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The MarketGrader Index Rules |
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1. Construction
The MarketGrader Index is an equal weighted index composed of forty U.S. traded stocks,
rebalanced every quarter and determined by the MarketGrader system. All components are selected
exclusively on the basis of their final short term numerical grade as scored by the MarketGrader system.
The following criteria are used when making the quarterly selections:
a.The forty highest graded companies will be selected so long as all the other conditions below are met. If a company qualifies based on its final grade but violates any of the conditions below, the company with the next highest grade will be selected instead. b. All companies in the index must have a market capitalization above USD $100 million on the day of the selection. c. At least ten companies in the index must have a market capitalization above USD $10 billion. d. No more than ten companies in the index may have a market capitalization below USD $1 billion. e. Stocks in the index are classified based on the Global Industry Classification Standard (GICS). f. No GICS economic sector may represent more than 30% (twelve stocks) of the index. g. No GICS sub-industry may represent more than 15% (six stocks) of the index. h. No Real Estate Investment Trusts (GICS code 40401010) or Utilities (GICS code 55) are eligible for index selection. i. All index selections must have at least met their analyst consensus earnings estimate during the earnings report period immediately preceding the index selection. j. All stocks in the index must have a three month average daily trading dollar value of at least USD $2 million. 2. Rebalancing
The new MarketGrader Index components will be selected every quarter on the third Tuesday of each February, May, August
and November at 5 p.m. U.S. Eastern Time (the “selection date”). The index rebalance will be effective at the close of
trading on the relevant exchange on the following Friday
(the “rebalance effective date”). The new index selections will be published on the MarketGrader website (www.marketgrader.com) on the selection date at 5pm Eastern U.S. time. 3. Maintenance & Corporate Actions a. Deletions
Any stock deleted from the index as a result of a corporate action such as a merger, acquisition, spin-off, delisting or bankruptcy is not replaced by any new stock until the following rebalancing, except for the specific cases mentioned below. The total number of stocks in the index is reduced by one every time a company is deleted. The index stock component total is then restored during the following rebalancing. If, in the circumstances specifically mentioned below, the deletion of a stock from the index (wholly or partially) involves replacement of the stock with its equivalent cash value, the relevant cash value will form a component of the index until the next rebalance effective date at which time it will be replaced as an index component.
b. Delisting
A stock that is delisted from trading is removed from the index at the closing price on its last trading day. If the delisted stock does not trade on the relevant exchange between the delisting announcement and the next rebalance effective date, the stock is deleted from the index with a presumed market value of zero.
c. Bankruptcy
Immediately upon a company's bankruptcy announcement, the stock is removed from the index at the closing price of the first trading day following the announcement. If the stock does not trade on the relevant exchange between the bankruptcy announcement and the next rebalance effective date, the stock is deleted from the index with a presumed market value of zero.
d. Merger or Acquisition
Cash transaction when the target company is an index component: upon a merger/acquisition being declared wholly unconditional and having received all the necessary regulatory approvals, the target stock is deleted from the index with a presumed market value per unit of stock equal to the cash value of the consideration provided for the target stock (the "cash value") and a cash component will be introduced into the index in place of each unit of target stock with a value equal to the cash value and remain in the index until the next rebalance effective date.
Stock-for-stock transaction when the target company is an index component: upon a merger/acquisition being declared wholly unconditional and having received all the necessary regulatory approvals, the target stock is replaced by the acquiring stock (as long as the acquiring stock is traded on a major U.S. exchange) on the stock's last trading day, at the acquisition price. If the acquiring stock is not traded on a major U.S. exchange, the target stock will be deleted from the index with a presumed market value per unit equal to the target stock's closing price on its last trading day (the "last traded price") and a cash component will be introduced into the index in place of each unit of target stock with a value equal to the last traded price and will remain in the index until the next rebalance effective date.
Cash and stock transaction when the target company is an index component: upon a merger/acquisition being declared wholly unconditional and having received all the necessary regulatory approvals, the rules described above for cash transactions will apply with respect to that portion of the consideration provided for the target stock that consists of cash and the rules described above for stock-for-stock transactions will apply with respect to that portion of the consideration provided for the target stock that consists of acquiring stock.
e. Splits
Splits are implemented immediately and effective the next trading day. The number of different stocks in the index is not changed.
f. Dividends
Stock: if dividend is paid in the form of additional stock in the same company, the new shares are included in the index. If the dividend is paid in the form of stock of another company, a cash component will be introduced into the index equal to the cash value of the dividend and will remain in the index until the next rebalance effective date.
Cash: the MarketGrader Index is a price index; therefore no adjustments are made for cash dividends. g. Spin-Offs The closing price of the index constituent is adjusted by the value of the spin-off on the day prior to the spin-off becoming effective. A cash component will be introduced into the index equal to the cash value of the spun-off stock and will remain in the index until the next rebalance effective date. h. Rights Offering The closing price of the index constituent is adjusted by the theoretical intrinsic value of the spin-off on the last trading day cum-rights. [A cash component will be introduced into the index equal in value to such theoretical intrinsic value and remain in the index until the next rebalance effective date.] 4. Trading Suspensions
Each rebalancing effective date must be a day on which (1) all stocks that are comprised in the index are scheduled to trade and (2) there is no kind of market disruption that affects trading in any one or more of the stocks. If a scheduled rebalance effective date fails to fulfill the two conditions, it will be postponed to the first following day on which both conditions are fulfilled. MarketGrader will publish an announcement to this effect on its website.
5. Trading Schedule & Other Changes
No modifications are made to the index between rebalancing dates due to changes in market capitalizations or in the industry classification system.
6. Publication of Index Information a. Rebalancing
Details of each index rebalance will be published as described above on MarketGrader's website
(www.marketgrader.com).
Details of any postponement of the rebalance effective date will also be published on MarketGrader's website as soon as practicable after MarketGrader have established that the conditions exist for a postponement.
b. Maintenance and Corporate Actions
Details of any adjustments to the index will be published on MarketGrader's website not later than one exchange trading day following the day upon which the relevant event or action that gives rise to the adjustment is publicly announced.
7. Definitions and Interpretation The following expressions will have the meanings given to them below where used in these Index Rules:
"Cash and stock transaction" means a merger or acquisition (of whatever legal form) under which the consideration provided for the target shares consists of both: (1) cash and/or securities (other than stock); and (2) stock of a different issuer.
"Cash transaction" means a merger or acquisition (of whatever legal form) under which the consideration provided for the target shares consists of cash and/or securities (other than stock).
"Market disruption" means, in respect of a particular stock, the occurrence of any of the following events: (1) a trading disruption, (2) a material exchange disruption occurring at any time during the last hour of trading, or (3) the closure of the relevant exchange prior to its scheduled closing time (unless the earlier closing time is announced at least one hour prior to the actual closing time)
"Stock-for-stock transaction" means a merger or acquisition (of whatever legal form) under which the consideration provided for the target shares consists of stock of a different issuer.
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