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MSCI Market Classification Framework Essay

In order to be classified in a given investment universe, a country must meet the requirements of all three criteria as described in the table below. Criteria Frontier Emerging Developed No requirement Country IN per capita 25% above the World Bank high income threshold* for 3 consecutive years 2 USED 630 mm USED 49 mm 2. 5% TVA 3 USED 1260 mm TVA 5 USED 2519 mm At least some At least partial Modest Significant Good and tested Very high A Economic Development Sustainability of economic development B Size and Liquidity Requirements 8. Number of companies meeting the following Standard Index criteria Company size (full market cap) * Security size (float market cap) * Security liquidity C Market Accessibility Criteria c. I c. 3 Openness to foreign ownership Ease of capital inflows / outflows Efficiency of the operational framework Stability of the institutional framework * High income threshold for 2012: IN per capita of USED 12,615 (World Bank, Atlas method) ** Minimum in use for the May 2014 Semi-Annual Index Review, updated on a semi-annual basis

The economic development criterion is only used in determining the classification of Developed Markets while that distinction is not relevant between Emerging and Frontier Markets given the very wide variety of development levels within each of these two universes. The size and liquidity requirements are based on the minimum inevitability requirements for the MIMICS Global Standard Indexes. Market accessibility aims to reflect international institutional investors’ experience of investing in a given market and as a result, this criterion includes several sub-criteria.

These criteria are generally based on qualitative measures that are reviewed for all markets at least once a year during the VISCID Global Market Accessibility Review. Loft MIMICS regularly reviews the market classification of all countries included in the MIMICS Indexes to ensure that they remain reflective of the evolution of the different markets. In particular, changes in the assessments under the classification framework serve as the basis for determining the markets that will be reviewed for potential market reclassification as part of the Annual

Market Classification Review. MIMICS will only consider markets for upgrade if a change in classification status can be viewed as irreversible. Every June, MIMICS will communicate its conclusions from the discussions with the investment community on the list of countries under review and announce the new list of countries, if any, under review for potential market reclassification in the upcoming cycle. While adhering to the regular time line for such communication helps provide greater predictability and is less disruptive to a market’s normal functioning,

MIMICS may from time to time exercise prudent discretion and consider off; cycle communications should significant market events take place outside the regular review cycle. Off Market Accessibility Measures Definition Investor qualification requirement Existence of qualifying conditions for international investors. Existence of a level playing field for all international investors. Foreign ownership limit (FOOL) level proportion Of the market being accessible to Nan-domestic investors. Foreign room level Proportion of shares still available for non-domestic investors.

Existence of a foreign board where non-domestic investors could trade with each other. Equal rights to foreign investors Equal economic and voting rights as well as availability of information in English. Equal rights for minority shareholders. Capital flow restriction level Existence of restriction on inflows and outflows of foreign capital to/from the local stock market (excluding foreign cue reentry exchange restrictions). Foreign exchange market liberalizing level Existence of a developed onshore and offshore foreign exchange market.

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