5.3 Index inclusion and exclusion: criteria and procedure
For companies, inclusion in an index such as the SMI or SPI is not only a symbol of market relevance but also has very concrete consequences: when a company is included in such an index, numerous funds, ETFs and other institutional investors automatically invest in its stocks. This can increase demand for the stock, which leads to more liquidity, higher trading volume and often a rising share price.
Relevance for listed companies
A company’s inclusion in an index acts like a seal of quality: it signals that a company is classified as particularly relevant to the market according to clear criteria. This is particularly important for companies included in the SMI, as this index is highly regarded internationally. Many passive investment products (especially ETFs) are based strictly on the index composition. If a company is recorded, these products must automatically buy its shares.
Less widely used indices such as the SMIM or SPI ESG are also relevant for specialized investors. For companies, inclusion in the index therefore means a higher profile, more visibility with investors and potentially a higher demand for their share.
Inclusion Process and Buffer Zones
When selecting the index components, SIX follows a transparent and rule-based process. Two main criteria are taken into account:
Free-float market capitalization: only the free float, i.e. the freely tradable portion of shares, counts for the ranking.
Order book turnover: it is checked how actively the share is actually traded.
For indices with a fixed number of components, such as the SMI with exactly 20 securities, SIX compiles a so-called selection list quarterly. Companies in ranks 1 to 18 of this list meet the requirements for inclusion in the SMI. Ranks 19 to 22 are considered a buffer zone for the SMI: securities already included in the index in this area are not be replaced initially. Only when a new candidate reaches a rank higher than 19 and an existing member performs worse than rank 22 does a replacement take place. This buffer zone is important to avoid unnecessarily frequent changes that could lead to instability. The buffer zones of the SMI, SLI and SMIM are not equal in size. In the SLI, they are ranked 28 to 33 and in the SMIM, they are ranked 48 to 53.
In order to understand how the buffer zone works, let us consider a fictitious starting point and two possible scenarios.
Starting point:
The SMI contains exactly 20 companies.
Company A is currently included in the SMI and ranks 19th on the selection list.
Company C is not included in the index but is ranked 21st on the list.
Scenario 1: Company C improves slightly and reaches 19th place. Company A falls to 22nd place at the same time. Both are within the defined buffer zone (ranks 19 to 22). Since no new candidate is equal to or better than rank 18, and no existing company is equal to or worse than rank 23, the composition of the index remains unchanged. The buffer zone protects against unnecessary change.
Scenario 2: Company C improves significantly to 17th place and thus becomes a potential candidate. At the same time, company A falls to rank 21 or worse. Now the following rules apply: Company C is above the entry threshold (rank 18 or better) and company A is below the exit threshold (rank 21 or worse). In this case, Company A is removed from the index even though it is still within the buffer zone. At the same time, Company C is being re-admitted as it is already ranked directly above the entry threshold (place 18 or better).
This procedure ensures that changes in the index composition are only made if they are justified by both clear improvements and clear deteriorations. This preserves the stability of the index.
The ranking position on the selection list determines only whether a company meets the formal criteria for inclusion. However, it does not determine the weight in the index. The weighting is based on current free float market capitalization. In addition, capping rules apply — in the case of the SMI, for example, an upper limit of 18% per security — to ensure a balanced index structure. A newly included company may therefore take a different position in the final index ranking than on the selection list, depending on its relative size (current vs. average market capitalization) compared to the other index members.
Ordinary and extraordinary index reviews
The composition of the indices is reviewed four times a year as part of an ordinary index review, at the end of each quarter (March, June, September and December).
However, for the most important indices — the SMI, SLI and SMIM — the regular adjustment only takes place once a year, in September. The basis for this is the updated selection list from June based on the annual data, specifically the average free-float market capitalization and the order book turnover in the period from 1 July to 30 June.
In addition, there are also extraordinary adjustments — for example, if a company is delisted (i.e. no longer traded on the stock exchange), if it merges or if it otherwise changes in such a way that it no longer meets the criteria. In such cases, SIX can react at short notice and adjust the index accordingly. A minimum notice period of five trading days applies so that all market participants have sufficient time to prepare for the changes.
IPOs and spin-offs
New companies can also be included in the indices — either through an initial public offering (IPO) or through the spin-off of part of a company.
In the case of an IPO, the following principles apply: a company can be included in the SPI from the second trading day at the earliest — provided that the free float is at least 20% and remains stable for three months. Only then can it be considered for other indices, such as the SMIM or SMI, if it fulfills the relevant criteria.
Spin-offs can be included in an index more quickly. If the new company fulfills the necessary criteria immediately after the spin-off, it may be included in an index in the following quarterly review under certain conditions.