MSCI’s latest methodology change addresses a recurring index-construction problem: how to treat a stock that has become large enough for a Standard Index after an unusually sharp price rally.

Previously, the answer was relatively straightforward. A security flagged for an Extreme Price Increase, or EPI, could not be added to an MSCI Standard Index during that review. It remained within the investable universe and had to wait for another assessment.

Beginning with the August 2026 Index Review, MSCI will no longer apply that restriction uniformly. The revised framework gives different treatment to securities according to their Foreign Inclusion Factor and existing position within the MSCI index universe.

High Foreign Availability Can Override the EPI Screen

The most significant change applies to EPI-flagged securities with an FIF of at least 0.75.

FIF represents the proportion of outstanding shares considered available to international public-market investors after strategic holdings and foreign-ownership restrictions have been taken into account.

Under the revised rule, an EPI security with an FIF of 0.75 or higher will be exempt from the extreme-price screen. It may therefore be considered for a Standard Index addition, provided that it satisfies every other inclusion requirement.

The exemption does not remove size, liquidity, trading-history or accessibility tests. It only prevents the EPI flag from acting as an automatic disqualification.

Lower-FIF Stocks Face a Two-Track Process

The framework remains more restrictive for an EPI security whose FIF is below 0.75.

A stock that is not already included in the MSCI Investable Market Indexes will be denied Standard Index entry for that review. MSCI will keep it in the market investable universe and reassess it later.

The treatment becomes more complex when the security is already a Small Cap constituent. MSCI will compare both its full market capitalization and its free-float-adjusted capitalization with the Standard Index size cutoff.

A stock remains in the Small Cap segment when its full capitalization is below 1.8 times the Standard cutoff, or when its float-adjusted capitalization is below 1.8 times one-half of that cutoff.

When both measures meet or exceed their respective thresholds, the stock will not be promoted to the Standard Index. It will also be removed from the Small Cap Index and held in the broader investable universe until the next review.

The structure is intended to avoid keeping a very large company in the Small Cap segment while still preventing an extreme-price security with limited foreign availability from immediately entering the Standard benchmark.

A Refinement Rather Than a Full Relaxation

MSCI said the enhancement was designed to balance stable price discovery, timely inclusion of investable securities and accurate representation across its market-size segments. The original proposal was published on July 6, while Indonesian market reports said the final rule was issued on July 16 for implementation in the August review.

The earlier methodology assessed excess returns over monitoring periods ranging from five to 250 trading days. Breaching any applicable threshold resulted in an EPI classification and blocked a Standard Index addition during that review.

The new approach effectively distinguishes between two types of rapid price increase. A rally in a broadly available security may be easier for international investors and index-tracking portfolios to replicate. A similarly sharp rally in a tightly held stock may create greater liquidity and price-discovery concerns.

Indonesia’s Separate Restrictions Still Matter

The methodology change may appear relevant to Indonesian companies that have experienced large price gains. It does not, however, automatically reverse MSCI’s separate restrictions on the Indonesian market.

MSCI froze new Indonesian additions earlier in 2026 while examining concerns involving ownership transparency, the visibility of genuine free float, market information and possible coordinated trading. In June, it extended its broader Indonesia review until November and warned that insufficient progress could lead to consideration of frontier-market reclassification.

An Indonesian security could therefore satisfy the new EPI exemption and still remain ineligible because of country-level measures or other index requirements. The August review must be interpreted within that wider accessibility assessment.

May Deletions Left a Bank-Heavy Benchmark

MSCI removed six companies from its Indonesia Standard benchmark at the end of May: Amman Mineral Internasional, Barito Renewables Energy, Chandra Asri Pacific, Dian Swastatika Sentosa, Petrindo Jaya Kreasi and Sumber Alfaria Trijaya. The correct exchange ticker for Dian Swastatika Sentosa is DSSA.

The MSCI Indonesia Index contained 11 constituents as of June 30, down from 17 before the six deletions. MSCI describes the benchmark as covering the large- and mid-cap segments and approximately 85% of Indonesia’s investable equity universe.

Its composition is now highly concentrated in banking. Bank Central Asia carries a 28.89% weight, Bank Rakyat Indonesia 17.47%, and Bank Mandiri 15.18%. Together, the three banks represent 61.54% of the index.

Telkom Indonesia accounts for 11.06%, while Astra International represents 7.73%, providing the main large-sector exposure outside financials.

What Investors Should Watch Next

The revised EPI rule improves the chances of index entry for stocks with high foreign-investor availability, but it should not be interpreted as a list of future additions.

The August decision will still depend on cutoff prices, market capitalization, float-adjusted size, liquidity, FIF calculations and any country-specific treatment applied by MSCI.

For Indonesia, the more consequential question may be whether MSCI begins to relax its market-wide restrictions. Until that occurs, the new EPI framework offers a potential route to eligibility but not a guaranteed route into the index.

Index additions and deletions can require passive funds to rebalance their holdings. That makes MSCI reviews capable of affecting short-term trading demand and capital flows even when a company’s underlying operations have not changed.

Disclaimer: This article is provided for informational and educational purposes only. It does not constitute investment advice or a recommendation to trade any security.