Historically, the market value of any component stock of the SPX was calculated as the product
of the market price per share and the number of then outstanding shares of such component stock.
In March 2005, SPDJI began shifting the SPX halfway from a market capitalization weighted
formula to a float-adjusted formula, before moving the SPX to full float adjustment on September
16, 2005. SPDJI’s criteria for selecting stocks for the SPX did not change with the shift
to float adjustment. However, the adjustment affects each company’s weight in the SPX.
Under
float adjustment, the share counts used in calculating the SPX reflect only those shares that
are available to investors, not all of a company’s outstanding shares. Float adjustment
excludes shares that are closely held by control groups, other publicly traded companies or
government agencies.
In
September 2012, all shareholdings representing more than 5% of a stock’s outstanding
shares, other than holdings by “block owners,” were removed from the float for
purposes of calculating the SPX. Generally, these “control holders” will include
officers and directors, private equity, venture capital and special equity firms, other publicly
traded companies that hold shares for control, strategic partners, holders of restricted shares,
ESOPs, employee and family trusts, foundations associated with the company, holders of unlisted
share classes of stock, government entities at all levels (other than government
retirement/pension funds) and any individual person who controls a 5% or greater stake in a
company as reported in regulatory filings. However, holdings by block owners, such as depositary
banks, pension funds, mutual funds and ETF providers, 401(k) plans of the company, government
retirement/pension funds, investment funds of insurance companies, asset managers and investment
funds, independent foundations and savings and investment plans, will ordinarily be considered
part of the float.
Treasury
stock, stock options, restricted shares, equity participation units, warrants, preferred stock,
convertible stock, and rights are not part of the float. Shares held in a trust to allow
investors in countries outside the country of domicile, such as depositary shares and Canadian
exchangeable shares, are normally part of the float unless those shares form a control block. If
a company has multiple classes of stock outstanding, shares in an unlisted or non-traded class
are treated as a control block.
For each
stock, an investable weight factor (“IWF”) is calculated by dividing the available
float shares by the total shares outstanding. Available float shares are defined as the total
shares outstanding less shares held by control holders. This calculation is subject to a 5%
minimum threshold for control blocks. For example, if a company’s officers and directors
hold 3% of the company’s shares, and no other control group holds 5% of the
company’s shares, SPDJI would assign that company an IWF of 1.00, as no control group
meets the 5% threshold. However, if a company’s officers and directors hold 3% of the
company’s shares and another control group holds 20% of the company’s shares, SPDJI
would assign an IWF of 0.77, reflecting the fact that 23% of the company’s outstanding
shares are considered to be held for control. As of July 31, 2017, companies with multiple share
class lines are no longer eligible for inclusion in the SPX. Constituents of the SPX prior to
July 31, 2017 with multiple share class lines will be grandfathered in and continue to be
included in the SPX. If a constituent company of the SPX reorganizes into a multiple share class
line structure, that company will remain in the SPX at the discretion of the S&P Index
Committee in order to minimize turnover.
The SPX
is calculated using a base-weighted aggregate methodology. The level of the SPX reflects the
total market value of all component stocks relative to the base period of the years 1941 through
1943. An indexed number is used to represent the results of this calculation in order to make
the level easier to work with and track over time. The actual total market value of the
component stocks during the base period of the years 1941 through 1943 has been set to an
indexed level of 10. This is often indicated by the notation 1941- 43 = 10. In practice, the
daily calculation of the SPX is computed by dividing the total market value of the component
stocks by the “index divisor.” By itself, the index divisor is an arbitrary number.
However, in the context of the calculation of the SPX, it serves as a link to the original base
period level of the SPX. The index divisor keeps the SPX comparable over time and is the
manipulation point for all adjustments to the SPX, which is index maintenance.
Index
Maintenance
Index
maintenance includes monitoring and completing the adjustments for company additions and
deletions, share changes, stock splits, stock dividends, and stock price adjustments due to
company restructuring or spinoffs. Some corporate actions, such as stock splits and stock
dividends, require changes in the common shares outstanding and the stock prices of the
companies in the SPX, and do not require index divisor adjustments.
To
prevent the level of the SPX from changing due to corporate actions, corporate actions which
affect the total market value of the SPX require an index divisor adjustment. By adjusting the
index divisor for the change in market value, the level of the SPX remains constant and does not
reflect the corporate actions of individual companies in the SPX. Index divisor adjustments are
made after the close of trading and after the calculation of the SPX closing level.
Changes
in a company’s shares outstanding of 5.00% or more due to mergers, acquisitions, public
offerings, tender offers, Dutch auctions, or exchange offers are made as soon as reasonably
possible. Share changes due to mergers or acquisitions of publicly held companies that trade on
a major exchange are implemented when the transaction occurs, even if both of the companies are
not in the same headline index, and regardless of the size of the change. All other changes of
5.00% or more (due to, for example, company stock repurchases, private placements, redemptions,
exercise of options, warrants, conversion of preferred stock, notes, debt, equity participation
units, at-the-market offerings, or other recapitalizations) are made weekly and are announced on
Fridays for implementation after the close of trading on the following Friday. Changes of less
than 5.00% are accumulated and made quarterly on the third Friday of March, June, September, and
December, and are usually announced two to five days prior.
If a
change in a company’s shares outstanding of 5.00% or more causes a company’s IWF to
change by five percentage points or more, the IWF is updated at the same time as the share
change. IWF changes resulting from partial tender offers are considered on a case by case basis.