What is the ASX 200?

Submitted by Share Trading on 9 March, 2010 - 17:37

The S&P/ASX 200 index (XJO)

The S&P/ASX 200 index is an investable security with stock ticker code of XJO. The S&P/ASX 200 is recognized as the primary investable benchmark for the Australian sharemarket: Australian Securities Exchange. The ASX 200 index covers approximately 80% of Australian equity market capitalization. Index constituents are drawn from eligible companies listed on the Australian Stock Exchange. The index is designed to address investment managers' needs to benchmark against a portfolio characterized by sufficient size and liquidity. The index is comprised of the S&P/ASX 100 plus an additional 100 stocks. It forms the basis for the S&P/ASX 200 Index Future and Options and the SPDR S&P/ASX 200 exchange-traded fund.

The ASX 200 is market-capitalization weighted meaning that a company's contribution to the index is relative to its total market value i.e. share price x number of tradeable shares. The ASX 200 is also float adjusted meaning that the absolute numerical contribution to the index is relative to the stock's value at the float of the stock. Although the calculation starts with a sum of the market capitalisation of the constituent stocks, it is intended to reflect changes in share price, NOT market capitalisation. Therefore a fudge factor called the "Divisor" is used to ensure that the index value only changes when stock prices change, not whenever market capitalisation changes. For example, if a company increases its market capitalisation by issuing new shares, the Divisor is adjusted so that the ASX 200 index value does not change.

To be eligible for inclusion into the S&P ASX 200 index:

  • Market Capitalisation: A stock’s weight in the index is determined by the float-adjusted market capitalization of the stock. This is a function of current index shares, the latest available stock price and the Investable weight factor (IWF). The IWF represents the float-adjusted portion of a stock’s equity capital. Therefore any strategic holdings that are classified as either corporate, private or government holdings reduce the IWF which, in turn, results in a reduction in the float-adjusted market capital. Shares owned by founders, directors of the company, trusts, venture capitalists and other companies are also excluded. These are also deemed strategic holders, and are considered long-term holders of a stock’s equity. Any strategic shareholdings that are greater than 5% of total issued shares are excluded from the relevant float.
  • Listing: Only stocks listed on the Australian Stock Exchange will be considered for inclusion in any of the S&P/ASX indices.
  • Liquidity: The trading volume in terms of dollar value and the number of transactions must exceed at least 0.025% of the sum of all eligible securities' trading volume. To ensure that no single company dominates trading, they are capped at a maximum of 15% for value, volume and transactions.

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