CFD 01/2023 – Modification to the Acceptable Index Requirements and the Benchmark Limits under the Code on Collective Investment Schemes

On October 31, 2023, the Monetary Authority of Singapore (MAS) issued a circular to inform that it is modifying the threshold for a sufficiently diversified index under Appendix 5 of the Code on Collective Investment Schemes.
Specifically, in an effort to allow fund managers to choose index benchmarks for their performance evaluations where the index may not be „highly diversified“ as defined under Appendix 5 of the Code, MAS is adjusting the criteria for an index to be considered „highly diversified“. In detail, MAS stipulates that – for an index benchmark deemed to be „highly diversified“
– a single “exceptional” constituent may make up to 35% of an index; and
– all other constituents may not have a weight of more than 20% of the index.
In this context, MAS notes that the increased 35% limit only applies in „exceptional circumstances“ where certain issuers are dominant in an index. Furthermore, fund managers are expected to provide information on the „exceptional conditions in the relevant market“ in a fund’s prospectus.
The increase is relevant, as investment funds have higher investment limits per entity or group for issuers that are part of an index. Likewise, the increase is important for index funds that track an index benchmark as the tracked index may now reveal the above noted limits to be considered a „sufficiently diversified index“.