In conjunction with inclusion into the ASX200 Index,...

In conjunction with inclusion into the ASX200 Index, index-hugging funds and ETF's will purchase EMR shares on a cap-weighted basis relative to the size of the fund.

By way of example, Blackrock offers the listed ETF: IOZ, which mirrors the ASX200 and has a total market Cap of $4.3Billion at the end of October. The biggest component of the fund is it's holding of BHP at 11.3% or $485M of BHP shares. Based on Emeralds market Cap IOZ will need to purchase around $3.5M worth of shares. There are of course other providers of funds which will need to include Emerald.

Here is a summary of how the index is constructed provided by Market Index. It is important to note that the index aims for low turnover so the rules required to first gain entry can be breached, for a while at least.

S&P/ASX 200

Code

XJO

Constituents

^~200

Criterion

Market Cap + Liquidity

Rebalances

Quarterly

Market Cap.

~72% of the ASX

Index Goal

To establish a highly liquid and tradable index with low turnover. This allows the index to be used as a benchmark for investment returns and for additional S&P/ASX indices to be constructed as benchmarks for varying investment classes and objectives.

Measuring Performance

The S&P/ASX 200 contains a fixed number of constituents. Its numerical value (or level) represents the total weighted market capitalisation of its 200 constituents, relative to a base period. Therefore, a move in the index from 5,000 to 5,500 would indicate the total weighted market capitalisation of its constituents had risen 10%.

Movements in the value (share price) of large companies will have a greater effect on the index level than movements in a small company as there a calculation (weighting) is applied according to a company’s market capitalisation.

Selection Criteria

A security must be listed on the ASX and be an ordinary or preferred equity stock (e.g. no bonds or warrants etc.). Its average daily market capitalisation for the previous six months must be considered institutionally investable and meet a minimum benchmark size. Liquidity must be adequate and its public float (shares not owned by company founders, directors, government agencies etc.) must also meet a minimum requirement.

Note: The above criteria are for inclusion into the index and not for continued membership. As low index turnover is important, a security in the index may on occasions violate one or more of the selection criteria without being removed.

Index Maintenance

Regular maintenance of the S&P/ASX 200 is required to accurately reflect changes in its constituent’s market capitalisation and liquidity.

Quarterly Rebalancing

Changes are implemented on the third Friday of March, June, September and December. Two weeks notice is given on impending changes.

Intra-Quarterly Additions

Generally only occur when there is a vacancy in the index due to a deletion. Two to five business days notice is given.

Intra-Quarterly Deletions

Generally only occur due to mergers, acquisitions and suspensions. Two to five business days notice is given.