Historical Facts About the S&P/TSX Composite Index

The history of Canadian stock trading goes back to the mid-19th century, when the Toronto Stock Exchange was created in 1852. At its conception, there were only 18 stocks being traded on the exchange. CATS (Computer Assisted Trading System) was introduced to the exchange in 1977, and it was in this year that the TSE300 Toronto Stocks index was established. The index at that time included stocks that represented the top 300 companies across 14 sectors in Canada, and its base level at its introduction was 1,000 points. The Toronto Stock Exchange publicly offered its own corporate shares in 2002, and at the same time the S&P/TSX Composite Index replaced the TSE300 index. It was managed by Standard & Poor’s Indices division of the McGraw Hill Financial publishers, and under this management team, 10 sectors were covered in this index, with a variable number of stocks. In the year that it was launched, the S&P/TSX index comprised 223 stocks from over 1,500 that were listed on the TSX, although by this year (2016), the number has increased to 235 stocks. The S&P/TSX Canadian Index Committee are charged with maintaining the S&P/TSX Index, and they are permitted to change policies, rules, and the methodology for the composition of the index. There are three members on the committee who represent the Toronto Stock Exchange, and another four members who represent S&P Dow Jones Indices. The chair of the committee is a member who has been chosen by S&P Dow Jones Indices. The committee hold meetings once per month, and although any change to the S&P/TSX Index is generally only made during a quarterly review, it is possible for the committee to instead review, add or remove a security to the indices at any time between quarterly reviews.

Criteria for Listing on the S&P/TSX Composite Index

In order for a security to be eligible for inclusion in the S&P/TSX Composite index, it must meet several different criteria. These include the following:

• The security must represent a weight of at least 0.05% of the index after the QMV (Quoted Market Value) of the security has been included in the index float capitalisation when based on the VWAP (Volume Weighted Average Price) noted over the last 3 trading days of the end of the month before the quarterly review takes place.
• The security must have a VWAP of at least CA$1 during the previous 3 months, and over the final 3 trading days of the month end before the holding of the quarterly review.
• The liquidity of the security must be 0.50 when measured by float turnover (i.e. the total amount of shares that have been traded at all trading venues in Canada over the last year divided by the float-adjusted shares remaining outstanding when the period comes to an end).
• The company should be either established, formed or incorporated in Canada, and the Toronto Stock Exchange must be the primary stock exchange for its listing.

There are some kinds of securities that are not eligible to be included in the index, including the following:

• Preferred shares
• Securities that represent mutual fund corporations
• Exchangeable shares
• Instalment receipts
• Warrants
• Any other securities that have been deemed as inappropriate at a meeting of the index committee.

The S&P/TSX Composite Index has a rule that restricts any component’s weighting to a maximum of 10%, regardless of its market capitalisation.

Companies Listing on the S&P/TSX Composite Index

Many of Canada’s best-known companies are represented on the S&P/TSX Composite Index. Of the 10 sectors represented, the one with the biggest weighting is the financial industry at around 35%, with energy coming in second at about 21%. Currently, the sector with the lowest weighting is the healthcare industry, which has a weighting of less than 1%. The top listings of the S&P/TSX index currently include

• The Royal Bank of Canada
• The Toronto Dominion Bank
• The Bank of Nova Scotia
• Suncor Energy Inc.
• Canadian National Railway Company
• Bank of Montreal
• Enbridge Inc.
• BCE Inc.
• TransCanada Corporation
• Canadian Natural Resources Ltd.