The Nigerian Stock Exchange (NSE) has announced the creation of the NSE Pension 40 Index as part of initiatives to drive market optimization.
The Lagos-based bourse said in a statement yesterday that its NSE Pension Index “conforms with the requirements of the pension industry as specified in the Pension Reform Act and Regulation on investment of pension fund assets as prepared and amended by the National Pension Commission (PenCom)”.
It said the new index provides a tracking mechanism for pension fund administrators (PFAs), closed pension fund administrators (CPFAs), fund managers and others that invest in accordance with PenCom guidelines.
It can also act as a benchmark for measuring performance and reporting performance to retirement savings account (RSA) holders.
Commenting on the new index, Executive Director, Business Development, NSE, Mr. Haruna Jalo-Waziri, said: “Investors want a diversified way of measuring market movements which have a wider coverage of companies as is the global practice.
“The NSE Pension Index will provide investors with an additional tool to make the most of Nigeria’s market. It will also encourage the development of other products such as Exchange Traded Products (ETPs) and index futures in the exchange.”
The NSE Pension Index will have the top 40 companies based on market capitalisation and liquidity. In addition, companies to be included must have a free float factor of at least five per cent. The index is a total return index. Consequently, normal dividend payments will be reinvested and accounted for in the total return index by a divisor adjustment.
Similarly, special dividends from non-operating income require index divisor adjustments to prevent the distributions from distorting the index (same with the price index).
The new index’s constituents would be reviewed, re-balanced, re-weighted and changed once in a year on the first business day in January whereby constituents are changed (added or deleted) based on their market capitalisation, liquidity in the previous twelve months and a free float factor.