The PSE Index Explained: Composition, Rules, and How to Read It Like a Local

The PSE index explained — from the primary source (October 2026): the PSEi is a fixed basket of 30 stocks, and the Exchange itself just rewrote the rules that pick them — Circular 2026-0033 (July 21, 2026, President & CEO Ramon S. Monzon) adds a 98% cumulative market-cap screen, a new MTAR+MADV liquidity pair, and a free-float relief (20% → 15%) for ₱250B-cap giants, all effective at the February 2027 rebalancing | base level 1,022.045 (February 28, 1990) | semi-annual recompositions every mid-February and mid-August, announced five trading days ahead | how to read the index like a local, inside

Key Takeaway

• 🧺 The PSEi is a fixed 30-basket, not the whole exchange: it measures the free-float-adjusted market capitalization of the 30 largest and most active common stocks on the PSE — the broader market lives in the All Shares index, the mid-caps in the PSE MidCap (20 names), the yield players in the PSE Dividend Yield index (20 names by three-year average yield).
• 📜 The rules just changed (July 21, 2026, effective February 2027): a new 98% cumulative market-cap screen, the MTAR (median trading activity ≥15%; 10% for incumbents) + MADV (top-25% daily-value rank, 9 of 12 months) liquidity pair, and a free-float relief — 20% down to 15% for companies worth at least ₱250 billion — all per PSE’s own Circular 2026-0033 in the index management policy.
• 📅 The membership moves twice a year, on a published clock: semi-annual reviews recompose the index mid-February (from full-year data) and mid-August (from July-June data), with changes announced at least five trading days before implementation — insertions enter at rank ≥25 (or 4 straight reviews at rank ≥30), deletions fall out at rank ≤36 (or 4 straight reviews ≤31).
• 📐 Reading it is arithmetic, not prophecy: today’s level = yesterday’s level × (the basket’s present float-cap ÷ its base-period float-cap) — the base sits at 1,022.045 points from February 28, 1990 — which is why a PSEi move equals the weighted move of 30 float caps, not of your entire portfolio’s mood.
• 🇵🇭 For the Filipino investor the PSE index is a tool, not a trophy: it prices the market’s risk appetite (the prints our PSEi Watch series tracks daily), anchors fund benchmarks, and decides when index-heavy names move on flows rather than fundamentals — read it like a local below.

The PSE index is the number every Filipino headline quotes and the mechanism almost nobody explains: a fixed basket of 30 stocks whose free-float capitalizations, summed and ratioed against the past, produce the level on the ticker. October 2026 makes the explainer timely in a way guidebook versions cannot: the Exchange itself just published the revised Policy on Index Management — Circular 2026-0033, dated July 21, 2026, signed by President and CEO Ramon S. Monzon — which rewrites how the 30 get picked (a new 98% cumulative market-cap screen), how they must trade (the MTAR and MADV liquidity pair), and who gets relief on float (the ₱250-billion class) — all landing at the February 2027 rebalancing. This piece explains the whole PSE index stack from that primary source: what the PSEi actually measures, how membership is selected and refreshed, how the level is computed line by line, what changed in July 2026, and how a beginner, a paycheck investor and a dividend chaser each read the PSE index like a local.

What the PSE Index Actually Measures — and What It Doesn’t

The PSEi measures one thing precisely: relative changes in the free-float-adjusted market capitalization of its fixed 30-company basket. Not the whole exchange — the All Shares index (all common stocks, full-market-cap method, base 1,000 at November 14, 1996) does the broad barometer work. Not mid-caps — the PSE MidCap index’s 20 names (largest full-cap companies outside the PSEi) own that lane. Not yield leaders — the PSE Dividend Yield index’s 20 names, ranked by three-year average dividend yield with a base of 1,000 at December 30, 2010, price that lane. And not a sector view — the six sector indices (Financials, Industrial, Holding Firms, Property, Services, Mining & Oil) disaggregate the market. The PSEi is therefore a snapshot of the biggest, most liquid, most float-available slice of the Philippine market: when the PSE index moves, it is telling you what happened to the weight of the market’s center, not the market’s entire width — the reading mistake that costs beginners most.

How a Stock Becomes a PSEi Member — the Full Selection Stack

The PSE index’s selection stack, as the July 2026 policy writes it, runs in layers:

• Base eligibility: common stocks, main-board listed, on the floor for at least 12 months of the review period; convertible preferreds excluded until converted, ETFs and fund-type issues ineligible, dollar-denominated securities out, and companies facing delisting proceedings or suspensions (expected to keep trading unavailable for roughly six months from review) declared ineligible.
• The market-cap screen (NEW): only companies inside the top 98% of the cumulative full market capitalization of eligible securities qualify — full cap computed on the twelve-month volume-weighted average price (VWAP), all share classes combined.
• The liquidity pair (NEW): the Median Trading Activity Ratio (MTAR — the 12-month sum of monthly median-day-value-traded ratios over float cap) must clear 15% for PSEi eligibility (10% for existing constituents), AND the company’s Monthly Average Daily Value turnover (MADV) must rank in the market’s top 25% for nine of the twelve review months — two tests replacing the older single liquidity criterion; the management committee can only bend each by small published increments if the bench runs thin.
• The float floor: free float — the shares that actually trade, deducting founders, officers and families, SSS/GSIS seats, lock-ups, treasury shares, employee plans, affiliates, ≥10% principals and controlling blocks — must be at least 20% of outstanding shares, with the NEW exception down to 15% for companies capitalized at ₱250 billion or more.
• Final ranking: survivors of all screens rank by full market capitalization; the largest 30 become the PSE index’s constituents.

How Membership Changes — the Semi-Annual Recomposition

The PSE index refreshes on a published rhythm: two reviews a year — the first reads the whole prior calendar year and recomposes the series every mid-February; the second reads July-through-June and recomposes mid-August — and the outcome announcements run at least five trading days before implementation. Membership changes use bands, not cliff-edges, to keep churn low: a company enters the PSEi if it ranks 25th or better by full market cap in the current review, or holds rank 30th-or-better for four consecutive reviews; it exits when it falls to 36th-or-worse in one review, or slips below 31st for four consecutive reviews. Inside the between-band zone (ranks 26-35 and the 31-35 overlap), sitting members stay — the design that keeps the basket stable and turns every mid-February and mid-August announcement into a portfolio-relevant date: the desk’s own PSEi Watch pieces (the jumbo-hike-day and breadth-watch reads) track exactly these recomposition weeks for the flows they move.

How the Level Is Computed — the Arithmetic, Plainly

The PSE index level is a ratio wearing history clothes: today’s level = yesterday’s level × (the basket’s total free-float-adjusted capitalization today ÷ the same basket’s capitalization at its base). The base sits at 1,022.045 points — the close of February 28, 1990, the index’s official base date — and every point since compounds from that anchor; the free-float method (adopted April 2006, when the series also took the PSEi name after years as the Phisix and PSE Composite Index) means the level reads ONLY the shares that actually trade, not founders’ locked blocks. The beginner’s honest translation: a 1% PSEi day means the 30 float-weights combined moved ~1%, dominated by the heaviest names — a 1% move in a small member is noise to the index reading, not news. That arithmetic is also why the July 2026 rule changes matter economically: the 98% cap screen tightens which companies can even contend (the smallest caps now fall out before the liquidity tests even begin), the MTAR/MADV pair demands sustained real trading rather than one volume spike, and the ₱250B float relief lets the giants in earlier — all of it reshaping what “the market’s center” means from February 2027 on.

What the July 2026 Revisions Mean for Who You Know Gets In

Rule changes read abstract until they name the effect, so the honest translation for investors who track the PSE index through headlines: the 98% screen means the market’s smallest 2% of eligible capitalization — the long tail that sometimes rode sector-index luck into prominence — can no longer contend for the main index at all; the MTAR/MADV pair means a company cannot buy its way into the PSE index with one sponsored volume month — the twelve-month median and the nine-of-twelve top-25% rank demand sustained, organic trading; and the ₱250-billion float relief means the exchange’s largest family-owned giants no longer need to hit the 20% public-float bar to join the center — 15% suffices at that size, which can bring several heavyweight names into the PSE index conversation years earlier than the old rule allowed. The February 2027 rebalancing is therefore the date the PSE index’s composition methodology actually changes behavior — portfolios that track the index mechanically (fund shelves and index-mimicking sleeves) will move money the day the recomposition lands, and the desk’s recomposition-week coverage (the PSEi Watch pieces) will price those flows the way it prices the hike-week ones: with named names, breadth reads, and the honest distinction between headline strength and market strength.

Reading the PSE Index Like a Local — the Three Practical Modes

• The beginner’s read: the PSE index is context, not instruction — a starting-point portfolio still buys specific names (or index-mimicking fund shelves) after the broker and the emergency fund are set; the beginner checks the level weekly, not hourly.
• The paycheck investor’s read: the recomposition calendar is the actionable layer — additions in mid-February/mid-August carry flows (index trackers must buy the entrant), deletions bleed them; the seasoned local doesn’t chase the announcement-day move but reads the week’s breadth (the breadth-watch discipline) to see whether the index’s move carries the market or just its heaviest ten names.
• The yield chaser’s read: the PSE DivY index (20 names, three-year average yield ranks) is the official answer to “what does the market itself consider a dividend stock” — the desk’s PSE dividend-stocks and blue-chip pieces map that lane for the OFW-oriented reader, and the DivY membership changes ride the same semi-annual clock.

FAQ

What is the PSE index (PSEi)?

The main benchmark index of the Philippine Stock Exchange: a fixed basket of 30 stocks measuring the free-float-adjusted market capitalization of the 30 largest and most active common stocks, with its base level at 1,022.045 points on February 28, 1990 and the PSEi name adopted in April 2006 (formerly the Phisix/PSE Composite).

How do stocks get into the PSEi?

Under the July 2026 policy (effective February 2027): the stock must be a main-board common stock listed at least 12 months, sit inside the top 98% of cumulative full market capitalization, clear the MTAR liquidity test (15%, or 10% for incumbents) and rank top-25% in MADV for nine of twelve months, hold at least 20% free float (15% allowed for ₱250B-cap giants), and then rank among the largest 30 by full market cap.

How often does the PSEi change its basket?

Twice a year: a semi-annual review recomposes the index every mid-February (using the prior full year’s data) and every mid-August (using July-June data), with announced changes implemented at least five trading days after the announcement. Insertions enter at rank 25-or-better (or four straight reviews at 30-or-better); deletions exit at rank 36-or-worse (or four straight reviews below 31).

What changed in the PSE’s July 2026 index rules?

Circular 2026-0033 (July 21, 2026, President & CEO Ramon S. Monzon) added the 98% cumulative market-capitalization inclusion filter, introduced the MTAR/MADV liquidity pair (15%/top-25% for PSEi eligibility), and relaxed the minimum free float from 20% to 15% for companies with at least ₱250 billion market cap — all effective at the February 2027 index rebalancing.

Is the PSEi the whole Philippine stock market?

No — the PSEi is the market’s 30-stock center; the All Shares index (all common stocks, full-cap method) is the broadest barometer, the PSE MidCap covers the next 20 largest non-PSEi names, the Dividend Yield index ranks the top-yield 20, and six sector indices split the market by industry. A PSEi move says what the market’s heavy middle did, not what every stock did.

Should I try to buy the same 30 stocks as the PSEi?

Directly copying the basket costs fractional-weight management work better done by funds; the practical local routes are index-mimicking fund shelves (the digital-bank and broker fund lanes) or the blue-chip dividend ladder for larger tickets. The index’s real gift to a DIY investor is structure: the membership calendar, the weights’ meaning, and the breadth discipline that tells headline moves from market moves.

Primary sources and on-record carriers: the PSE’s Circular 2026-0033 with the full Policy on Index Management (July 21, 2026 — the selection stack, the liquidity pair, the float relief, the review calendar, the insert/delete bands, signed by President and CEO Ramon S. Monzon); the PSE’s official index-series pages; BPITrade’s PSE trading-hours schedule; BusinessWorld’s one-share board-lot rule tracking; and the desk’s own series — the PSEi jumbo-verdict read, the jumbo-hike-day coverage, the PSEi breadth watch, the stock market for beginners playbook, and the PSE trading day map.

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  title        = {{The PSE Index Explained: Composition, Rules, and How to Read It Like a Local}},
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  date         = {2026-10-29},
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