S&P Dow Jones Indices relaxes eligibility rules for TSX inclusion

S&P Dow Jones Indices said Friday that it is expanding eligibility rules for the S&P/TSX series of indexes to allow foreign-domiciled and incorporated companies to be included in its measures of the Canadian equity market.

In a statement, the index provider said any TSX-listed company will be eligible for inclusion in S&P/TSX indexes as a “foreign issuer,” regardless of where it is domiciled or incorporated, if it has a “meaningful presence and/or economic exposure to Canada.” Companies must also meet other eligibility criteria, including minimum size and liquidity thresholds, for inclusion.

Previously, companies have needed to be domiciled or incorporated in Canada to be eligible for inclusion in S&P/TSX indexes, which include the broad S&P/TSX Composite and the S&P/TSX 60 index of Canada’s largest publicly traded companies.

The new methodology will include foreign issuers at their full float-adjusted market-capitalization. A plan to apply a “foreign issuer factor,” which would have included foreign issuers at a 50-per-cent weighting, was dropped after a review of market feedback, the statement said.

S&P Dow Jones Indices said the methodology changes will be implemented together with the December, 2026, quarterly rebalancing of S&P/TSX indexes, and would take effect before the market open on Dec. 21.

The eligibility of foreign issuers will be reviewed annually in September “and on an as-needed basis,” such as at the completion of a cross-border merger, the statement said.

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The changes to the index methodology mean that Vancouver-based Teck Resources Ltd., which last September agreed to be acquired by Britain’s Anglo American PLC, will remain in the TSX Composite and TSX 60 after the merger.

That deal has received approval from Teck and Anglo shareholders, as well as the Canadian federal government, but Reuters reported this week that it continues to await Chinese regulatory approval.

With the growth of index funds and other passive investing strategies, a stock’s inclusion in a major index can have a meaningful effect on share prices.

Fund managers who track an index must hold shares in the underlying companies. Canadian stocks added to a major index can see price bumps before and after inclusion. Similarly, companies removed from an index lose a source of demand for their shares.

As part of its most recent quarterly rebalancing announced last week, S&P Dow Jones Indices will add Snowline Gold Gorp SGD-T to the S&P/TSX Composite index before the open of markets on Sept. 21.