TSE and S&P Launch New Stock Index

January 01, 1999

On Dec. 31, 1998, the Toronto Stock Exchange launched a new stock index of large Canadian companies in an effort to boost international interest in Canada's stock market and establish the benchmark for large-capitalization stocks in Canada. The S&P/TSE 60 will co-exist with the older group of indexes during a transition period of undetermined length in which the TSE 35, 100 and 200 indexes will be phased out.

The S&P/TSE 60 was created primarily to replace them. The TSE 35 has been frequently criticized by investors as too small and hard to understand because of its basket-weighting. It also is said to have a 'reasonably high' amount of tracking error between it and the TSE 300,  which created problems with the derivatives contracts based on it. The TSE 100 actually tracked the TSE 300 quite closely, but investors complained of low liquidity in the bottom quartile of its stocks.

The S&P/TSE 60 index includes 60 of Canada's most liquid large-capitalization stocks. The list includes Laidlaw Inc., The Seagram Co. Ltd., Hudson's Bay Co. and Suncor Energy Inc. All of the companies in the S&P/TSE 60 must also be included in the TSE 300, according to the rules governing the index's composition.

The 60 is meant to satisfy the needs of both the derivatives community and the international investing community as a whole.

The new index is divided into 11 market sectors representing: basic materials, capital goods, communications services, consumer cyclical, consumer staples, energy, financials, health care, technology, transportation, and utilities. The S&P/TSE 60 sectors reflect the sub-groups of the TSE 300, with similar weightings.

Recently, the TSE announced that it will offer a product that corresponds with the new S&P/TSE 60 index sometime before September. It is analogous to Standard & Poor's Depository Receipts (SPDRs).

 

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