Paras Madho is a Director of the Market Watch & Corporate Actions, Global Corporate Client Group for NYSE Euronext (NYSE: NYX). In this...
The Russell reconstitution is usually one of the most highly anticipated and heaviest trading days of the year for the U.S. equity markets. This year it occurs on June 28. That’s when top Russell indexes include the Russell 1000, Russell 2000, Russell 3000, Russell Global, Russell Midcap and Russell Microcap are rebalanced. Russell rebalances its entire family of indexes every year. The changes enable these indexes to maintain a true representation of the global equity markets in terms of capitalization and style. All eligible securities are ranked by market cap and then Russell publishes updated lists of the companies that will comprise each index. The who, what, and why of the reconstitution is laid out below. In addition, we welcome you to join us for an important webcast that will review the reconstitution and its potential impact on trading, see details below.
What is the Russell Reconstitution?
Russell rebalances the Russell series of indexes simultaneously every year and only once a year to ensure the indexes accurately reflect the changing market environment. Examples of why the reconstitution is necessary include a small-cap company that grows into a mid-cap over time or to replace a company is that is no longer in existence due to being acquired in a merger. Without a complete reconstitution the index could result in sector, market cap and style biases that might challenge the ability of an index to represent the true market it is looking to reflect.
Reconstitution Construction & Methodology
To determine the membership for their indexes, Russell ranks stocks representative of 98% of the investable universe by market capitalization after the close of trading on May 31st. The largest 98% of Russell Global market cap stocks become the Russell Global Index. The largest 90% of stocks become the Russell Global Large Cap Index and the remaining 10% become the Russell Global Small Cap Index. The U.S. component of the Russell Global Index is the broad market Russell 3000 Index. Two popular indices are derived from the Russell 3000 Index; the largest is the Russell 1,000 Index and the other is the Russell 2000 Index.
What to Watch?
After completing its ranking of stocks above, beginning on June 14th, Russell publishes a preliminary list of the additions and deletions to each index. Updates to these lists of additions and deletions will be made on June 21st, with the final list of changes published on June 28th. Between May 31st and June 28th, indexers will begin to adjust the positions in their portfolios based on expectations for the reconstituted index. The trading volume driven by these changes will be spread out over several weeks, but we can expect a significant concentration of volume on June 28th, especially going into the close.
Who is Eligible for Inclusion?
In order to be eligible for inclusion in Russell U.S. Indexes, the security must trade on a major U.S. exchange and the company must be domiciled in the U.S. as of the last business day in May. Bulletin board, pink sheet or over-the-counter (OTC) traded securities are not eligible for inclusion. According to Russell, a stock must have a closing price at or above $1.00 (on its primary exchange) on the last trading day in May to be considered eligible for inclusion. In order to reduce unnecessary turnover, if an existing member’s closing price is less than $1.00 on the last trading day in May, it will be considered eligible if the average of the daily closing prices (from its primary exchange) during the month of May is equal to or greater than $1.00. Russell does consider new IPOs and spin-offs on a quarterly basis for inclusion in these indexes, but any new additions must have a closing price at or above $1.00 on the last day of their eligibility period in order to qualify for index inclusion.
Who is Excluded?
Foreign stocks and American Depositary Receipts (ADRs) are excluded. Companies with a total market capitalization less than $30 million are not eligible for inclusion in Russell U.S. indexes. Companies with only 5% or less of their shares available in the marketplace are not eligible for the Russell Indexes.
Maintenance or Adjustments During the Rest of the Year
Stocks deleted between reconstitution dates are not replaced during the year. Spin-offs and initial public offerings are the only additions between reconstitution dates. During the year corporate actions such as splits, mergers, and acquisitions,rights, and dividends are maintained.
Deadline for Inclusion
Stocks must be listed by the last trading day in May and Russell must have access to documentation on that date supporting the company’s eligibility for index inclusion. This includes corporate description, verification of incorporation, number of shares outstanding and other information needed to determine eligibility.
What are the Key Reconstitution Dates?
June 14 -- Preliminary additions and deletions to the Russell Global, Russell 3000, and Russell Microcap Indexes published after 3:00 p.m. PST
June 21 -- Updates to the list of additions and deletions are published.
June 28 -- Updates to the list of additions and deletions are published; Reconstitution is final after the close of the U.S. markets.
July 1 -- Final membership lists posted for the Russell Global, Russell 3000, Russell 1000, Russell 2000, Russell Midcap, and Russell Microcap Indexes.
How do I find out more?
The Russell reconstitution is usually one of the most highly anticipated and heaviest trading days of the year for U.S. equity markets. If you are interested in more information, please click here to register for a webinar on this year’s changes.