With the guidance and direction of FTSE Russell’s independent practitioner committees, FTSE Russell regularly consults the market on changes to the methodology of its indexes to ensure that the indexes continue to meet investors’ requirements and define and lead global standards in indexing. The proposals set out in the various consultation documents are included in order to gather valuable market feedback and may or may not result in changes to FTSE Russell methodologies.
FTSE Russell March 2021 Fixed Income Country Classification Review
In advance of the scheduled upcoming March 2021 Fixed Income Country Classification review and subsequent results announcement, FTSE Russell would like to formally welcome feedback from global index stakeholders on considerations related to the inclusion of China and Switzerland in the FTSE World Government Bond Index.
For further details, please see the announcement.
Executive Order by the President of the United States of America (November 2020)
Further to the ‘Executive Order by the President of the United States of America’ notification published on 13 November 2020, FTSE Russell invited comments from market participants on the appropriate treatment of affected constituents of FTSE Russell indexes.
Effective from Monday 11 January 2021, the Executive Order prohibits United States persons from transacting securities investments in any Communist Chinese military company as defined in section 4(a)(i) of the Executive Order. FTSE Russell understands the affected companies to be those listed by the US Department of Defense (link), but has requested the Office of Foreign Assets Control (OFAC) to confirm the scope of the sanctions.
The FTSE Russell Index Policy Guide for its equity indexes, "In the Event Clients are Unable to Trade a Market", section 2.3, “Sanctions are imposed which restrict investment into foreign jurisdictions” states:
“Should sanctions, either primary or secondary, be imposed that prohibit US, UK and or European Union (EU) natural or legal persons from investing in particular countries, industries, named companies or companies linked to sanctioned individuals, FTSE Russell will delete the sanctioned securities from FTSE Russell indexes”.
In the light of the imminence of the effective date of the Executive Order, FTSE Russell sought rapid feedback from clients and other stakeholders on the scope of the sanctions and the timing of the deletion of the affected securities from FTSE Russell indexes.
FTSE Russell is currently reviewing the impact of the Executive Order to its fixed income indexes and will provide an update in due course.
View the consultation
Technical notice: Executive Order by the President of the United States of America – Next steps
Index announcement: Impact of the United States Executive Order on Chinese Military Companies on FTSE Fixed Income Indexes
Index announcement: Update: Impact of the United States Executive Order on Chinese Military Companies on FTSE Fixed Income Indexes
FTSE Russell Consultation on Enhancing Climate Change Scores in ESG Ratings and FTSE4Good Indexes (August 2020)
Investor focus on climate risk has grown significantly in recent years. In response to this, FTSE Russell has developed a number of data and index tools to better measure and manage these risks. As part of these efforts, FTSE Russell is also reviewing the way climate change is addressed as part of its ESG Ratings.
Through this consultation, clients and other stakeholders are invited to provide feedback on proposed enhancements to the climate change assessment of corporate issuers in ESG Ratings with implications for a number of indexes that rely on these Ratings and related enhancements to the FTSE4Good index rules.
These can be summarised as follows:
Proposal 1: Enhancing the Climate Change theme score within ESG Ratings.
Proposal 2: Introducing minimum Climate Change score thresholds to the FTSE4Good Index Series inclusion rules.
The responses will be reviewed by the FTSE Russell Product Governance Board and an update on FTSE Russell’s proposed approach will be communicated in due course.
FTSE Russell Consultation on proposed inclusion of Japanese small cap companies and change of underlying benchmark for FTSE Blossom Japan Index (August 2020)
Since its launch in 2017, the FTSE Blossom Japan Index has helped to catalyse improvements in corporate practices with respect to global environmental, social and governance standards in Japan. This has been achieved in part through a programme of positive engagement and communication with corporates, giving them a clear understanding of FTSE Russell’s ESG ratings data model.
Approximately 40% of the constituents of the companies in the underlying index qualify for inclusion in the FTSE Blossom Japan Index. This has been achieved through the improving corporate practices of large and mid cap companies in the underlying benchmark.
In addition, the opportunity for inclusion in the index provides further incentive for companies to improve their ESG scores by enhancing their ESG practices and disclosure in order to meet the index eligibility criteria.
Results: FTSE Russell reviewed the responses to the consultation and discussed them with FTSE Russell’s external independent advisory committees. After careful consideration of the responses, FTSE Russell will include Japanese small cap securities within the FTSE Blossom Japan Index and change the underlying universe from the FTSE All World Japan Index to the FTSE All Cap Japan Index. This change will be effective from the December 2020 index review.
FTSE Canada Bond Indexes – Index Eligibility of New Limited Recourse Capital Note Structure (July 2020)
FTSE Russell reviewed the preliminary details of a new Limited Recourse Capital Note (LRCN) structure being marketed by a Canadian bank. On July 15, 2020, the Canadian Office of the Superintendent of Financial Institutions published a Capital Ruling that “LCRNs can quality as Additional Tier 1 regulatory capital by the bank and other FRFIs, subject to certain limitations and disclosure requirements”. FTSE Russell invited comments from market participants on the index eligibility of this structure by the close of business on Friday, July 17, 2020.
Results: An extraordinary meeting of the FTSE Canada Fixed Income Advisory Committee was convened on Friday July 17, 2020 to discuss this topic. After careful consideration of the consultation results and a thorough review of the security structure, on 21 July, 2020, FTSE Russell announced that this structure will not be deemed eligible for the FTSE Canada Universe Bond Index or other FTSE Canada fixed-rate indexes.
Further details: The coupon structure of the LRCNs is incongruent with the eligible coupon types for inclusion in the FTSE Canada Universe Bond Index: fixed-rate, fixed-to-floating rate or fixed-rate step-up where the future interest rate is predetermined at issuance. Setting the Effective Maturity Date for this bond as the first Interest Reset Date (in line with the handling for fixed-to-floating rate bonds) appears to be inconsistent with investors’ views of its materially longer duration and complex risk profile as a non-bullet security. Further, it would not be appropriate to set the Effective Maturity Date after the first Interest Reset Date since, after the first reset, the rate is variable rather than fixed. FTSE Russell has therefore determined that the Limited Recourse Capital Note is not appropriate for inclusion in fixed-rate benchmarks. FTSE Russell has received feedback that this structure could in future constitute a significant portion of the Canadian corporate market. We therefore intend to review both the needs of index users to track this asset type, as well as the analytic modelling capabilities required for this new coupon structure.
FTSE Russell consultation on LIBOR and EONIA replacement (June 2020)
The Financial Stability Board (FSB) is leading the reforms for major interest rate benchmarks and to reduce reliance on inter-bank offered rates (IBORs). The volumes in the underlying IBORs have been decreasing since 2008 and the measure is no longer liquid. There also have been controversies/concerns about the reliability and robustness of these rates. The UK’s Financial Conduct Authority (FCA) has said that it will no longer persuade or compel banks to make London Inter-Bank Offered Rate (LIBOR) submissions after the end of 2021 and market participants should not rely on its continued availability beyond that date. FTSE Russell has live index products that use the overnight and term IBORs that could be directly impacted by interest rate benchmark reform. Given the above FTSE Russell will like to set out a transition roadmap for LIBOR and EONIA. In this respect we invite market participant and index users’ views for the transition away from these rates to alternative overnight and term rates.
FTSE Russell Consultation on Minimum Free Float (October 2019)
The ground rules for the FTSE Global Equity Index Series (GEIS) specified that only securities with free floats of greater than 5% were eligible for index inclusion (GEIS rule 6.2.A). The rule was intended to ensure that an index represents an investment portfolio that excludes inconsequential stakes in companies. It also helped to ensure that index constituents have adequate liquidity and the 5% threshold is consistent with squeeze-out levels in certain jurisdictions. However, the presence of the rule meant that certain very large companies with free floats less than 5% were excluded from GEIS and GEIS was arguably less representative than it might be as a result. Following feedback and enquiries from index users, FTSE Russell invited comment on whether the eligibility requirement for securities to have a free float of above 5% should be waived for very large constituents in the FTSE Global Equity Index Series. Note: the FTSE UK Index Series is maintained according to separate ground rules and was not affected by this consultation proposal.
FTSE Russell consultation on the index eligibility of J-REITs (June 2019)
Japanese Real Estate Investment Trusts (J-REITs) have been listed on the Tokyo Stock Exchange since September 2001. However, at the time of the consultation, they were considered ineligible for the FTSE Global Equity Index Series (GEIS). The purpose of this consultation was to invite index users and other stakeholders to provide feedback as to whether the J-REIT definition under Japanese law constitutes as grounds to continue their exclusion from the FTSE Global Equity Index Series.
FTSE Russell consultation on sustainable investment products (May 2019)
FTSE Russell to consulted with market participants to understand how they use our sustainable investment products and how enhancements can be implemented to further support clients.
FTSE EPRA Nareit - Consultation on clarification of EBITDA Calculation (February 2019)
FTSE Russell, the European Public Real Estate Association (EPRA) and the National Association of Real Estate Investment Trusts (Nareit) – proposed clarifications to the calculation of eligible EBITDA to Appendix 7 of the Ground Rules of the FTSE EPRA Nareit Global Real Estate Index Series. These clarifications reflected operational practice and did not affect the composition of the indexes.
Note F – Where General and Administrative, Corporate, Overhead or other operating expenses are not clearly allocated to any of the reporting segments in the annual report, the model considers a proportionate allocation based on the revenue breakdown of the different operating segments.
Note G – Any share of Net Operating Income from property funds managed by the company is considered eligible income if appropriate disclosure is provided in terms of the nature of the fund, the percentage of company ownership in a fund, and adequate provision of a breakdown of operational income. Any profit/loss arising from property revaluations, fair value adjustments and management fees will be excluded.
FTSE Fixed Income Country Classification Framework Market Consultation (August 2018)
A distinguishing feature of multi-currency fixed income benchmarks is their approach to local market inclusion. There are a number of dimensions across which global markets can be evaluated to establish how they are represented as peer groups in broad-based benchmarks. These can include market size, credit rating, asset-type, designation as an emerging or developed market, and degree of market accessibility.
Users of global fixed income benchmarks require a robust and transparent framework for evaluating such local market inclusion considerations that can be applied to both flagship and bespoke benchmark construction. To provide the necessary foundation and enhance our benchmarking approach, this consultation proposed a robust and transparent scoring system to assign a “Market Accessibility Level” for local government markets. Given the proposed annual nature of the review for Market Accessibility Levels, FTSE Russell also solicited user preferences for a continual versus annual application of the objective market size and credit rating criteria for local market inclusion in flagship indexes once the accessibility framework is formally adopted.
FTSE Fixed Income Client Consultation - Securitized Products (May)
As part of FTSE Russell's commitment to ensuring that our benchmarks remain representative of the markets they are intended to track and continue to address the needs of index users, market participants were consulted on several topics related to the securitized products market. In particular, feedback was solicited relating to how our mortgage benchmarks reflect the evolution of the agency mortgage backed securities market and the Single Security Initiative.
FTSE TMX Canada Client Consultation – Fixed Income Index Inclusion Criteria Minimum Issue Size Thresholds (February)
A bond's amount outstanding represents an observable and transparent proxy for liquidity, with larger bonds generally being more widely held than small issues. As such, the minimum amount outstanding is a key design element for fixed income indexes. To ensure that an index continues to capture issuance at a level commensurate with the critical mass of investment and issuance of a market, the amount outstanding thresholds for index consideration should be periodically reviewed.
Consultation on the Treatment of Suspensions (January)
The presence of suspended constituents in an equity index can create tracking difficulties for investment firms managing passive funds and ETFs, particularly in the presence of significant cash flows. Accordingly, index providers will typically delete suspended constituents from their indexes after some specified time period. However, the timing of the deletion, and the price at which the deletion takes place, can cause problems in their own right. The difficulties are exacerbated if the investment manager is using swaps or other derivatives to obtain the requisite exposure. This consultation paper detailed FTSE Russell’s existing rule for the treatment of suspended companies and described how the rule was formulated. It then provided a series of questions to establish whether further enhancements might be made.
Consultation on FTSE GEIS and Russell RGI Index Alignment (August)
Over the previous two years, FTSE Russell had been working to align the methodologies of the FTSE Global Equity Index Series (GEIS) and the Russell Global Indexes (RGI). This consultation set out the path FTSE Russell envisaged to bring the two global index series into alignment, and included consultation questions on the important outstanding convergence question of how the index series should be reconstituted and reviewed.
Voting Rights Consultation (June)
The SNAP IPO was highly unusual in that there were no voting rights attached to the offered share class. The lack of voting rights raised governance concerns, particularly for pure passive managers who are forced buyers. In the light of these concerns, FTSE Russell announced that it would defer consideration of SNAP at the forthcoming Russell index reconstitution and FTSE index quarterly reviews pending a consultation with index users and other stakeholders with regard to the future inclusion of such securities.
View the consultation
Technical notice: FTSE Russell Voting Rights Consultation - Next Steps
FTSE TMX Canada Market Consultation – Universe Bond Index treatment of NVCC debt issued prior to 1 July 2017 (June)
On 5 June 2017, FTSE Russell announced that newly issued non-viability contingent capital (NVCC) bonds would be eligible for the flagship FTSE TMX Canada Universe Bond Index, effective from 1 July 2017. This decision was made after careful consideration to ensure that the FTSE TMX Canada Universe Bond Index continued to accurately measure and represent the domestic Canadian investment grade fixed income market. While inclusion of these securities ensured that the Universe Bond Index continued to have appropriate representation of core Canadian banking debt going forward, there were additional considerations for handling the outstanding issuance, which required further review. We are therefore solicited stakeholder feedback regarding index treatment of previously issued (settled prior to 1 July 2017) non-viability contingent capital (NVCC) bank debt in the Universe Index.
FTSE Private Investor Index Series Methodology Consultation (March)
As part of our commitment to deliver the best possible solutions for our clients, we have reviewed the current methodologies of the FTSE WMA Private Investor Index Series (renamed FTSE Private Investor Index Series from 1 March 2017).
FTSE Russell Nationality Assignment (January)
To help align the methodologies of the FTSE and Russell indexes, this consultation set out a proposal for a unified nationality assignment rule that could be applied consistently across both FTSE and Russell global index series.
FTSE TMX Canada Client Consultation Index Evolution Pathway (January)
The market was consulted on an index evolution pathway for the FTSE TMX Canada Indexes that is designed to capture and track new and developing asset categories in Fixed Income.
FTSE EPRA/NAREIT Global Real Estate Index Series Consultation (December)
To ensure that the FTSE EPRA/NAREIT Global Real Estate Index Series continues to capture the investable global real estate universe in a clear, comprehensive and transparent way, this consultation sought feedback on a number of proposed enhancements.
FTSE Russell Client Consultation for Integrating Industry Classification Structures (December)
Consultation on a proposed unified classification structure for the Industry Classification Benchmark (ICB) and Russell Global Sectors (RGS).
FTSE RAFI™ Index Series Methodology Enhancements (October)
Consultation on proposed methodology enhancement designed to simplify methodology and index construction, while streamlining the ongoing maintenance of the FTSE RAFI™ Index Series.
FTSE Russell Consultation - Updating Shares Outstanding and Free Float (June)
As part of the ongoing effort to align the methodologies of the FTSE and Russell indexes, this consultation sought feedback on a proposed unified process for updating shares outstanding and free float.
Market Consultation on the Treatment of Suspended Constituents in the FTSE China A Index Series (October)
Market consultation on how extended suspensions should be treated in the FTSE China A Index Series.
FTSE Russell Client Consultation on Security Eligibility (October)
Market consultation on the eligibility of various security and company types.
FTSE NAREIT US Real Estate Index Series (October)
Market consultation on proposed changes to the structure and definitions for the FTSE NAREIT US Real Estate Index Series.
FTSE Global Equity Index Series User Consultation (June)
User consultation on a range of proposed enhancements including the use of depository receipts in preference to local shares, the treatment of stocks near foreign ownership limits, and fast entry requirements.
FTSE UK Index Series User Consultation (June)
Market consultation on open offer implementation in the FTSE UK Index Series.
Country Classification (November)
Consultation on FTSE’s proposed approach to determining the eligibility of markets and the classification of countries.
Nationality, Cross Holdings and Free Float in FTSE Indexes
Market consultation on nationality, cross holding and free float rules in FTSE Indexes.