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Normandin Beaudry

New S&P/TSE Composite Index

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There, in black and white

NB Bulletin Vol. 5 N. 1, March 2002

On January 30, 2002, the Toronto Stock Exchange and Standard & Poor's jointly announced the official replacement of the TSE300 Index. As of May 1, 2002, the Canada's Leading Equities' Benchmark will be renamed S&P/TSE Composite Index.

The new index will be calculated by Standard & Poor's, a firm that specializes in market index calculation, mainly in the United States. The major impact of the change to the new S&P/TSE Composite Index is that the number of stocks in the index will vary according to new inclusion criteria, determined by Standard & Poor's. The new inclusion criteria are based mainly on liquidity, market capitalization and the minimum price of shares traded on the Toronto Stock Exchange.

Stocks that do not meet these inclusion criteria will be removed from the current TSE300 Index in three steps occuring at the end of June, September and December 2002. As of January 1, 2003, the number of stocks in the new index is estimated to be 225. The overall impact of the stocks removed from the index is negligible. In fact, the bottom 100 stocks of the TSE300 represent less than 3% of the TSE300. Given the marginal weighting of the 75 stocks that could possibly be removed from the index, i.e. about 1.7% of the TSE300 Index, it will remain possible to compare the TSE300 Index historical performances with those of the new Index.

Standard & Poor's also announced a new classification procedure for the industrial sectors (Global Industry Classification Standard). The number of sectors will drop from 14 to 10 as of March 22, 2002. However, the current classification will remain in effect until April 2003. The purpose of this reclassification is to allow for better comparison of Canadian industrial sectors with American and International industrial sectors.

For Canadian Equity mandates using the TSE300 Index (or S&P/TSE300 Capped Index) as a benchmark, the revised index will require investment policy changes.

The name of the benchmark will no longer be TSE300 Index but "S&P/TSE Composite Index". The current S&P/TSE300 Capped Index will continue to be published and will be renamed "S&P/TSE Composite Capped Index". This Index will include the same stocks as the S&P/TSE Composite Index but with a 10% maximum weighting for any of the stocks.

If an investment policy imposes some restrictions with respect to the industrial sectors, such as a minimum number of covered sectors or a maximum sector deviation, such restrictions will have to be reviewed to take into account the new sector classification. However, since the current classification will remain in effect until April 2003, such changes could be made throughout the year 2002.

 

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