S&P Dow Jones Indices Announces Consultation on Equity Indices

Transcription

1 S&P Dow Jones Indices Announces Consultation on Equity Indices CONSULTATION S&P Dow Jones Indices (S&P DJI) is conducting a consultation with members of the investment community on the following potential methodology changes to several S&P DJI equity Index families: For U.S. Indices: 1. Multiple Share Class Lines: S&P Dow Jones Indices is allowing certain multiple share class lines to be included in its indices effective with the September, 2015 rebalance. Multiple share classes are becoming more common among U.S. corporations, particularly in the technology sector. Ignoring the trend would cause some indices to have difficulty properly representing major market segments while also providing sufficient liquidity to accommodate trading and necessary index adjustments. The use of multiple share class lines is expected to enhance liquidity and reduce turnover over time. S&P DJI would like your feedback on how to implement this important change in our indices. Option #1: Amend the index methodology to include multiple share class lines in the index on a going forward basis only. All existing publicly traded multiple share class companies in the index currently represented by a single consolidated line are grandfathered in and continue to be represented by a single consolidated line. This approach reduces turnover in the indices. Multiple share class lines of a single company are only included in the index if a current constituent has a significant mandatory issuance of an existing or new share class line or issues a significant amount of a non- index share class line. Any newly listed multiple share class company added to an index after the September, 2015 rebalance will include all eligible share class lines. S&P DJI is seeking your feedback on what constitutes a significant issuance. Should this issuance be measured by percent of total company market cap? Should this second share line be subject to minimum float, market cap and/or liquidity thresholds? And if so, where should S&P DJI set the minimum thresholds? Option #2: Include all multiple share class lines separately only if they are large and liquid, but keep a consolidated line for companies where the second line doesn t meet certain market cap, float and liquidity requirements. There is no grandfathering in of current constituents and will have a one-time increase in turnover. Depending upon the minimum liquidity and market cap thresholds used, this potentially creates turnover for up to 20 or so companies in the S&P Composite There are over 40 companies in the S&P TMI with publicly traded multi class share lines. Is this one time discretionary turnover an acceptable cost to promote consistency in the indices?

2 2. Public Secondary Offerings: S&P Dow Jones Indices has received inquiries asking for clarification of the rules regarding the implementation of public secondary offerings. According to current U.S. Indices methodology for S&P 1500 Composite constituents, a 5 % or greater public secondary offering by existing shareholders that is announced publicly in a timely fashion results in an immediate IWF review for that security using the latest available ownership data. Any five percentage point or greater change in the IWF resulting from the review is implemented as soon as reasonably possible. If all information is not made available in a timely fashion, any resulting IWF change is made in a future weekly share change announcement. S&P DJI is considering adding language to the methodology explicitly requiring that public secondaries eligible for next day share implementation must be underwritten, must have a publicly available prospectus or prospectus summary filed with the SEC, and must include a public confirmation that the offering has been completed. Adding these requirements gives clients a better indication of when S&P DJI implements a next day share change in the S&P Composite Do the criteria for determining when S&P DJI implements a next day share change in the S&P Composite 1500 due to public secondary offerings need more clarification so that institutional clients can feel more confident about participating in these offerings? Are there other criteria that S&P DJI should consider in addition to or instead of the proposed criteria? For example, should at-the-market offerings and bought deals be eligible for next day share implementation? Should Block Trades or Spot Secondaries (usually large, privately placed transactions not requiring SEC registration) be considered for next day implementation on a best efforts basis? 3. Securities eligible for inclusion in U.S. Indices: Currently, eligible securities include all U.S. common equities listed on the NYSE (including NYSE Arca and NYSE MKT), the NASDAQ Global Select Market, the NASDAQ Select Market, and the NASDAQ Capital Market. Ineligible securities include limited partnerships, master limited partnerships, OTC bulletin board issues, closed-end funds, ETFs, ETNs, royalty trusts, tracking stocks, preferred shares, unit trusts, equity warrants, convertible bonds, investment trusts, ADRs, ADSs and MLP IT units. Real estate investment trusts (REITs) are eligible for inclusion. Should S&P DJI consider adding Limited Partnerships (LP s), Limited Liability Corporations (LLCs), tracking stocks, MLPs and/or other issue types to its list of eligible securities? What are the tax and investability implications for institutional investors? Are the limited voting rights and typically less investor friendly governance structures associated with these issue types considered to be a problem for investors? Is unrelated business taxable income generally reported by certain LPs a concern for investors? Are these issues different than similar issues found with REIT investments?

3 Additional Comments: For Global Indices: 4. Multiple Share Class Lines in the S&P Europe 350 and S&P Global 1200: Similar to what was previously announced for the S&P 500, S&P DJI Indices is seeking feedback on amending the index methodology for the S&P Global 1200 and the S&P Europe 350 to apply a consistent set of rules for companies with multiple share class trading lines. This change, if implemented, will be effective with the September 2015 rebalance and results in the S&P Global 1200 and the S&P Europe 350 having more than 1200 and 350 share lines in the index, but with 1200 and 350 companies in the respective indices. Please note the U.S. portion of the S&P Global 1200 already includes multiple share class trading lines for certain companies in the index. Should the S&P Europe 350 and S&P Global 1200 follow a consistent practice globally for companies with multiple share class trading lines? And if so, should the secondary share lines be subject to minimum float and liquidity thresholds to prevent smaller, less liquid share lines from entering the index? For Alternatively Weighted Indices: 5. Multiple Share Class Lines in Alternatively Weighted and Modified Market Cap Indices: For alternatively weighted or modified market cap weighted indices that are not weighted on float-adjusted market cap (e.g. Quality Rankings, Volatility, Beta, DividendYield, Thematics, Equal Weighted), should S&P DJI elect to include only one primary trading class line in the index as opposed to including multiple trading class lines? If so, what rules should S&P DJI consider to determine which trading class line is included? Is the inclusion of both class lines important for liquidity/turnover? If S&P DJI elects to include only one trading class line, at what frequency should S&P DJI review the eligible class line (at each index rebalance or once annually to avoid turnover from switching share classes during rebalancing)?

4 Another option for alternatively weighted or modified market cap weighted indices is to include both share class lines in the index and weight each share class proportionate to its own float-adjusted market capitalization allowing the total weight of each class line to represent the targeted weight for that company. Your participation in this consultation is important as we gather information on your views and preferences. Your responses will be kept confidential. Please respond to this survey by December 1, To participate in this consultation, please respond to S&P Dow Jones Indices at Please be advised that all comments will be reviewed and considered before a final decision is made; however S&P Dow Jones Indices makes no guarantees or is under any obligation to comply with any of the responses. The survey may result in no changes or outcome of any kind. If S&P Dow Jones Indices decides to change the index methodology, an announcement will be posted on our Web site. Thank you for taking the time to complete this survey. Kind regards, S&P Dow Jones Indices Beijing: Dubai: 971 (0) Hong Kong: London: New York: or Sydney: Tokyo: About S&P Dow Jones Indices S&P Dow Jones Indices LLC, a part of McGraw Hill Financial, is the world s largest, global resource for index-based concepts, data and research. Home to iconic financial market indicators, such as the S&P 500 and the Dow Jones Industrial Average, S&P Dow Jones Indices LLC has over 115 years of experience constructing innovative and transparent solutions that fulfill the needs of investors. More assets are invested in products based upon our indices than any other provider in the world. With over 830,000 indices covering a wide range of asset classes across the globe, S&P Dow Jones Indices LLC defines the way investors measure and trade the markets. To learn more about our company, please visit Standard & Poor s and S&P are registered trademarks of Standard & Poor s Financial Services LLC, a part of McGraw Hill Financial. Dow Jones is a registered trademark of Dow Jones

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