Index providers use a calculation methodology based upon market capitalisation (ie price * shares on issue) and sometimes a free float/liquidity factor. Their methods are often at odds with what a trader expects to see. This article seeks to show the various methods available to calculating the Open, High and Low for indices and the methods used by Standard and Poors/Australian Stock Exchange for the S&P/ASX Indices.

It must be emphasised that indexes are calculated by changes in Market Capitalisation not just price alone.

Opening Price

There are several methodologies that could be used for the determining the open price of an index.

Open 1: Market-cap based index open (i.e. report the market cap of all constituent stocks BEFORE trading has occurred and AFTER any corporate action adjustments such as share placements, employee share offers, buybacks etc. have been made). This is the official method used by Standard and Poors for the S&P/ASX index series. A significant issue with this method is that it does not reflect the opening/first traded price at which any of the constituent stocks traded and therefore doesn't provide any indication of market opening gaps.

Open 2: First tick value of the index at 10:00:00 by using the first traded value of all of the constituent stocks at 10:00:00. However, since the ASX opens up in a staggered fashion (A-C open at 10:00:00, D-F open at 10:02:30 through to all stocks opening up by 10:09), this means that the first tick will only be representative of stocks with symbols starting with A, B or C).

Open 3: Calculated open (i.e. first reported trade) of all constituent stocks - this cannot be determined until all constituent stocks have traded OR the market is closed.

Open 4: Time-limited calculated open (i.e. first reported trade) of all constituent stocks within a particular period (eg. the 10:00-10:09 staggered opening window. The open would only be available at 10:09) If the stock hasn't traded within that period, use yesterday's close.

Currently Standard and Poors/ASX use the Open 1 methodology.

High Price

High 1: Today's tick high ((ie use intraday ticks of all constituent stocks to calculate a per-second index value and take the highest of these values as the daily high)

High 2: Today's actual tick high, extended if the Open price is greater than today's tick high.

Currently Standard and Poors/ASX use the High 2 methodology.

Low Price

Low 1: Today's tick low (ie use intraday ticks of all constituent stocks to calculate a per-second index value and take the lowest of these values as the daily low)

Low 2: Today's actual tick low, extended if the Open price is less than today's tick low.

Currently Standard and Poors/ASX use the Low 2 methodology.

Close Price

Close 1: The last traded price at or before the day's regular trading session has been completed (16:00:00).

Close 2: The last traded price inclusive of any trades that occur as a result of the closing price auction between 16:00:01 and 16:10:00.

Currently Standard and Poors/ASX use the Close 2 methodology.

Frequently Asked Questions

What types of events can cause a market capitalisation adjustment?
Events range from share buybacks, share placements, employee options exercise, employee share bonus schemes and demergers.

How often does a market capitalisation adjustment occur?
These types of events usually only happen about a dozen times a year on an index such as the S&P/ASX 200.

What Norgate publishes

Norgate publishes the official Standard & Poors/ASX index prices, which appear to use the Open 1, High 2, Low 2 and Close 2 methodologies described above. This is all that the ASX provides us in our official data feeds - we are unable to construct any of the other methodologies.

Our preference

Norgate's preference is that all securities should open for trading at 10:00:00 to avoid all of the open price issues and range extensions. However, this appears to be unlikely. At Norgate we believe that publishing what the index provider considers to be the official data is our only real option. Anything else would be a hybrid and unique to Norgate.

Your preference

If you disagree with the methodology used by Standard and Poors/ASX, we recommend you contact them about it - index_aus@standardpoors.com or contact the ASX Feedback centre at: ASX Feedback Centre

This article was produced by Norgate Investor Services and reflects the known market conditions as at September 2007. If you wish to contact us on this article please use the following method Contact Norgate