The Nigerian Stock Exchange (NSE) Tuesday announced review of the eligibility criteria for the NSE Pension Index (“The Index”) in line with changes in the regulatory and market requirements. The amended methodology and rebalancing will be effective from today, Wednesday July 1, 2020.
According to Mr. Abimbola Abdulazeez Babalola, Chairman, Index Governance Committee, NSE “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”.
The Nigerian Stock Exchange in order to deepen the market introduced the Pension Index and exposed to the investing public in 2015.
The creation of the NSE Pension Index has 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 capitalization and liquidity. It is a total return index and is weighted by adjusted market capitalization, a capping factor and a free float factor.
*Below are the summary of the amended NSE Pension Index Methodology and Eligibility Criteria.
| S/No | Criteria | NSE Pension Index | Amendment Remarks |
| 1 | Count (No. of Securities) | The top 40 companies that fulfilled all the requirements in the latest 6 months’ period. | No Amendment |
| 2 | Eligibility Universe | The Stocks are picked for further tests based on their market capitalization from the most liquid sectors. Minimum of 6 months holding period. | No Amendment |
| 3 | Investability weighting | Companies to be included must have Free Float Factor of at least 5%. | Free Float consideration to be aligned with Exchange’s free float rules and definition. |
| 4 | Liquidity Test | 70% 6-Month Frequency of Trading and Turnover velocity. | Equities to pass two parameter Liquidity Test instead of one: (1) the number of times the stock traded during the half year (2) its turnover velocity. |
| 5 | Profitability Criteria | Companies to be included must have an operating track record of having made taxable profits for at least three out of the five years preceding the investment; and must have paid dividend or issued bonus at least one out of the five years. | Dividend payment or bonus issue is now at least one and no longer two out of the five years |
| 6 | Returns Calculation | Total Return Method (to capture returns from dividends, price changes and realized gain | No Amendment |
| 7 | Security Cap | No individual listed equity can have a weighting of more than 10% | Maximum weighting of an individual listed equity has been reviewed from 4.5% to 10% |
| 8 | Sector Cap | No sector can have a weighting of more than 45% | No Amendment |
| 9 | Sector Base | No sector can have a weighing less than 2% | No Amendment |
| Governance | |||
| 10 | Maintenance | The Index Governance Committee of NSE will monitor and implement the required adjustments for company additions and deletions, share changes, stock splits, stock dividends, corporate restructurings, spin-offs, or other corporate actions. | No Amendment |
| 11 | Rebalancing | The index is rebalanced semi-annually in June and December | No Amendment |
| 12 | Reviews | The index is reviewed annually on the first business day in January whereby constituents are reconstituted (added or deleted) based on their fulfilment of The Index eligibility criteria and methodology | No Amendment |
