I must admit I couldn't contain myself when I saw the announcement that the Singapore Exchange, Singapore Press Holdings and FTSE were going to revamp the Straits Times Index, and create a suite of additional indices. It's about time. Our Straits Times Index replaced the Straits Times Industrials Index in 1998. That might fill you with pride. But international investors look to benchmarks and comparing "apples with apples". For them, the Straits Times Index fills them with horror. Consider this: a basket of 49 stocks in which the three top banks and SingTel hold about as much sway over the index level as the remaining 45 counters. The Straits Times Index has been useful, but in an increasingly global investment market Singapore can ill-afford to stick to this archaic index. Having witnessed a similar sale of an exchanges indexing business in Australia, I can only say congratulations.

Standard & Poor's bought the Australian Stock Exchange's indexing business seven years ago. First, it grouped stocks according to Global Industry Classification Standards (GICS), so international investors had some idea what they were getting into when investing in a particular stock. Second, it replaced many of the old ASX indices with ones branded S&P/ASX, which took into account the percentage of issued shares that were free-floating and therefore tradeable, while discounting shares held by cornerstone shareholders or government (freefloat considerations are already part of the STI's makeup. How differently FTSE's calculation of freefloat will be from SPH's is up for debate).

Third, it created a new benchmark in the S&P/ASX-200. It lists more than 90% of stocks by market capitalisation as its constituents. The All Ordinaries Index was retained but revamped to include the stocks in the ASX-200 and the next 300 stocks by market capitalisation. Some sections of Australia's commercial media still refer to the All Ordinaries Index, but frankly that's more tradition and a reflection of the sophistication of their audiences than necessity.

Reclassification and the creation of additional indices will put the SGX's indices on par with mature markets. Plus it will create the opportunity to create new and exciting indices, such as a "China Index" (currently, SGX CEO Hsieh Fu Hua's former colleagues at PrimePartners offer this index) and others, allowing new products to be created around them.

There will certainly be the usual crowd of critics and habitual whiners about how disruptive the index changes will be. It'll take time to get to the new set of FTSE/SGX indices, but it'll be worth it.


Mark Laudi