BSE index provider errs on ICICI Bank’s weight

In doing so, we ended up bearing additional transaction cost,” said a fund official, Index provider Asia Index, a on condition of venture by S&P Dow Jones anonymity. “BSE has apologised Indices and Asia’s oldest for the error,” said a stock exchange the BSE, senior fund official. erred in assigning the correct ETFs, which track an weight to ICICI Bank on index closely, see price the Sensex last week. This changes through the day as led to a situation of exchange these are traded on the traded funds (ETFs) and a exchange. Sensex ETFs manage few active mutual funds assets of about ~3,000 (MFs) rebalancing their portfolios, crore, with SBI ETF Sensex incurring additional managing assets of about transaction costs. ~2,400 crore. It could not be

Asia Index said it had ascertained how many active dropped the investable funds reshuffled their portfolios weight factor (IWF) of ICICI as a result of the error. Bank from one to 0.75, after it Sources said the sector erroneously excluded 25 per weights for specific schemes cent of ICICI shares’ underlying with Sensex or BSE 100 as depository receipts underlying could have been from the float calculation. impacted, prompting some This impacted the overall fund managers to rejig a small weight of the bank on the portion of their portfolios. Sensex, BSE 100, BSE 200 “Upon discovery of the and BSE 500 constituents. error, the S&P BSE The index committee mistake came to reviewed the issue light on and decided to correct September 19 the IWF back and was rectified to 1 on a going-forward a week later on basis. The September 26. committee decided

IWFs define to implement the the available float correction as of for a company and are September 26 in order to give reviewed annually. ICICI the market reasonable notice Bank has a depositary receipt of the change. A notification issued by Deutsche Bank about the change was sent out Trust Company Americas to the clients on September which is traded on the New 19th itself for them to take York Stock Exchange. For necessary actions,” said Asia each American Depository Index, in an emailed Receipt (ADR), Deutsche response. “We are reviewing Bank Trust Company our processes and procedures Americas holds two Indialisted to identify potential checks shares on behalf of the and reviews that may be owners of the ADR. The added to prevent a similar lender currently contributes issue from recurring.” about 5.5 per cent to the The senior fund official Sensex weight. said index providers cannot

“Since the weight of ICICI afford to make such mistakes Bank went down, we had to and the error should sell the stock and buy other have been rectified immediately. constituent stocks. When the “Even MSCI, which mistake was rectified a week manages 100-200 indices, later, we had to buy ICICI has a success ratio of nearly Bank and sell other stocks. 100 per cent,” he added.

Asia Index’s error last week made Sensex exchange-traded funds rebalance portfolios and incur additional transaction costs