PSE modernizes benchmark indices in biggest overhaul in 15 years

Insider Spotlight

• Biggest revamp since 2011 as the PSE rewrites how companies qualify for its benchmark indices.
• Liquidity matters more with two new tests aimed at keeping thinly traded stocks out of key indices.
• Global standards adopted with new market cap rules and a 15 percent public float option for P250-billion firms.

The Philippine Stock Exchange has approved its biggest overhaul of index rules in more than 15 years, changing how companies qualify for the 30-member PSE index and most of its other major stock benchmarks.

The reforms, spearheaded by PSE president and CEO Ramon Monzon, aim to make the exchange’s indices more representative, easier to invest in and more closely aligned with international standards.

The new policy, disclosed on the PSE's website on Tuesday, also addresses a weakness in the previous methodology, where a large company could qualify for an index even though relatively few of its shares were actively changing hands.

Key implementation dates 

The revised methodology replaces rules that had largely remained unchanged since April 2011. 

The PSE said the new rules will first be applied in the February 2027 index rebalancing, using full-year 2026 trading data.

The PSEi is the market’s main 30-stock gauge, while the MidCap, Dividend Yield and sector indices are also widely tracked by investors, fund managers and index-linked investment products.

Ramon S. Monzon 

PSE president, CEO 

Tougher liquidity tests

• The PSE will no longer judge liquidity based on trading value alone. Companies must also prove enough of their publicly traded shares change hands regularly.
• The new Median Trading Activity Ratio (MTAR) measures how actively a company’s public float is traded, while Monthly Average Daily Value Turnover (MADV) measures the peso value of daily trading.
• Companies must pass both the MTAR and MADV tests before they can qualify for the PSEi, MidCap and Dividend Yield indices.
• New entrants face stricter MTAR requirements than existing index members, helping keep the benchmark stable by avoiding frequent additions and removals.

Public float rules updated

The minimum public ownership requirement will remain at 20 percent for most companies.

However, firms with a market capitalization of at least P250 billion may qualify with only 15 percent public ownership, recognizing that even a smaller percentage of a very large company can still leave billions of pesos worth of shares available for investors to trade.

The revision also aligns the PSE’s index methodology with the Securities and Exchange Commission’s tiered minimum public ownership framework for initial public offerings, which allows the country’s largest companies to list with a 15 percent public float instead of the standard 20 percent.

Narrower pool of eligible companies

The exchange will also introduce a market capitalization screen, limiting eligibility to companies that collectively account for the top 98 percent of the market’s total value.

The new requirement removes many of the market’s smallest listed companies from consideration before the liquidity tests are applied, narrowing the pool of eligible stocks to larger, more representative businesses.

One internal estimated indicated that once applied, this would narrow the pool of qualified firms to around 100 companies. 

Final selection will continue to be based on market capitalization after companies pass the market value, liquidity and public ownership requirements.

—Edited by Miguel R. Camus