HSI Compilation Methodology

HSBC Holdings PLC
30 June 2006


30 June 2006

The following is the text of a press release issued today by HSI Services Ltd.



                HANG SENG INDEX COMPILATION METHODOLOGY

Further to its announcement of 12 May 2006, HSI Services Limited 
("HSI Services") has discussed possible changes to the Hang Seng Index ("HSI") 
compilation methodology with a wide range of market participants. After 
considering their opinions and consulting the HSI Advisory Committee, HSI 
Services today announced details of the changes that will be made.

Compilation Methodology

The compilation of the HSI will be switched from a full market capitalisation
weighted formula to a freefloat-adjusted market capitalisation weighted formula 
with a cap on individual stock weightings. Details are as follows:

a) Freefloat adjustment: A Freefloat-Adjusted Factor ("FAF") will be assigned to 
   each constituent in index calculation. The freefloat definition has been 
   revised to exclude shareholdings with a lock-up arrangement (see Appendix 1).

b) Cap: A 15% cap on individual stock weightings will be applied.

c) Re-capping frequency: A re-capping exercise will be conducted semi-annually 
   in Q1 and Q3 to coincide with the regular update of the FAF. Additional 
   re-capping will be performed should there be constituent changes.

The above changes will be phased in over a period of 12 months from September
2006 to September 2007 to ensure a smooth transition and to minimise any impact
on the market. The timetable and adjustments are as follows:

_______________________________________________________________________________
After Market Close on         Freefloat Adjustment                Capping Level
_______________________________________________________________________________
Phase 1:                              Nil                              25%
8 Sep 2006 (Fri)
-------------------------------------------------------------------------------
Phase 2:                      Applying 2/3 Freefloat Adjustment        20%
9 Mar 2007(Fri)               (FAF1), 

                              Where: 

                              FAF1=100%-2/3 (100%-FAF2) 

                              Rounded up to the nearest 5%
-------------------------------------------------------------------------------
Phase 3:                      Applying full Freefloat Adjustment       15%
7 Sep 2007 (Fri)              (FAF2)
_______________________________________________________________________________

For new constituents entering the HSI, the FAF will be applied in full at the
time of entry.

Inclusion of H-share Companies in the HSI

As decided in February 2006, Mainland enterprises that have an H-share listing
in Hong Kong will be eligible for inclusion in the HSI when they meet any one of
the following conditions:

1. The H-share company has 100% of its ordinary share capital in the form of 
   H-shares which are listed on the Stock Exchange of Hong Kong;

2. The H-share company has completed the process of Share Reform, with the 
   result that there is no unlisted share capital in the company; or

3. For new H-share IPOs, the company has no unlisted share capital.

Eligible H-share companies will enter the stock universe for the regular HSI
review in August 2006.

For any H-share companies included in the HSI, only the H-share portion of the
share capital of the company will be used for index calculation, subject to
freefloat adjustment.

Number of Constituents with Inclusion of H-share Companies

In order to ensure that the HSI will remain broad-based enough to represent the
Hong Kong equity market following the inclusion of eligible H-share companies,
it has been decided that the number of constituents will be gradually increased.

As an interim measure, any H-share company joining the HSI will result in a net
increase in the number of HSI constituents. The number of non-H-share
constituents will be maintained at 33.

HSI Services will further announce the way ahead with regard to the number of
index constituents once the fifth H-share company joins the HSI - bringing the
index to 38 constituents.

Note to editors:

Information on HSI Services Limited

The Hang Seng Family of Indexes is managed and compiled by HSI Services Limited,
which is a wholly-owned subsidiary of Hang Seng Bank. The members of the index
family include the Hang Seng Index, Hang Seng Composite Index Series, Hang Seng
Freefloat Index Series and Hang Seng Total Return Index Series. For further
information on the Hang Seng Family of Indexes, please visit the company's
website at www.hsi.com.hk.

Information on HSI Advisory Committee

HSI Services Limited has appointed an independent advisory committee which
includes specialists drawn from the Hong Kong SAR Government, universities, the
legal and accounting professions, institutional investors and investment
consultants. The Committee meets regularly to discuss matters pertaining to the
indexes, including changes of constituents and the launch of new indexes.

Information on Index Review

The Hang Seng Index is reviewed quarterly. The Hang Seng China Enterprises Index
and Indexes in the Hang Seng Composite Index Series and the Hang Seng Freefloat
Index Series are reviewed on a semi-annual basis. The review will normally be
completed within six weeks after the end of each calendar quarter.


                                                                      Appendix 1 

                  Definition of Freefloat-Adjusted Factor

A Freefloat-Adjusted Factor ("FAF") will be devised to represent the portion of
freefloat shares after excluding the following four groups of shareholdings:

(a)  Strategic holdings - Shares held by strategic shareholder(s) who
     individually or collectively control more than 30% of the shareholdings;

(b)  Directors' holdings - Shares held by director(s) who individually control 
     more than 5% of the shareholdings;

(c)  Cross-holdings - Shares held by a Hong Kong-listed company which controls
     more than 5% of the shareholdings as investments; and

(d)  Lock-up shares - Shares held by shareholder(s) who individually or 
     collectively represent more than 5% of the shareholdings in the company and 
     with a publicly disclosed lock-up arrangement.

The FAF will be rounded up to the nearest 5% for index calculation. 

Impact on Hang Seng China Enterprises Index ("H-shares Index"):

The revised freefloat definition will also be applied to the H-shares Index
starting from the August 2006 review.

All other things being equal, China Construction Bank (939) will be the only
constituent affected by the revision, and the revised FAF will be 15%, compared
with the existing 30%.

                                                                      Appendix 2 

       Indicative FAFs in Different Phases for the Existing HSI Constituents

________________________________________________________________________________
                                               FAF(%)
                            ____________________________________________________
Code   Company Name            Phase 1    FAF1 at Phase 2    FAF2 at Phase 3
                            (8 Sep 2006)    (9 Mar 2007)       (7 Sep 2007)
________________________________________________________________________________
   1   Cheung Kong               100             80                  65
   2   CLP Holdings              100             85                  75
   3   HK & China Gas            100             80                  65
   4   Wharf (Holdings)          100             70                  55
   5   HSBC Holdings             100            100                 100
   6   HK Electric               100             80                  65
   8   PCCW                      100             85                  75
  11   Hang Seng Bank            100             60                  40
  12   Henderson Land            100             60                  40
  13   Hutchison                 100             70                  50
  16   SHK Properties            100             70                  55
  17   New World Development     100             80                  65
  19   Swire Pacific 'A'         100            100                 100
  23   Bank of East Asia         100            100                 100
  66   MTR Corporation           100             50                  25
  83   Sino Land                 100             65                  45
 101   Hang Lung Properties      100             65                  45
 144   China Merchants Holdings  100             70                  50
 179   Johnson Electric          100             65                  45
 267   CITIC Pacific             100             70                  55
 291   China Resources           100             70                  50
 293   Cathay Pacific Air        100             55                  30
 330   Esprit Holdings           100             90                  80
 494   Li & Fung                 100             80                  65
 551   Yue Yuen Industrial       100             70                  50
 762   China Unicom              100             50                  25
 883   CNOOC                     100             55                  30
 906   China Netcom              100             50                  25
 941   China Mobile              100             50                  25
 992   Lenovo Group              100             70                  55
1038   CKI Holdings              100             50                  20
1199   COSCO Pacific             100             70                  50
2388   BOC Hong Kong             100             60                  35
________________________________________________________________________________


Note: 1. Actual FAF1 to be used will be announced in February 2007.
      2. Actual FAF2 to be used will be announced in August 2007.


                                                                      Appendix 3

                 Indicative Weightings of Existing HSI Constituents 
                       (Based on Closing Price on 27 June 2006)

________________________________________________________________________________
                                               Weighting (%)
                                          ______________________________________
                                              Freefloat-adjusted with a Cap
                                 Existing ______________________________________
                                (Full MV     Phase 1      Phase 2     Phase 3
Code        Company Name        Weighted) (8 Sep 2006) (9 Mar 2007) (7 Sep 2007)
________________________________________________________________________________
Finance                           37.76       33.24        28.90        24.60
________________________________________________________________________________
      5     HSBC Holdings         30.08       25.00        20.00        15.00
     11     Hang Seng Bank         3.66        3.92         3.91         4.02
   2388     BOC Hong Kong          3.07        3.30         3.29         2.96
     23     Bank of East Asia      0.95        1.02         1.70         2.62
________________________________________________________________________________
Utilities                          5.40        5.80         7.91        10.25
________________________________________________________________________________  
      2     CLP Holdings           2.13        2.28         3.23         4.39
      3     HK & China Gas         1.82        1.96         2.60         3.26
      6     HK Electric            1.45        1.56         2.08         2.60
________________________________________________________________________________
Properties                        10.77       11.55        13.68        16.21
________________________________________________________________________________
     16     SHK Properties         3.76        4.03         4.70         5.69
      1     Cheung Kong            3.69        3.96         5.26         6.60
     12     Henderson Land         1.38        1.48         1.47         1.52
    101     Hang Lung Properties   0.98        1.05         1.13         1.21
     83     Sino Land              0.96        1.03         1.12         1.19
________________________________________________________________________________
Commerce & Industry               46.07       49.41        49.51        48.94
________________________________________________________________________________
    941     China Mobile          16.60       17.82        14.81        11.43
     13     Hutchison              5.82        6.24         7.28         8.01
    883     CNOOC                  4.98        5.34         4.88         4.11
     66     MTR Corporation        1.96        2.10         1.75         1.35
    762     China Unicom           1.69        1.82         1.51         1.16
    906     China Netcom           1.69        1.81         1.50         1.16
     19     Swire Pacific 'A'      1.43        1.54         2.55         3.94
    330     Esprit Holdings        1.43        1.53         2.29         3.14
      4     Wharf (Holdings)       1.27        1.36         1.59         1.92
   1038     CKI Holdings           0.99        1.06         0.88         0.54
    144     China Merchants 
            Holdings               0.98        1.05         1.22         1.34
    494     Li & Fung              0.96        1.03         1.37         1.72
    267     CITIC Pacific          0.95        1.02         1.19         1.44
    293     Cathay Pacific Air     0.87        0.94         0.86         0.72
     17     New World Development  0.84        0.90         1.20         1.51
      8     PCCW                   0.73        0.78         1.10         1.50
   1199     COSCO Pacific          0.71        0.76         0.88         0.97
    291     China Resources        0.67        0.71         0.83         0.92
    551     Yue Yuen Industrial    0.66        0.70         0.82         0.90
    992     Lenovo Group           0.44        0.47         0.54         0.66
    179     Johnson Electric       0.40        0.43         0.46         0.50
________________________________________________________________________________
Total                            100.00      100.00       100.00       100.00
________________________________________________________________________________


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