Market Consultation – Changes to the index design and calculation methodology of the NMX Infrastructure Index Series
The NMX Infrastructure Index Series (NMX Indices) were launched in 2007 on the basis of exchange-traded core infrastructure companies. The indices allowed first and foremost for representative benchmarking of the infrastructure asset class using a research-based industry classification scheme. Today, the NMX Indices serve as performance benchmarks for the infrastructure asset class and enable detailed performance measurement, efficient risk management and liquid access to the infrastructure asset class.
This market survey has been initiated by the index administrator with the intention to make a proposal of changes to the index design and calculation methodology of the NMX Infrastructure Indices as outlined in the NMX Guide to the Infrastructure Index Series V2.4.
All proposed changes have the objective to ensure that the NMX Indices are (i) representative (ii) transparent (iii) liquid and (iv) replicable.
I – Treatment of MLP instruments
Def. Master Limited Partnership – A Master Limited Partnership (MLP) is a publicly traded limited partnership with shares (called units) that trade on regulated (major) stock exchanges. An MLP has the liquidity of a publicly traded company as well as an advantageous tax structure that allows MLPs, like all partnerships, to pay no federal taxes at the company level. This tax structure (notably K-1 tax forms) may cause certain investors (i.e. outside the US) to invest in these instruments.
Proposal of Changes – Certain investors are not allowed to invest in MLP’s. The index administrator suggests to exclude these type of instruments from the eligible universe of instruments, which form the basis for the construction of the NMX Infrastructure Indices.
Effective Date of Changes (I)
The index administrator suggests the effective date of the proposed changes to the NMX Infrastructure Index Series for the next ordinary chaining as of July 15, 2022.
II – ESG Criteria
Def. ESG – ESG refers to a companies’ Environmental record, Social engagement and Governance practices. ESG investing is also known as sustainable investing as it incorporates a companies’ values and concerns about the environment into the investment selection criteria. Furthermore, a growing number of companies are adjusting their operational stance to make it more ESG-friendly. ESG measures shall provide insights into the companies’ impact and how they compare against benchmarks and peers. So far, most of the ESG criteria and reporting was rather subjective, with some companies providing ESG reports. Lately, efforts have been made in terms of regulation so as to make ESG reporting more objective, traceable and quantifiable. Many countries have developed their own ESG regulation standards. Among all of them the EU – Taxonomy is the most ambitious in terms of granularity and scope. Its main objective is to help implement the goals of the EU Green Deal. In essence, the EU-Taxonomy serves as a system to classify economic activities with respect to their degree of sustainability and it gives guidance on how to report them. Article 8 & 9 outline which companies are obliged to report their environmentally sustainable economic activities and the specific key performance indicators.
Proposal of Changes – Certain investors are not allowed to invest in instruments with negative ESG ratings (i.e. specific ESG data tbd). The index administrator suggests to exclude instruments with negative ESG ratings from the eligible universe of instruments, which form the basis for the construction of the NMX Infrastructure Indexes.
Effective Date of Changes (II)
The index administrator suggests the effective date of the proposed changes to the NMX Infrastructure Index Series: tbd
This consultation will close on June 15, 2022.
Please contact: indexing@lpx.ch.
