The Toronto 35 Index was developed by the Toronto Stock Exchange (TSE) in 1987 for the initial purpose of trading derivative products specifically designed to meet the trading and hedging needs of investors and fund managers. This index is composed of 35 liquid Canadian stocks and is calculated every 15 seconds.

Most of the TSE 300 industry groups, excluding Real Estate and Construction are directly represented in the Toronto 35 Index. The index tracks the movements of the TSE 300 Composite Index, the long established indicator of stock market performance in Canada.

During a seven year period (1982 August 15th 1989), a 99.04% correlation between movements of the Toronto 35 Index and its TSE 300 stock counterpart, was calculated, using daily data.

The Index is a modified capitalization weighted index - that is, the larger capitalization stocks may have a heavier weighting within the Index. However, at each annual review, a ceiling of 10% has been placed on any one stock to ensure that no one stock or industry dominates the index. The Toronto 35 is calculated by multiplying the price of each of the 35 stocks by its predetermined number of shares. These 35 product,-, are totaled and divided by a base value to arrive at an index level.

The base is adjusted to reflect changes to the portfolio (for example additions, deletions or large stock/cash distributions). All other changes such as stock splits, stock dividends and consolidations arc made by adjusting the shares of the affected stock.

The Toronto 35 Index is reviewed on an annual basis. The purpose of this annual revision exercise is to maintain reasonable tracking between the Toronto 35 Index and the TSE 300, and to ensure that all stocks within the 35 continue to meet inclusion qualifications for the index. Changes that may result from this revision analysis are announced early in January of each year and are implemented at the open on the same days as the expire of the February Futures and Options contracts (generally the third Friday).

Both the options and futures contracts based on the 35 index settle each month. A common misconception about the settlement procedure is its method of calculation. The official opening price, which is used for settlement, is calculated using the opening board lot price for each of the 35 stocks underlying the index. Each stock does not necessarily open when the market opens at 9:30. Alcan's first trade may occur at 9:31, Noranda's at 9:33, Nova's at 10:00 and so on. The open picks up each stock's first board lot trade and calculates an Index level for settlement based on these prices. if a stock does not trade on the day of settlement (possibly because it was halted), its last board lot trade price is used.

On settlement day, generally the third Friday of each month, an unofficial settlement level is calculated as soon as all companies in the Index have opened (generally around 10:00 a.m.). This opening level will become official only after the market closes on settlement day.

THE STOCKS

Companies that make up the Toronto 35 Index are some of Canada's largest publicly listed corporations and are also among the most heavily traded issues on the TSE:

Each stock has been traded in excess of 10 million shares and $100 million in 1988.

Of the 35 companies, twenty-seven have a market capitalization in excess of $1 billion.

All 35 stocks have listed equity options.

Nineteen of the 35 stocks are interlisted with: New York, AMEX, London, NASDAQ, or Tokyo.