The Finextra50 Financial Technology Index is a free-float value weighted index of the world's leading companies that provide technology-based products and services to the financial services industry. It was set at an indexed value of 100 at market close on Friday 4th May 2007. Our weekly update on the index's movements will provide a framework for analysing trends in the financial technology market, particularly vendor consolidation - a trend that shows no sign of slowing down.
It's an interesting time to be launching such an index. World stocks hit an all-time peak on Friday as European, Asian and North American shares rose ahead of key US employment data, upbeat corporate results and increasing takeover talk at a number of large blue-chip firms.
Foremost among the corporate takeover action that affects our index was the announcement by Thomson that it is in talks to acquire Reuters. This news saw Reuters' share price increase 25% by close of trading on Friday - the day we set the index at the indexed value of 100.
In the time we've been researching and preparing the index, a number of potential constituent companies have become unavailable. M&F Worldwide Corporation completed its acquisition of J Harland and its major subsidiary Harland Financial Solutions. Corillian shareholders agreed on 1st May to the acquisition offer from CheckFree. And a day later, Citi signed an agreement to buy back-office services company Bisys Group. But despite the shifting landscape, we have finalised the list of Finextra50 Financial Technology Index constituents. As of Friday 4 May 2007, these are:
- DST Systems
- Investors Financial Services
- SEI Investments
- Wincor Nixdorf
- Fidelity National Information Services
- Broadridge Financial Solutions
- Factset Research Systems
- Fair Isaac
- Jack Henry
- Total System Services
- Interactive Data
- ACI Worldwide (TSA)
- Vasco Data Security
- Advent Software
- Chordiant Software
- The Innovation Group
- EDB Business Partner Norge
- ORC Software
- Oberthur Card Systems
- GL Trade
- Online Resources
- 3i Infotech
- Linedata Services
- Nucleus Software
- Software Solution Partnership
- FJH AG
Since the index was created, State Street's acquisition of Investors Financial Services was completed on July 2, and the company was replaced on the index by banking and payments software vendor Fundtech.
To ensure that index movements are tied closely to technology demand in the financial services industry, we decided to limit inclusion in the index to publicly-listed technology product and services companies that earn at least 50 % of their revenue from the financial services industry. This information was gathered from company annual reports and Finextra estimates.
By this criteria, we mean to focus on organisations whose customers are predominantly: insurance companies; commercial or public banks operating in retail and/or wholesale business; and capital markets participants and infrastructure providers. We have not included payment processing companies that deal mainly with retail payments directly for merchants and retailers. And we have also chosen to exclude organisations such as market operators, agency and interdealer brokers, ECNs, banks and custodians. For while these do provide technology-related services to the industry, we wanted the index to focus on pure technology vendors and service providers.
From our list of investible companies we have calculated free-float market capitalisation (taking closely held shares out of the equation) and enforced a cut-off limit of US$50 million. We have also enforced several other criteria to ensure the index is global, provides good coverage across the financial services industry, and is not too heavily weighted towards one or two large companies. These include:
- All companies have been categorised into one of three regions: North America, Europe and Asia Pacific. No one region can have more than 25 companies in the index, nor less than 5.
- No single company shall make up more than 20% of the weighted index.
- The 5 top companies can make up no more than 50% of the weighted index.
- Market cap weights will be modified if necessary to reduce single stock concentration.
Movements in the index will be calculated and reported weekly on Finextra.com - usually on Monday mornings based on the previous Friday's close of market prices. To standardise shares traded in different currencies, we use US$ as the base currency and convert using mid-market rates each Friday at noon US Eastern Time, as reported on www.xe.com. Currently, the index comprises companies listed in the US, UK, France, Germany, Denmark, Sweden, Norway, India and Australia. The index was first benchmarked based on market closing prices on Friday 4 May 2007 and set at 100.
To maintain the index in the face of corporate actions, we will use a divisor adjustment method. Adjustments due to companies leaving the index through acquisition or changing revenue mix will be made close to actual transaction date or publication of annual financial reports. Other corporate actions such as share issuance or repurchase, or rights offerings will usually only be incorporated in a divisor adjustment on a quarterly basis unless the action is deemed to have a significant structural impact.
For more information on the Finextra50 Financial Technology Index email firstname.lastname@example.org or visit the Finextra50 community on our community channel