Dubai Financial Market (DFM) has announced that it will introduce a unified fluctuation band for all listed securities within the one trading session based on 15% up and 10% down, as of January 2, 2011. Additionally, the exchange will adopt modified rules for the DFM General Index (DFMGI) to further reflect the highly traded stocks and accurately mirror the market activity.
Accordingly, Most traded stock representation in the index increased to 81%.
Based on the new modifications, DFM-listed securities will be grouped in one category and traded under a unified fluctuation band, contrary to the split between Active and Non-Active. It is noteworthy that the current fluctuation band is 15% up and 10% down for Active stocks and 5% up and down for Non-Active stocks.
Commenting on these developments, Essa Kazim, Managing Director and CEO, Dubai Financial Market (PJSC) said: “DFM continuously monitor and review market developments and market activity with the aim to achieve the highest accuracy levels and adopt international best practices. Out of this, we successfully formulated the most flexible and effective index rules based on a thorough review of the implications of Active and Non-active stocks represented on the General Index and the current fluctuation bands. We are confident that the modified rules and unified fluctuation band will closely mirror the market activity in an accurate and more realistic manner. Meanwhile the bi-annual review enables us to follow market activity and update listed companies representation in the General Index accordingly”.
“The new rules will additionally enhance trading activity on the current Non-Active stocks which includes some of the major UAE public joint stock companies such as Emirates NBD, SHUAA Capital, Mashreq Bank, Commercial Bank of Dubai, Gulf General Investments and others”, Kazim added.
As per the new modifications, the maximum weight of a single stock in the index will be decreased from 25% currently to 20%. The aim of this is to limit the reflection of high market capitalization stocks on the index and balance the effect amongst different stocks.
Additionally, DFM has set guidelines to limit the percentage of free float shares included in the index at only 20% of the less traded stocks with the purpose of minimizing the stocks affecting the index.
Regarding the most traded stocks, the standard factors mentioned in the index rules are applying on these stocks to determine its market capitalization in the index.
It is noteworthy that the selection of the most traded stocks listed in the index is based on the following criteria:-
1. The total trade value of the company shares shouldn’t be less than 1% of the total trade value of DFM during the evaluation period, or 10% of the company’s market capitalization (Velocity) at the end of the evaluation period.
2. The company shares should be traded on 50% of the total trade days throughout the evaluation period.
3. Total number of transactions on the company shares should not be less than 150 transactions.
4. The trade volume should not be less than 500,000 shares throughout the evaluation period.
5. The total trade value shouldn’t be less than Dhs100m throughout the evaluation period.
The DFMGI is based on the total market capitalization adjusted by the Free Float. The weight of any company represented in the index is decided according to the number of free float shares with the exclusion of the government ownership and major stockholdings that are 5% and above. The new rules saw no change regarding the calculation of the market capitalization based on the last trade prices, which reflects the market activity accurately.