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IHS Markit Consultation on the Implementation of the EO 13959 Sanctions in the EMIX Indices

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IHS Markit Consultation on the Implementation of the EO 13959 Sanctions in the EMIX Indices IHS Markit Consultation on the Implementation of the EO 13959 Sanctions in the EMIX Indices Consultation | Copyright © 2021 IHS Markit Ltd Consultation paper – Implementation of the EO 13959 Sanctions in the EMIX Indices 1. IHS Markit’s Administration IHS Markit Benchmark Administration Limited (IMBA UK) is the Index Administrator of the EMIX indices. IMBA UK administers these indices in accordance with the International Organisation of Securities Commissions Principles for Financial Benchmarks (the IOSCO Principles) and the UK Benchmarks Regulation (UK BMR). 2. Background Pursuant to an Executive Order (Executive Order 13959; hereafter EO or EO 13959) signed by the President of the United States of America on Thursday, 12 November 2020, U.S. Persons are prohibited from transacting in securities of certain Chinese companies as listed in the EO. The EO came into force on 11 January 2021, with initially 31 companies explicitly impacted. EO 13959 has been subsequently amended by Executive Order 13974 on 13 January 2021. A total of 8 additional companies have been added to the original 31 companies on 03 December 2020 and 08 January 2021. Existing investors in these companies are granted a period of one year after a company has been added to the list to divest of the affected securities (the "divestment period"). IMBA has conducted an analysis of the companies listed in the EO and its amendments to understand which securities that are part of the EMIX indices may be subject to the sanctions. This analysis has likewise sought to identify the impact of the EO on international investors’ ability to hold or invest in these securities. 3. Proposal IMBA UK is proposing that, starting with the June 2021 quarterly review of EMIX Investable Universe, securities issued by companies listed by the Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury (DOT) will no longer be eligible for the EMIX World and EMIX (EMICS) indices. | 2 Consultation paper – Implementation of the EO 13959 Sanctions in the EMIX Indices As of 20 May 2021, IMBA UK has identified the following 17 securities in scope of this proposal: EMIX EMIX Security Ticker World (EMICS) China Communications Construction Ord Shs A 601800.SH X China Communications Constructions Group Ord Shs H 1800.HK X X China Mobile Ord Shs 0941.HK X X China Railway Construction Ord Shs A 601186.SH X China Railway Construction Ord Shs H 1186.HK X X China Spacesat Ord Shs A 600118.SH X China Telecom Ord Shs H 0728.HK X X China Unicom (Hong Kong) Ord Shs 0762.HK X X China United Network Communications Ord Shs A 600050.SH X CNOOC Ord Shs 0883.HK X X CRRC Corp Ord Shs A 601766.SH X CRRC Ord Shs H 1766.HK X X Dawning Information Industry Ord Shs A 603019.SH X Hangzhou HikVision Digital Technology Ord Shs A 002415.SZ X Nanjing Panda Electronics Ord Shs 0553.HK X Nanjing Panda Electronics Ord Shs A 600775.SH X Semiconductor Manufacturing International Ord Shs 0981.HK X X For details on the impacted indices and securities – please refer to the Impact Analysis below. The period for this consultation has been shortened from the regular four weeks to two weeks. This has been done so that the proposed treatment can be implemented as part of the regular quarterly rebalancing of the EMIX indices in June. IMBA UK is of the opinion that an implementation as part of the regular quarterly rebalancing in June is preferable to implementation via an extraordinary rebalancing in July after a full four week consultation, because: The overall impact of the changes on the indices is small and so the implementation of the changes as part of the regular turnover/portfolio is easier for users of the indices Implementation of the changes as part of an extraordinary rebalance would increase the risk of clients missing the changes IMBA UK has already collected extensive feedback on the EO sanctions from users of the iBoxx and iTraxx indices 4. Impact Analysis Details of the impacted indices and securities are shown in this section along with the cumulative weight of the sanctioned securities in the respective indices. EMIX World IndicesAll 17 securities will be removed. | 3 Consultation paper – Implementation of the EO 13959 Sanctions in the EMIX Indices Existing weight As of 20 May 2021 (price indices) EMIX World 0.19% EMIX All World 0.19% EMIX Emerging World 1.31% EMIX Extended Emerging World 1.30% EMIX APAC 0.91% EMIX All APAC 0.91% EMIX Emerging APAC 1.65% EMIX Extended Emerging APAC 1.65% EMIX Greater China 2.21% EMIX China Investable 3.07% EMIX China Global Investable 2.77% EMIX Global Resources (EMICS) Indices The following security will be removed: CNOOC Ord Shs Existing weight As of 20 May 2021 (price indices) EMIX Global Mining Gold and Energy (EMICS) 0.22% EMIX Global Mining and Energy (EMICS) 0.35% EMIX Global Energy ex Mining and Gold (EMICS) 0.75% EMIX Asia ex India Sub Continent (EMICS) Indices The following securities will be removed: China Communications Constructions Group Ord Shs H China Mobile Ord Shs China Railway Construction Ord Shs H China Unicom (Hong Kong) Ord Shs CNOOC Ord Shs CRRC Ord Shs H Semiconductor Manufacturing International Ord Shs Existing weight As of 20 May 2021 (price indices) EMIX Asia ex India Sub Continent (EMICS) 0.82% EMIX South East Asia (EMICS) 1.33% EMIX China (EMICS) 2.65% EMIX Smaller Asia ex India Sub Continent (EMICS) Indices The following security will be removed: China Telecom Ord Shs H | 4 Consultation paper – Implementation of the EO 13959 Sanctions in the EMIX Indices Existing weight As of 20 May 2021 (price indices) EMIX Smaller Pacific (EMICS) 0.16% EMIX Smaller Pacific ex Japan (EMICS) 0.25% EMIX Smaller Asia Pacific ex Japan and India Sub Continent (EMICS) 0.23% EMIX Smaller Asia ex India Sub Continent (EMICS) 0.14% EMIX Smaller South East Asia (EMICS) 0.31% EMIX Smaller China (EMICS) 1.04% For a detailed list of sub-indices and securities please contact: [email protected]. Note that any subsequent amendments to the EO and the list of companies maintained by OFAC will be reflected in the following quarterly rebalancing. No subsequent consultation will be issued if the list of companies under sanction changes, though clients will be notified via e-mail and website announcement. 5. Consultation timetable The timetable IMBA UK is suggesting is as follows: 26 May 2021 Consultation opens 08 June 2021 Consultation closes 09 June 2021 IMBA UK reviews stakeholder feedback and a final decision is communicated 14 June 2021 Implementation of the change in the indices (pro forma baskets) 6. Consultation process The participation of stakeholders in this consultation is important as IMBA UK seeks to gather views on the proposals herein and the suggested timetable for implementation of those proposals. IMBA UK may publish summaries of stakeholders’ comments along with IMBA UK’s responses to those comments unless the stakeholder in question expressly requests confidentiality. To participate in this consultation please respond to IMBA UK Administration Services at [email protected]. Please be advised that all comments will be reviewed and considered before a final decision is made; however, IMBA UK makes no guarantee and is under no | 5 Consultation paper – Implementation of the EO 13959 Sanctions in the EMIX Indices obligation to comply with any of the responses. The consultation may result in no changes or outcome of any kind. An announcement will be posted on our website accordingly. IMBA UK reserves the right to make a final decision on the proposal. 7. Key question Do you have any concerns regarding IMBA UK’s proposal to reflect the EO in the EMIX indices as described and the associated implementation timeline? | 6 .
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