 unit of stock held splits into 푺풑풍풊풕_푹풂풕풊풐풕 unit(s) of new share in the same company.

Treatment:

The number of shares, dividends and the stock price are adjusted by the split factor on the ex- date. The stock split does not have impact on the divisor as at the ex-date 풕.

풊 풊 ퟏ 푷풕,푶풑풆풏 = 푷풕−ퟏ,푪풍풐풔풆× 풊 푺풑풍풊풕_푹풂풕풊풐풕

푷풊 풊 풕,푶풑풆풏 ퟏ 푷_푨푭풕−ퟏ = 풊 = 풊 푷풕−ퟏ,푪풍풐풔풆 푺풑풍풊풕_푹풂풕풊풐풕

풊 풊 풊 푵푶푺푯풕 = 푵푶푺푯풕−ퟏ×푺풑풍풊풕_푹풂풕풊풐풕

풊 풊 푵푶푺푯풕 풊 푵푶푺푯_푨푭풕 = 풊 = 푺풑풍풊풕_푹풂풕풊풐풕 푵푶푺푯풕−ퟏ

Note:

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Even though the index default method is Divisor methodology rather than Stock Level methodology, please note that this corporate event is always implemented at stock level rather than at index level. If it was incorporated at index level, then it would mean that the effect of the corporate event is redistributed within the index.

5.6 Reverse Stock Split / Consolidation

A reverse stock split or share consolidation is a reduction in the number of shares outstanding and an accompanying increase in the share price causing the action to be market cap neutral.

Example:

Treatment:

The reverse split does not have impact on the divisor as at the ex-date 풕. The procedure is the same as in the section 5.6 above. In essence, it means that:

풊 ퟏ 푺풑풍풊풕_푹풂풕풊풐풕 = 풊 푪풐풏풔풐풍풊풅풂풕풊풐풏_푹풂풕풊풐풕

The calculation is the same regardless of whether the nominal value of a share changes (“stock consolidation”) or remains the same (“capital reduction”).

5.7 Share Redenomination

The nominal value of existing shares in issue changes due to the change of currency. Therefore, the amount is converted using a set rate.

For example, the Spanish Peseta (ESP) is currently obsolete as it was replaced with the Euro (EUR) on January 1st 1999. Therefore, a 100 nominal value of ESP (Spanish pesetas) would become EUR 0.60 using a set rate where 1 EUR = 166.386 ESP. This event may also be accompanied by a write-up / off in order to round the resultant amount. This corporate action does not require an index adjustment.

/ 17 Markit Index Standard Treatment

5.8 Merger / Acquisition

Merger generally means that two or more companies merge to form one larger company. A merger is considered completed if it has been declared unconditional and has received the approval of all the regulatory agencies with jurisdiction over the transaction regardless of the status of the securities (index constituents or non-index constituents) involved in the event.

Instances may occur where not all shares of the target company, under acquisition, have been tendered to the acquiring company. When the “squeeze out” level (the minimum percentage of shares which needs to be held by the acquirer in order for the purchase of the remaining shares to be guaranteed) has been reached, the merger will be deemed effective.

The result of a merger is one out of the two possibilities as below:

— The merging entities cease to exist and a new entity (“New Name”) is created.

— Only one name (“Surviving Name”) will survive out of all the merging companies.

In either case, we refer this surviving/new name as the Resulting Name (or Resulting Stock).

Usually the shareholders of the merging companies exchange their emerging company shares for shares in the resulting company.

Example:

There are 풏 companies 풌ퟏ, 풌ퟐ, … , 풌풏 merging into the resulting stock 풎; the ex-date is day 풕. Specifically, for every 1 unit holding of stock 풌풊, the shareholders receive 푪푹풊 unit(s) of stock 풎 and a cash amount of 푪풂풔풉풊 (푖푓 푎푝푝푙푖푐푎푏푙푒) , ( 풊 = ퟏ, ퟐ, … , 풏) ; the opening price of the 풎 Resulting Stock is 푷풕,푶풑풆풏 is either announced by the company or implied by the company accouchement.

Scenarios

If there is a merger event occurring on one index constituents, normally the scenario may fall into one of the following cases:

— Case1: All the relevant merging entities are index constituents.

— Case2: Some relevant merging entities are not index constituents; and the resulting entity is a “New Name”.

— Case3: Some relevant merging entities are not index constituents; the resulting entity is a “Surviving Name”; and the “Surviving Name” is an index constituents before the merger event

— Case4: Some relevant merging entities are not index constituents; the resulting entity is a “Surviving Name”; the “Surviving Name” is not an index constituents before the merger event

The corresponding treatments for different scenarios are the following:

/ 18 Markit Index Standard Treatment

Treatments: Case 1, Case 2 and Case 3

In these cases, some or all the merging companies are index constituents; say these are companies 풌ퟏ, 풌ퟐ, … , 푎푛푑 풌풎 (풎 ≤ 풏). The resulting new entity 풎 replaces the all these 풎 companies in the index with a weight equal to the sum of the weights of the merging companies prior to the merger with no divisor change in principle. Therefore, the following equations apply:

풌풊 풌풊 푵푶푺푯_푨푭풕−ퟏ = ퟎ and 푵푶푺푯풕 = ퟎ ; 풊 = ퟏ, ퟐ, … , 풏.

풏 풎 풌풊 푵푶푺푯풕 = ∑ 푵푶푺푯풕−ퟏ×푪푹풊 풊=ퟏ

Treatments: Case 4

In this case, only some of the merging companies are index constituents; say they are companies 풌ퟏ, 풌ퟐ, … , 푎푛푑 풌풎 (풎 < 푛). Essentially, these associated index constituents are taken over or acquired by the “Surviving Name”. However, this acquiring company, i.e. “Surviving Name” is not eligible for the index. Therefore, these associated index constituents are removed from the index on day 푡; the following equations apply:

풌풊 풌풊 푵푶푺푯_푨푭풕−ퟏ = ퟎ and 푵푶푺푯풕 = ퟎ ; 풊 = ퟏ, ퟐ, … , 풎.

Note:

In the philosophy of Divisor Methodology, any cash paid as part of the merger is reinvested across into the index proportionally. However, this cash is not involved in the calculations above. As a consequence the Index Market Values on day 풕 as it. The “Divisor” changes on day 푡 accordingly to reflect this change in the Market Values.

5.9 Demerger / Spin-off

A company or group of companies splits up so that its activities are carried on by two or more independent companies. One of the main reasons for doing this is to improve the value of the company’s shares, especially if one part of the group’s value can be better reflected by a separate share quotation.

A spin-off is the distribution of shares in a wholly-owned or a partially-owned company to the parent company’s existing shareholders. A new independent company is formed from an existing division or a subsidiary of the parent company or corporation through issuing share entitlement in the new company.

For a current index constituent incurring a spin-off:

— any cash paid as part of the spin-off is reinvested in the index with a divisor change;

— the parent company is kept in the index provided it remains listed and continues to trade;

/ 19 Markit Index Standard Treatment

— a position in the spun-off company is placed into the index if and only if the spun-off company passes Markit’s/bespoke rules regarding prices, stock exchanges and other applicable eligibility criteria.

Example:

There is an entity 푲 spins off 푛 different entities 푫ퟏ, 푫ퟐ, … , 푫풏 ; the ex-date is day 풕. Specifically, every 1 unit holding of stock 푲 spins off 푫푹풊 unit(s) of stock 푫풊 (풊 = ퟏ, ퟐ, … , 풏) and an amount of cash equal to 푲푪풂풔풉 in the same currency as the stock ( 푲푪풂풔풉 = ퟎ 푖푓 푛표푡 푎푝푝푙푖푐푎푏푙푒 ). The opening stocks prices in companies 푫ퟏ, 푫ퟐ, … , 푫풏 are usually 푫풊 determined and announced in advance of the corporate event, say, as 푷풕,푶풑풆풏 (풊 = ퟏ, ퟐ, … , 풏).

Treatments:

When there is a demerger/spin-off event occurring on one index constituents, Markit Divisor Methodology offers three options to treat this event as below.

— Option 1: Provided the spun-off entities meet the inclusion criteria, the following treatment applies.

풏 푲 푲 푫풊 푷풕,푶풑풆풏 = 푷풕−ퟏ,푪풍풐풔풆 − 푲푪풂풔풉 − ∑ 푷풕,푶풑풆풏×푫푹풊 풊=ퟏ 푷풊 푲 풕,푶풑풆풏 푷_푨푭풕−ퟏ = 풊 푷풕−ퟏ,푪풍풐풔풆

푵푶푺푯_푨푭푲 = ퟏ 풕−ퟏ

푵푶푺푯푫풊 = 푵푶푺푯푲 ×푫푹풊, while 푵푶푺푯푫풊 = ퟎ; (풊 = ퟏ, ퟐ, … , 풏) 풕 풕−ퟏ,푪풍풐풔풆 풕−ퟏ,

/ 20 Markit Index Standard Treatment

— Option 2: If the spun-off entities do not meet the index eligibility criteria:

푵푶푺푯_푨푭푲 = ퟏ 풕−ퟏ

푵푶푺푯푫풊 = ퟎ 풕

— Option 3: In rare cases, the parent company ceases to be eligible for the indices itself:

푵푶푺푯_푨푭푲 = ퟎ , and 푵푶푺푯푲 = ퟎ 풕−ퟏ 풕

푵푶푺푯푫풊 = ퟎ 풕

5.10 Bankruptcy

A company legally declares inability or impairment of ability to pay their creditors. Creditors may file a bankruptcy petition against a debtor in an effort to recoup a portion of what they are owed. However, in the majority of cases, bankruptcy is initiated by the debtor. After undergoing reorganization, a company is liquidated.

Constituents that fall under bankruptcy as at 풕 are removed from the index after the close of “t+1” to give one day notice to clients. The company is removed based on the “t+1” closing price if available or at zero.

5.11 Change of Listing

If a company is delisted from a main liquid Stock Exchange within the universe of eligible stock exchanges for the index (see Annex), there are three different options to consider:

1. The company’s listing changes to another main liquid stock exchange that is considered eligible for the index. There is no change in the index (for example, if a US index has a constituent which is trading in the NYSE stock exchange and this company is delisted from the NYSE but starts trading in the NASDAQ stock exchange, then the new stock exchange is still considered eligible and therefore the company is not removed from the US index).

2. The listing changes to a stock exchange that is not considered eligible for the index. In this case the Index Administration Committee will decide whether:

/ 21 Markit Index Standard Treatment

• The company is removed from the index at its last closing price on an eligible exchange. If the change in listing lies in the past, this change may be retroactive; or

• The company is removed from the index at a future date (e.g. next index rebalance) and going forward in which case the listing’s price will be taken temporarily from the new exchange.

3. The company becomes unlisted. In this case the Index Administration Committee will decide whether:

• The company is removed from the index at its last closing price; or

• The company is removed from the index with no value. This option may be employed in situations such as a bankruptcy where circumstances surrounding the delisting suggest a significant decline in the security’s market value.

If the de-listing has occurred in the past, the Index Administration Committee will decide whether the exclusion of the company from the index will be applied retroactively or at a future date and going forward.

5.12 Suspension

A security is removed at its last trading price if a stock is suspended for full trading for at least ten trading days. During those ten trading days, the index calculation takes into account the last trading price for the security which is suspended.

There are two scenarios: a company is suspended before the stock exchange closes or it is announced that the company is going to be suspended for the open of the next trading session. However, for both cases the same implementation occurs for this corporate event.

For example a company was suspended during the trading hours of the 29/07/2009 or it was announced that it would be suspended for the open of the 30/07/2009, if the company is still suspended after the close of the 13/08/2009 and the company is removed from the index after the close of the 13/08/2009.

5.13 Share Conversion

Share conversion is the exchange of one form of security for another security of the same company. For example: preferred stock for common stock, or debt securities for equity.

Treatment:

The treatment in the indices depends on the scenario: • If another security that is not currently a constituent of the index is converted into a security that is part of the index, no immediate action is taken. Subject to specific index rules, the shares outstanding and/ or index shares of the index constituent may increase at some later date.

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• If an index constituent is fully converted to another security that is not part of the index, treatment is dependent upon whether the successor security has features that would make it ineligible for the index based on the specific index rules: o If the successor security has features that make it ineligible for the index, the converted security is removed from the index and no other action is taken. Examples of this include a successor security from an ineligible share class or one that has a country/ nationality designation that is explicitly excluded from the index. o If the successor security has no features that would explicitly exclude it from the index membership, the successor security is added to the index as defined below. Example:

Stock i is converted for share j; the ex-date is day t. Stock i is part of the index. Stock j is not.

풊풋 Every 1 unit of i is converted for 푪풐풏풗풆풓풔풊풐풏_풓풂풕풆풕 unit(s) of share j.

Treatment:

Stock j is added to the index with the following NOSH.

풋 풊 풊풋 푵푶푺푯풕 = 푵푶푺푯풕−ퟏ × 푪풐풏풗풆풓풔풊풐풏_풓풂풕풆풕

• If both the converted security and the successor security are index constituents prior to the conversion, the converted security is removed from the index and the successor security adjusted as defined below.

Example:

Stock i is converted for share j; the ex-date is day t. Both Stock i and Stock j are part of the index.

풊풋 Every 1 unit of i is converted for 푪풐풏풗풆풓풔풊풐풏_풓풂풕풆풕 unit(s) of share j.

Treatment:

풋 푷_푨푭풕 = ퟏ

풋 풊 풊풋 풋 푵푶푺푯풕−ퟏ + 푵푶푺푯풕−ퟏ × 푪풐풏풗풆풓풔풊풐풏_풓풂풕풆풕 푵푶푺푯_푨푭풕 = 풋 푵푶푺푯풕−ퟏ

If, according to the specific index rules, a security-level weighting factor is used in the calculations (e.g. a free float factor, a capping factor, etc.) the following adjustment will be made to that factor:

풋 풋 풋 푵푶푺푯풕−ퟏ ×푵푶푺푯_푨푭풕 푾_푭풂풄풕풐풓풕 = 풊풋 푵푶푺푯풋 / 푾_푭풂풄풕풐풓풋 + 푵푶푺푯풊 / 푾_푭풂풄풕풐풓풊 × 푪풐풏풗풆풓풔풊풐풏_풓풂풕풆 풕−ퟏ 풕−ퟏ 풕−ퟏ 풕−ퟏ 풕

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5.14 Write-Up of Capital

Existing shares in issue are converted one for one into Ordinary Shares with an increased Nominal Value.

Please note that a company may have as many different types of shares as it wishes, all with different conditions attached to them. Generally share types fall into the following categories:

— Ordinary Shares

Ordinary Shares do not have special rights or restrictions. The company may divide them into classes of different value.

— Preference Shares

Preference Shares normally carry a right that the company should pay any annual dividends available for distribution on these shares before other classes.

— Cumulative preference Shares

Cumulative preference Shares carry a right that, if the company cannot pay the dividend in one year, it will carry it forward to successive years.

— Redeemable Shares

The company issues Redeemable Shares with an agreement that it will buy them back at the option of either the company or the shareholder after a certain period, or on a fixed date. A company cannot have only redeemable shares.

Treatment:

No treatment is required for this event.

5.15 Write-Off of Capital

Existing shares in issue are converted one for one into shares with a reduced Nominal Value. This can happen because the market price of the shares has dropped below its Nominal Value.

Treatment:

No treatment is required for this event.

Note:

In the UK this event also involves a number of deferred shares, which are subsequently cancelled by the company. However, when considering shares, it is usually the market value and not the nominal or book amount which investors and other stakeholders are interested in.

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5.16 Change to No Par Value

Existing shares in issue are converted into shares with no Nominal (par) Value. This means that the Nominal Value is equal the Issue Price.

Treatment:

No treatment is required for this event.

5.17 Rights Issue

Shareholders are offered the right to buy new shares in proportion to their existing holding at a set offer price usually (but not always) at a discount to the market price. Rights are an offer of additional shares to existing shareholders. A company may decide to distribute further shares as an alternative to increasing the dividend payout.

Rights issues can be renounceable or non-renounceable.

Right issues are disregarded if they are out of the money at the close of XD-1. Right issues in the money are adjusted after the close of XD-1. However, for Australian companies for instance, right issues may be announced after the XD and tend to be suspended for a certain period just after the announcement. Markit implements the corporate action for the open of the business day in which the company is reinstated at the close of the suspension.

Example:

There is an entity 풊 offers rights issue; the ex-date is day 풕. Specifically, every 1 unit holding of the rights can buy 푹 units of stocks in entity 풊 with at the 풊 subscription price 푷푺풖풃 .

Treatment

Full subscription to the rights offering is assumed if the rights price is in the money. Shares and price and divisor are adjusted accordingly.

푷풊 + 푹×푷풊 푷풊 = 풕−ퟏ,푪풍풐풔풆 푺풖풃 풕,푶풑풆풏 ퟏ + 푹

푷풊 풊 풕,푶풑풆풏 푷_푨푭풕 = 풊 푷풕−ퟏ,푪풍풐풔풆

풊 푵푶푺푯푨푭풕−ퟏ, = (ퟏ + 푹)

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5.17.1 Highly Dilutive Rights Issue: The number of rights issued per underlying share may be high enough to considerably impact company capitalisation. In instances, where a ratio of more than 5 rights per share is determined, two treatments will be considered:

- Tradable rights: rights will be added to the index at the open of the effective date and dropped after a day’s trading

Example:

Treatment

Full subscription to the rights offering is assumed if the rights price is in the money. The rights will be added as a separately share line into the index. After the rights have traded for a day, they will be removed at the official close from the index composition.

Open of effective date: 풏 풊 풊 푫풊 푷풕,푶풑풆풏 = 푷풕−ퟏ,푪풍풐풔풆 − ∑ 푷풕,푶풑풆풏×푹 풊=ퟏ 푷풊 풊 풕,푶풑풆풏 푷_푨푭풕−ퟏ = 풊 푷풕−ퟏ,푪풍풐풔풆

푵푶푺푯_푨푭풊 = ퟏ 풕−ퟏ

푵푶푺푯푫풊 = 푵푶푺푯풊 ×푹, while 푵푶푺푯푫풊 = ퟎ; 풕 풕−ퟏ,푪풍풐풔풆 풕−ퟏ,

Where 푫풊 = tradable rights

Post first day of rights trading:

푫풊 푵푶푺푯풕+ퟏ = ퟎ

- Non-tradable rights: price adjustment will be applied, based on terms of announcement, as per traditional rights issue treatment defined above.

Treatment

Same as for standard rights issues

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5.18 Share Buy-Back

The repurchase by a company of its own shares, in order to reduce the number of shares in issue, usually at a set price either as a percentage of shares issued or ratio of shares held.

The following reasons may explain why to carry it out:

— return surplus cash to shareholders

— reduce the company’s cost capital

— enhance earnings per share in the hope of increasing market price per share and to reduce the possibility of a hostile takeover bid

A share buyback may be performed via a repurchase tender offer (to all shareholders), an open market purchase or a privately negotiated purchase. Markit only implements share buybacks under a tender offer form.

Example:

There is an entity 풊 offers share buy-back; the ex-date is day 풕. Specifically, every 1 unit holding of the stock, the shareholders can sell back 푹 units of stocks 풊 in entity 풊 with at the subscription price 푷푩풖풚풃풂풄풌

Treatment:

풊 풊 푷풕−ퟏ,푪풍풐풔풆 − 푹×푷푩풖풚풃풂풄풌 푷풊 = 풕,푶풑풆풏 ퟏ − 푹

푷풊 풊 풕,푶풑풆풏 푷_푨푭풕−ퟏ = 풊 푷풕−ퟏ,푪풍풐풔풆

풊 푵푶푺푯_푨푭풕−ퟏ = ퟏ − 푹

Note:

Even though this is Divisor methodology rather than Stock Level methodology, please note that this corporate event may have a partial effect at stock level and another one at index level. The 풊 effect at stock level is captured via 푵푶푺푯_푨푭풕 and the effect at index level is captured via the divisor. The divisor adjustment represents the income going in or out of the index due to the transaction at a price different to the market price.

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6 Stock Level Treatment Specifications

6.1 Cash Dividend

For example:

Company 풊 announces to pay a regular dividend; the ex-date is day 풕. 풊 Specifically, the gross dividend amount is 푫풊풗풕 in the same currency as the stock currency; the tax rate applicable to this dividend is 푻_푹풂풕풆풊.

Treatment:

— The price index does not take into account the Cash Dividend:

풊 푷_푨푭풕−ퟏ = ퟏ

풊 푵푶푺푯_푨푭풕−ퟏ = ퟏ

— The Total Return index requires adjustment for the Cash Dividend:

풊 풊 풊 풊 푷풕,푶풑풆풏 = 푷풕−ퟏ,푪풍풐풔풆 − 푫풊풗풕×푭푿풕

푷풊 풊 풕,푶풑풆풏 푷_푨푭풕−ퟏ = 풊 푷풕−ퟏ,푪풍풐풔풆

풊 ퟏ 푵푶푺푯_푨푭풕−ퟏ = 풊 푷_푨푭풕−ퟏ

— The Net Total Return index requires adjustment for the Net of Tax Cash Dividend:

풊 풊 풊 풊 풊 푷풕,푶풑풆풏 = 푷풕−ퟏ,푪풍풐풔풆 − 푫풊풗풕×푭푿풕×(ퟏ − 푻_푹풂풕풆 )

푷풊 풊 풕,푶풑풆풏 푷_푨푭풕−ퟏ = 풊 푷풕−ퟏ,푪풍풐풔풆

풊 ퟏ 푵푶푺푯_푨푭풕−ퟏ = 풊 푷_푨푭풕−ퟏ

Note:

There are exceptions to the general rules on: — The date to implement the dividends

For example, Korean dividends are implemented on the Pay Date while Japan dividends are incorporated on the 푿푫 but leave the option to adjust later for the difference between the estimated and

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the effective payment if this procedure is required by the client. In general, if a dividend amount is not available on the 푿푫, then Markit applies the dividend amount one day prior to the pay date (푷푫).

— Determining cash dividend gross amounts.

6.2 Special Dividend

Special dividends are those dividends that are outside of the normal payment pattern established historically by the corporation. Whether a dividend is funded from operating earnings or from other sources of cash does not affect the determination of whether it is a special dividend. Instead, it is considered a special dividend when the market perceives it as a special dividend with dividends outside the normal payment pattern.

Note that: Different from regular Cash Dividends, a tax rate in some circumstances may not apply in case of Special Dividends. For example, when the cash payout is a return of capital or a distribution resulting from the disposal of an asset, the tax is not applicable for this special dividend.

Example:

Company 풊 announces to pay a special dividend; the ex-date is day 풕. 풊 Specifically, the gross dividend amount is 푫풊풗풕 in the same currency as the stock currency; the tax rate applicable to this dividend is 푻_푹풂풕풆풊.

Treatment:

— Both the Price index and the Total Return index require adjustment for the Special Dividend:

풊 풊 풊 풊 푷풕,푶풑풆풏 = 푷풕−ퟏ,푪풍풐풔풆 − 푫풊풗풕×푭푿풕

푷풊 풊 풕,푶풑풆풏 푷_푨푭풕−ퟏ = 풊 푷풕−ퟏ,푪풍풐풔풆

풊 ퟏ 푵푶푺푯_푨푭풕−ퟏ = 풊 푷_푨푭풕−ퟏ

— In the case that tax is applicable for this special dividend, the Net Total Return index requires adjustments for the Net of Tax Special Dividend as below:

풊 풊 풊 풊 풊 푷풕,푶풑풆풏 = 푷풕−ퟏ,푪풍풐풔풆 − 푫풊풗풕×푭푿풕×(ퟏ − 푻_푹풂풕풆 )

푷풊 풊 풕,푶풑풆풏 푷_푨푭풕−ퟏ = 풊 푷풕−ퟏ,푪풍풐풔풆

풊 ퟏ 푵푶푺푯_푨푭풕−ퟏ = 풊 푷_푨푭풕−ퟏ

/ 29 Markit Index Standard Treatment

— In the case that tax is not applicable for this special dividend, the Net Total Return index requires adjustments for the Special Dividend as below:

풊 풊 풊 풊 푷풕,푶풑풆풏 = 푷풕−ퟏ,푪풍풐풔풆 − 푫풊풗풕×푭푿풕

푷풊 풊 풕,푶풑풆풏 푷_푨푭풕−ퟏ = 풊 푷풕−ퟏ,푪풍풐풔풆

풊 ퟏ 푵푶푺푯_푨푭풕−ퟏ = 풊 푷_푨푭풕−ퟏ

6.3 Stock Dividend

The stock dividend is a distribution of shares to shareholders as an alternative to a cash payment.

Example:

Treatment:

A price adjustment is done on the opening of the event ex-date, and the number of shares is almost adjusted (increased) either:

— On the ex-date for those cases where a stated amount of stock is announced; or

— On the pay-date, only if an undetermined amount of stock is announced based on earnings and profits to be distributed at a future date.

When there is no cash alternative, the stock dividend represents a script / bonus issue and the adjustment factor should be calculated in the same way.

풊 풊 푵푶푺푯_푨푭풕−ퟏ = ퟏ + 푫풊풗_푹풂풕풊풐풕

풊 ퟏ 푷_푨푭풕−ퟏ = 풊 푵푶푺푯_푨푭풕

/ 30 Markit Index Standard Treatment

6.4 Optional Dividend

A company offers its shareholders the choice of receiving the dividend in cash or in shares. Markit assumes that investors select the cash option a) on the ex-date for those cases where a stated $ equivalent of stock is announced and b) on the pay-date for those cases where an undetermined amount of stock is announced based on earnings and profits to be distributed at a future date. Thus, the dividend is treated in the same way as a Cash Dividend in the Section 6.1.

6.5 Bonus

A bonus is an offer of free additional shares to existing shareholders. A company may decide to distribute further shares as an alternative to increasing the dividend payout. The same treatment as stock splits applies. On the ex-date, an adjustment is required to the price, the number of shares and the dividends. It does not require divisor adjustment. Please see the Split in the Section 6.6 below.

6.6 Stock Split

Existing shares are subdivided into larger number of shares with an equivalent reduction in the Nominal Value of each share (where applicable).

A stock split increases the number of shares in a public company. The price is adjusted so that before and after this corporate event the market capitalization of the company remains the same and dilution does not occur.

Example:

Treatment:

The number of shares, dividends and the stock price are adjusted by the split factor on the ex- date.

풊 풊 푵푶푺푯_푨푭풕−ퟏ = 푺풑풍풊풕_푹풂풕풊풐풕

풊 ퟏ 푷_푨푭풕−ퟏ = 풊 푵푶푺푯_푨푭풕

/ 31 Markit Index Standard Treatment

6.7 Consolidation / Reverse Split

A reverse stock split or reverse split is a reduction in the number of shares and an accompanying increase in the share price.

Example:

Treatment:

The reverse split does not require divisor adjustment. The procedure is the same as Stock Split in the Section 6.5 above. In essence, it means that:

풊 ퟏ 푺풑풍풊풕_푹풂풕풊풐풕 = 풊 푪풐풏풔풐풍풊풅풂풕풊풐풏_푹풂풕풊풐풕

The calculation is the same regardless of whether the nominal value of a share changes (“stock consolidation”) or remains the same (“capital reduction”).

6.8 Share Redenomination

The nominal value of existing shares in issue changes due to the change of currency. Therefore, the amount is converted using a set rate.

For example, the Spanish Peseta (ESP) is currently obsolete as it was replaced with the Euro (EUR) on January 1st 1999. Therefore, a 100 nominal value of ESP would become EUR 0.60 using a set rate where 1 EUR = 166.386 ESP. This event may also be accompanied by a write- up / off in order to round the resultant amount. This corporate action does not require an index adjustment.

6.9 Merger

The result of a merger is one out of the two possibilities as below:

— The merging entities cease to exist and a new entity (“New Name”) is created.

— Only one name (“Surviving Name”) will survive out of all the merging companies.

In either case, we refer this surviving/new name as the Resulting Name (or Resulting Stock).

Usually the shareholders of the merging companies exchange their emerging company shares for shares in the resulting company.

/ 32 Markit Index Standard Treatment

Example:

There are 풏 companies 풌ퟏ, 풌ퟐ, … , 풌풏 merging into the resulting stock 풎; the ex-date is day 풕. Specifically, for every 1 unit holding of stock 풌풊, the shareholders receive 푪푹풊 unit(s) of stock 풎 and a cash amount of 푪풂풔풉풊 (푖푓 푎푝푝푙푖푐푎푏푙푒) , ( 풊 = ퟏ, ퟐ, … , 풏) ; the opening price of the 풎 Resulting Stock is 푷풕,푶풑풆풏 which is either announced by the company or implied by the company accouchement.

Scenarios:

If there is a merger event occurring on one index constituents, normally the scenario may fall into one of the following cases:

— Case1: All the relevant merging entities are index constituents.

— Case2: Some relevant merging entities are not index constituents; and the resulting entity is a New Name.

— Case3: Some relevant merging entities are not index constituents; the resulting entity is a Surviving Name; and the Surviving Name is an index constituents before the merger event

— Case4: Some relevant merging entities are not index constituents; the resulting entity is a Surviving Name; the Surviving Name is not an index constituents before the merger event

The corresponding treatments for different scenarios are the following:

Treatments: Case 1, Case 2 and Case 3

풌풊 풌풊 푵푶푺푯_푨푭풕−ퟏ = ퟎ and 푵푶푺푯풕 = ퟎ ; 풊 = ퟏ, ퟐ, … , 풏.

풏 ∑풏 푪풂풔풉풊 푵푶푺푯풎 = ∑ 푵푶푺푯풌풊 ×푪푹풊 + 풊=ퟏ 풕 풕−ퟏ 푷풎 풊=ퟏ 풕,푶풑풆풏

Treatments: Case 4

In this case, only some of the merging companies are index constituents; say they are companies 풌ퟏ, 풌ퟐ, … , 푎푛푑 풌풎 (풎 < 풏). Essentially, these associated index constituents are taken over or acquired by the “Surviving Name”. However, this acquiring company, i.e. “Surviving Name” is not eligible for the index. Therefore, these associated index constituents are removed from the index on day 푡 and a weight equal to the sum of the weights of the merging companies prior to the merger will be distributed proportionally into all the remaining stocks (푹푬푴풊 , 풊 = ퟏ, ퟐ, … 푳). the following equations apply:

풌풊 풌풊 푵푶푺푯_푨푭풕−ퟏ = ퟎ and 푵푶푺푯풕 = ퟎ ; 풊 = ퟏ, ퟐ, … , 풎.

/ 33 Markit Index Standard Treatment

∑풏 푵푶푺푯풌풊×푪푹풊× 푷풎 + ∑풏 푪풂풔풉풊 푹푬푴풊 풊=ퟏ 풕 풕,푶풑풆풏 풊=ퟏ 푵푶푺푯_푨푭풕 = ퟏ + 푳 푹푬푴풊 푹푬푴풊 ∑풊=ퟏ 푵푶푺푯풕−ퟏ × 푷풕,푪풍풐풔풆

6.10 Acquisition

An acquisition is the procurement of a controlling interest of more than 50% in one company by another larger company and the acquired company may continue to trade. Shareholders of the target company are offered cash and/or shares for their holding.

Treatments:

— Case1: After the acquisition, the acquired company stocks are still outstanding and trading:

No adjustment is made for treating this event.

— Case2: After the acquisition, the acquired company stocks stopped trading:

No adjustment is made for treating this event. Markit Divisor Methodology calculates the new number of shares based on the terms of the acquisition. The procedure to implement this corporate event is as per the Merger Section 6.9 above.

6.11 Demerger / Spin-off

For a current index constituent incurring a spin-off:

— any cash paid as part of the spin-off is reinvested in the index with a devisor change;

— the parent company is kept in the index provided it remains listed and continues to trade;

/ 34 Markit Index Standard Treatment

Example:

Treatments:

When there is a demerger/spin-off event occurring on one index constituents, Markit Divisor Methodology offers three options to treat this event as below. Option 1 is taken as Markit default treatment.

— Option 1: Provided the spun-off entities meet the inclusion criteria, the following treatment applies.

Keep this index constituent in the index and include all the spun-off companies into the index.

풏 푲 푲 푫풊 푷풕,푶풑풆풏 = 푷풕−ퟏ,푪풍풐풔풆 − 푲푪풂풔풉 − ∑ 푷풕,푶풑풆풏×푫푹풊 풊=ퟏ 푷푲 푲 풕,푶풑풆풏 푷_푨푭풕−ퟏ = 푲 푷풕−ퟏ,푪풍풐풔풆

푲 푲푪풂풔풉 푵푶푺푯_푨푭풕−ퟏ = ퟏ + 푲 푷풕,푶풑풆풏

푵푶푺푯푫풊 = 푵푶푺푯푲 ×푫푹풊, while 푵푶푺푯푫풊 = ퟎ; (풊 = ퟏ, ퟐ, … , 풏) 풕 풕−ퟏ 풕−ퟏ

— Option 2: If the spun-off entities do not meet the index eligibility criteria:

Keep this index constituent in the index but exclude all the spun-off companies; these associated index constituents are removed from the index on day t and a weight equal to the sum of the weights of the removed companies prior to the spin-off will be reinvested into the spinning-off stock 푲. The following equations apply:

푲 ퟏ 푵푶푺푯_푨푭풕−ퟏ = 푲 푷_푨푭풕−ퟏ

푵푶푺푯푫풊 = ퟎ 풕

— Option 3: In rare cases, the parent company ceases to be eligible for the indices itself.

/ 35 Markit Index Standard Treatment

Exclude this index constituent and exclude all the spun-off companies; these associated index constituents are removed from the index on day t and a weight equal to the sum of the weights of the merging companies prior to the merger will be distributed proportionally into all the remaining stocks (푹푬푴풊 , 풊 = ퟏ, ퟐ, … 푳). The following equations apply:

푵푶푺푯_푨푭푲 = ퟎ , and 푵푶푺푯푲 = ퟎ 풕−ퟏ 풕

푵푶푺푯푫풊 = ퟎ 풕

푲 푲 푹푬푴풊 푵푶푺푯풕−ퟏ×푷풕−ퟏ,푪풍풐풔풆 푵푶푺푯_푨푭풕−ퟏ = 푳 푹푬푴풊 푹푬푴풊 ∑풊=ퟏ 푵푶푺푯풕−ퟏ × 푷풕

6.12 Takeover

A takeover is also the acquisition of one company by another. However this term is normally - but not always - used to imply that the acquisition is made on the initiative of the acquirer and often without the full agreement of the acquired company. Shareholders of the target company are given cash and/or shares for their holding.

A reverse takeover is the acquisition of a larger company by a smaller one, based on certain criteria such as turnover, profits or net assets.

The mechanisms for carrying out an acquisition or takeover may be through a cash offer -fixed, open or tender-, a share exchange or a combination of both.

The procedure to implement this corporate event is as per the Merger in the Section 6.9 above.

6.13 Bankruptcy

6.14 Change of Listing

If a company is delisted from a main liquid Stock Exchange within the universe of eligible stock exchanges for the index (see Annex), there are three different options to consider:

/ 36 Markit Index Standard Treatment

2. The listing changes to a stock exchange that is not considered eligible for the index. In this case the Index Administration Committee will decide whether:

• The company is removed from the index at its last closing price on an eligible exchange. If the change in listing lies in the past, this change may be retroactive; or

• The company is removed from the index at a future date (e.g. next index rebalance) and going forward in which case the listing’s price will be taken temporarily from the new exchange.

3. The company becomes unlisted. In this case the Index Administration Committee will decide whether:

• The company is removed from the index at its last closing price; its index weight will be distributed proportionally into all remaining constituents; or

6.15 Suspension

6.16 Share Conversion

Share conversion is the exchange of one form of security for another security of the same company. For example: preferred stock for common stock, or debt securities for equity.

Treatment:

/ 37 Markit Index Standard Treatment

Stock i is converted for share j; the ex-date is day t. Stock i is part of the index. Stock j is not.

풊풋 Every 1 unit of i is converted for 푪풐풏풗풆풓풔풊풐풏_풓풂풕풆풕 unit(s) of share j.

Treatment:

Stock j is added to the index with the following NOSH.

풋 풊 풊풋 푵푶푺푯풕 = 푵푶푺푯풕−ퟏ × 푪풐풏풗풆풓풔풊풐풏_풓풂풕풆풕

Example:

Stock i is converted for share j; the ex-date is day t. Both Stock i and Stock j are part of the index.

풊풋 Every 1 unit of i is converted for 푪풐풏풗풆풓풔풊풐풏_풓풂풕풆풕 unit(s) of share j.

Treatment:

풋 푷_푨푭풕 = ퟏ

풋 풊 풊풋 풋 푵푶푺푯풕−ퟏ + 푵푶푺푯풕−ퟏ × 푪풐풏풗풆풓풔풊풐풏_풓풂풕풆풕 푵푶푺푯_푨푭풕 = 풋 푵푶푺푯풕−ퟏ

6.17 Write-Up of Capital

Existing shares in issue are converted one for one into Ordinary Shares with an increased Nominal Value. Please note that a company may have as many different types of shares as it wishes, all with different conditions attached to them. Generally share types fall into the following categories:

— Ordinary Shares

Ordinary Shares do not have special rights or restrictions. The company may divide them into classes of different value.

/ 38 Markit Index Standard Treatment

— Preference Shares

Preference Shares normally carry a right that the company should pay any annual dividends available for distribution on these shares before other classes.

— Cumulative preference Shares

Cumulative preference Shares carry a right that, if the company cannot pay the dividend in one year, it will carry it forward to successive years.

— Redeemable Shares

Treatment:

No treatment is required for this event.

6.18 Write-Off of Capital

Existing shares in issue are converted one for one into shares with a reduced Nominal Value. This can happen because the market price of the shares has dropped below its Nominal Value.

Treatment:

No treatment is required for this event.

Note: In the UK this event also involves a number of deferred shares, which are subsequently cancelled by the company.However, when considering shares, it is usually the market value and not the nominal or book amount which investors and other stakeholders are interested in.

6.19 Change to No Par Value

Existing shares in issue are converted into shares with no Nominal (par) Value. This means that the Nominal Value is equal the Issue Price.

Treatment:

No treatment is required for this event.

6.20 Rights Issue

/ 39 Markit Index Standard Treatment

Example:

Treatment

The principle of the default treatment is to keep market value neutral throughout this event. In essence, under this treatment, the index executes a portion of the stock rights with funding from selling the remainder of the rights.

푷풊 + 푹×푷풊 푷풊 = 풕−ퟏ,푪풍풐풔풆 푺풖풃 풕,푶풑풆풏 ퟏ + 푹

푷풊 풊 풕,푶풑풆풏 푷_푨푭풕 = 풊 푷풕−ퟏ,푪풍풐풔풆

풊 ퟏ 푵푶푺푯_푨푭풕 = 풊 푷_푨푭풕

6.20.1 Highly Dilutive Rights Issue The number of rights issued per underlying share may be high enough to considerably impact company capitalisation. In instances, where a ratio of more than 5 rights per share is determined, two treatments will be considered:

- Tradable rights: rights will be added to the index at the open of the effective date and dropped after a day’s trading

Example:

Treatment

Open of effective date:

/ 40 Markit Index Standard Treatment

풏 풊 풊 푫풊 푷풕,푶풑풆풏 = 푷풕−ퟏ,푪풍풐풔풆 − ∑ 푷풕,푶풑풆풏×푹 풊=ퟏ 푷풊 풊 풕,푶풑풆풏 푷_푨푭풕−ퟏ = 풊 푷풕−ퟏ,푪풍풐풔풆

풊 ퟏ 푵푶푺푯_푨푭풕−ퟏ = 풊 푷_푨푭풕−ퟏ

푵푶푺푯푫풊 = 푵푶푺푯풊 ×푹, while 푵푶푺푯푫풊 = ퟎ; 풕 풕−ퟏ,푪풍풐풔풆 풕−ퟏ,

Where 푫풊 = tradable rights

Post first day of rights trading:

푫풊 푵푶푺푯풕+ퟏ = ퟎ

- Non-tradable rights: price adjustment will be applied, based on terms of announcement, as per traditional rights issue treatment defined above.

6.21 Capital Return or Capital Repayment

Capital repayments to shareholders is the return of all or any portion of the issued capital of a company in the winding up of operations or the return of capital in excess of a company’s requirements. A capital repayment refers to payments that exceed the growth (net income/taxable income) of a business back to "capital owners", such as shareholders, partners or unit holders. The capital repayment is a transfer of value from the company to the existing owners, but with a different tax treatment to the one applied to the dividends.

Strictly speaking these are dividends taken from paid-in capital rather than current earnings or retained earnings. They are generally not tax liable for the shareholder when paid.

At present this capital change type is being used for a variety of global events including the following:

— The nominal value of the company is adjusted and the difference is returned to shareholders in cash

— Cash distributions resulting from the sale of capital assets or securities, or tax breaks from depreciation

The capital return is perceived to be replacing regular cash dividends, then it is only applied to the Total Return Indices on the ex-date and it does require a divisor adjustment. Capital repayments are therefore treated as per Cash Dividends in the Section 6.1.

However, for those specific cases where the market does not perceive the capital return to be replacing a cash dividend then the treatment is as per Special Dividends in the Section 6.2.

/ 41 Markit Index Standard Treatment

6.22 Share Buy-Back

The repurchase by a company of its own shares, in order to reduce the number of shares in issue, usually at a set price either as a percentage of shares issued or ratio of shares held.

The following reasons may explain why to carry it out:

— return surplus cash to shareholders

— reduce the company’s cost capital

— enhance earnings per share in the hope of increasing market price per share and to reduce the possibility of a hostile takeover bid

Example:

Treatment:

풊 풊 푷풕−ퟏ,푪풍풐풔풆 − 푹×푷푩풖풚풃풂풄풌 푷풊 = 풕,푶풑풆풏 ퟏ − 푹

푷풊 풊 풕,푶풑풆풏 푷_푨푭풕−ퟏ = 풊 푷풕−ퟏ,푪풍풐풔풆

풊 ퟏ 푵푶푺푯_푨푭풕−ퟏ = 풊 푷_푨푭풕−ퟏ

Note:

/ 42 Markit Index Standard Treatment

7 Tax Table

The following tax table is implemented and reviewed on an annual basis by Markit.

Dividend Dividend Dividend Country/Territory Tax Rates Country/Territory Tax Rates Country/Territory Tax Rates (%) (%) (%)

ARGENTINA 10.00% HONG KONG 0.00% NETHERLANDS 15.00%

NETHERLANDS AUSTRALIA 30.00% HUNGARY 0.00% 0.00% ANTILLES

AUSTRIA 25.00% ICELAND 18.00% NEW ZEALAND 30.00%

BAHAMAS 0.00% INDIA 0.00% NIGERIA 10.00% BAHRAIN 0.00% INDONESIA 20.00% NORWAY 25.00% BANGLADESH 20.00% IRELAND 20.00% OMAN 0.00% BELGIUM 25.00% ISLE OF MAN 0.00% PAKISTAN 10.00% BERMUDA 0.00% ISRAEL 25.00% PANAMA 10.00% Papua New BOTSWANA 7.50% ITALY 26.00% 17.00% Guinea BRAZIL 0.00% JAMAICA 33.33% PERU 4.10% BRITISH VIRGIN 0.00% JAPAN 15.32% PHILIPPINES 30.00% ISLANDS BULGARIA 5.00% JERSEY 0.00% POLAND 19.00% CANADA 25.00% JORDAN 0.00% PORTUGAL 25.00% CAYMAN 0.00% KAZAKHSTAN 15.00% PUERTO RICO 10.00% ISLANDS CHILE 35.00% KENYA 10.00% QATAR 0.00% CHINA 10.00% KOREA 22.00% ROMANIA 16.00% COLOMBIA 33.00% KUWAIT 15.00% RUSSIA 15.00%

CROATIA 12.00% Latvia 10.00% SAUDI ARABIA 5.00%

CYPRUS 0.00% LEBANON 10.00% SERBIA 20.00% CZECH 35.00% LIBERIA 15.00% SINGAPORE 0.00% REPUBLIC

DENMARK 27.00% LIECHTENSTEIN 0.00% Slovakia 0.00%

EGYPT 10.00% LITHUANIA 15.00% SLOVENIA 15.00%

ESTONIA 0.00% LUXEMBOURG 15.00% SOUTH AFRICA 15.00%

FINLAND 30.00% MACEDONIA 10.00% SPAIN 19.50% FRANCE 30.00% MALAYSIA 0.00% SRI LANKA 10.00% GERMANY 26.38% Malta 0.00% SWEDEN 30.00%

/ 43 Markit Index Standard Treatment

MARSHALL GHANA 8.00% 0.00% SWITZERLAND 35.00% ISLANDS GIBRALTAR 0.00% MAURITIUS 0.00% TAIWAN 20.00% GREECE 10.00% MEXICO 10.00% THAILAND 10.00% TRINIDAD AND GUERNSEY 0.00% MOROCCO 15.00% 10.00% TOBAGO

Dividend Country/Territory Tax Rates (%) TUNISIA 5.00% TURKEY 15.00% UKRAINE 15.00% UNITED ARAB 0.00% EMIRATES UNITED 0.00% KINGDOM USA 30.00% VIETNAM 0.00%

/ 44 Markit Index Standard Treatment

8 Summary

The main objective of this documentation is to specify Markit’s recommendation on how to treat Corporate Events in the calculation of bespoke and public equity indices.

The corporate events treatments have been summarized following standard procedures. In some cases, additional bespoke criteria may be required to be further described at bespoke level and kept separate to the default standard version.

Markit reserves the right to adjust this document as deemed appropriate by market participants. Markit notifies and discusses the changes with clients to work in consensus with the market prior to implementing the adjustments.

Adjustment Factors have been included in the corporate events treatment formulae to adjust the prices and the number of shares according to the rules specified for the open and close positions.

The standard treatment forms the basis of a robust, automated and flexible tool to run the growing number of equity indices being calculated and managed by Markit.

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Annex: Eligible Stock Exchanges

ISO Country Stock Exchange MIC AR Argentina Buenos Aires Stock Exchange XBUE AU Australia Australian Stock Exchange XASX AT Austria Wiener Boerse AG WBAH BH Bahrain Bahrain Stock Exchange XBAH BD Bangladesh Dhaka Stock Exchange XDHA BE Belgium Brussels Stock Exchange (Euronext) XBRU BR Brazil Sao Paulo Stock Exchange BVMF BG Bulgaria Bulgaria Stock Exchange XBUL CA Canada Toronto Stock Exchange XTSE CA Canada Venture Stock Exchange XTSX CL Chile Santiago Stock Exchange XSGO CN China Shanghai Stock Exchange XSHG CN China Shenzhen Stock Exchange XSHE CO Colombia Colombia Stock Exchange XBOG HR Croatia Croatia Stock Exchange XZAG CY Cyprus Cyprus Stock Exchange XCYS CZ Czech Republic Prague Stock Exchange XPRA DK Denmark Copenhagen Stock Exchange XCSE EG Egypt Egypt Stock Exchange (Cairo) XCAI EE Estonia Tallinn Stock Exchange XTAL FI Finland Helsinki Stock Exchange XHEL FR France Paris Stock Exchange (Euronext) XPAR DE Germany Xetra Stock Exchange XETR GR Greece Athens Stock Exchange XATH HK Hong Kong Hong Kong Stock Exchange XHKG HU Hungary Budapest Stock Exchange XBUD IN India Bombay Stock Exchange XBOM IN India National Stock Exchange XNSE ID Indonesia Indonesia Stock Exchange XIDX IE Ireland Ireland Stock Exchange XDUB IL Israel Tel Aviv Stock Exchange XTAE IT Italy Milan Stock Exchange MTAA JP Japan Nagoya Stock Exchange XNGO JP Japan Tokyo Stock Exchange XTKS JP Japan Sapporo Stock Exchange XSAP JO Jordan Amman Stock Exchange XAMM KE Kenya Nairobi Stock Exchange XNAI KW Kuwait Kuwait Stock Exchange XKUW LV Latvia Riga Stock Exchange XRIS

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LB Lebanon Beirut Stock Exchange XBEY LT Lithuania Vilnius Stock Exchange XLIT MY Malaysia Kuala Lumpur Stck Exchange XKLS MT Malta Malta Stock Exchange XMAL MX Mexico Mexico Stock Exchange XMEX MA Morocco Casablanca Stock Exchange XCAS NL Netherlands Amsterdam Stock Exchange (Euronext) XAMS NZ New Zealand New Zealand Stock Exchange XNZE NG Nigeria Nigeria Stock Exchange XNSA NO Norway Oslo Stock Exchange XOSL OM Oman Muscat Securities Market XMUS PK Pakistan Karachi Stock Exchange XKAR PE Peru Lima Stock Exchange XLIM PH Philippines Philippines Stock Exchange XPHS PL Poland Warsaw Stock Exchange XWAR PT Portugal Lisbon Stock Exchange (Euronext) XLIS QA Qatar Doha Securities Market DSMD RO Romania Bucharest Stock Exchange XBSE RU Russia Moscow Exchange MISX SA Saudi Arabia Saudi Stock Exchange (Tadawul) XSAU SG Singapore Singapore Stock Exchange XSES SK Slovakia Bratislava Stock Exchange XBRA SI Slovenia Ljubljana Stock Exchange XLJU ZA South Africa Johannesburg Stock Exchange XJSE KR South Korea KOSDAQ Stock Exchange XKOS KR South Korea Korean Stock Exchange XKRX ES Spain Mercado Continuo XMCE LK Sri Lanka Colombo Stock Exchange XCOL SE Sweden Stockholm XSTO CH Switzerland SWX Europe XVTX CH Switzerland Swiss Stock Exchange (SWX) XSWX TW Taiwan Gretai Securities Market ROCO TW Taiwan Taiwan Stock Exchange XTAI TH Thailand Thailand Stock Exchange (bangkok) XBKK TN Tunisia Tunis Stock Exchange XTUN TR Turkey Istanbul Stock Exchange XIST UA Ukraine Ukrainian Exchange UKEX AE United Arab Emirates Abu Dhabi Securities Market XADS AE United Arab Emirates Dubai Financial Market XDFM AE United Arab Emirates Dubai International Financial Exchange DIFX GB United Kingdom London Stock Exchange XLON GB United Kingdom London Stock Exchange (IOB) XLON US United States of America NASDAQ Stock Exchange XNAS

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US United States of America NYSE Amex XASE US United States of America NYSE Arca Exchange ARCX US United States of America New York Stock Exchange XNYS VE Venezuela (Bolivarian Republic) Caracas Stock Exchange XCAR VN Vietnam Hanoi Securities Trading Center HSTC VN Vietnam Vietnam Stock Exchange XSTC

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