And another report from the Financial post from Nov. 26th...
Thursday, Nov. 26, 1998
Bay Street tries to fill in the blanks for new benchmark
D-day for TSE index
By WILLIAM HANLEY
The Financial Post
Bay Street is in the grip of an educated guessing game as the unveiling of member stocks of the new S&P/TSE 60 index approaches after the market closes on Tuesday.
Shortly after 4 p.m. on Dec. 1, the investment community and nervous executives at some big companies across Canada will learn which 60 companies have made it into the new charmed circle of the stock market, getting an automatic boost before and after the index is launched on Dec. 31.
William Jordan, director of communications for Standard & Poor's Corp. index services, which is launching the S&P/TSE 60 in partnership with the Toronto Stock Exchange, said yesterday he had even heard from one potential member company asking what it could do to gain membership in Canada's most exclusive new club.
Rumours are flying on the Street over which dark horse stocks may make the list. Will all the TSE 35 stocks make it? And which 40 of the TSE 100 might not?
Inclusion in the S&P/TSE 60 is so crucial to a company's market fortunes and access to capital because the index will become the international benchmark for the Canadian market, replacing the 35 and 100, which include the current blue-chip elite. New derivative products will be based on the 60 -- the term SIPs is already gaining currency on the Street -- and the fund managers that use indexes to match market performance will buy weightings of the stocks in the new measure.
The S&P/TSE 60 is part of S&P's plan to launch an S&P global index next fall. This index will have 1,200 stocks -- the S&P 500 from the U.S., 60 from Canada, 40 from Latin America, 200 from Euroland, 150 each from Britain and Japan, and 100 from the Asia-Pacific, excluding Japan.
With the Canadian market making up less than 3% of the world t total on a capitalization basis, inclusion of 60 Canadian stocks in the S&P global index is seen by S&P and the TSE as a strong showcase for Canadian equities.
Mr. Jordan said the same strict criteria used to select the S&P 500, the market-cap weighted U.S. professional benchmark, have been applied to pick the new 60. While market capitalization and trading volumes are essential, other qualifications are important, too. A history of earnings is essential to keep out stocks such as Bre-X Minerals Ltd., which found itself in the TSE 300 and caused the exchange embarrassment when it collapsed.
The S&P/TSE 60 will contain stocks from all 14 TSE subindexes, which will fit into 11 S&P industry subgroups. For instance, though there is no real estate and development subgroup among the 11 S&P groups, the TSE's TrizecHahn Corp. might be placed in the financial group, were it to be included. Though TrizecHahn would certainly qualify on market-cap terms, it might not be included because it is not a liquid stock.
This type of "guesstimation" is rife on Bay Street because inclusion in the S&P/TSE 60 will certainly up the bidding tempo of some of the member stocks.
Meantime, though, the Street is still concerned about letting the 35 TIPs and 100 HIPs units "die nobly and naturally," as one derivatives specialist said.
Mr. Jordan was at pains to emphasize that the phasing out of TIPs and HIPs will be orderly, probably taking at least two years and costing a few cents a share in transition costs.
Last week, some traders worried that the situation held potential for disruption and losses for investors.
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