Tehran Stock Exchange to launch free floated adjusted index - TEFIX

Tehran Stock Exchange to launch free floated adjusted index - TEFIX


The following text is an excerpt of an interview with Mr. Ali Sanginian, TSE's deputy CEO.

Since the main proportion of shares of listed companies are held by strategic shareholders who are unlikely to be willing to trade, weighting the index with the total outstanding shares to compute the index number, decreases the efficiency and accuracy of price, as index and big firms with low free float shares can distort it. For this reason, most of exchanges have started to launch free floated adjusted index since 2000.

Free-float adjustment methodology increases the efficiency and accuracy of index and provides an accurate view of market movements. This method also eliminates the double calculations that come out due to cross ownership.

The free float of a company is the proportion of shares that are held by investors who are likely to be willing to trade. In other words, in calculation of free float shares, we subtract the shares of the major shareholders from the outstanding shares of companies.

The method that is used in Tehran Stock Exchange is based on international standards. According to the TSE method, the following shareholders are considered as strategic shareholders:

  • Shareholders who hold shares in the proportion of more than 5%, family shareholders (first rank relatives) and shareholders who have controlling power of the company. The remained proportion of shares, not held by strategic shareholders, are considered as free float shares and announced quarterly.

TSE will shortly calculate and publish free-float adjusted index like the existing total market capitalization-weighted index; all of TSE listed companies constitute the free float index. The only difference is that free float shares are used for weighting the index. For example, if the free float shares of a company are 20%, only 20% of outstanding shares will be considered in the formula.

TSE free float adjusted index will be designed in two form; price index and total return index. At the time being, TSE's test model of free float adjusted index displays the total return (price and dividend). This index has been calculated since 24th Feb 2009 with the base of 10000. The index raised 43.3% from its launch date (during five month). In the same period , TSE's general index has gained 45.3%.