FTSE Russell Market Consultation

Consultation on capping the Russell
US Style Indexes
August 2024

Market Consultation on Capping the Russell US Style Indexes

Introduction
FTSE Russell is conducting a consultation with market participants in response to the recent increase inmarket concentration within the large and mega cap growth indexes, which has caused some Russell US
Style Indexes to breach 25/5/50 US RIC IRS capping thresholds.

Responding to the consultation
The questions posed as part of this consultation are intended to gather feedback from all market
participants and may or may not result in changes to our indices.
Index users and market stakeholders are invited to respond by 30 August 2024.
The consultation results will be reviewed by the FTSE Russell Index Governance Board inaccordance with the FTSE Russell Policy for Benchmark Methodology Changes: Ground Rules(lseg.com).
Any changes will be communicated by via an announcement, which will be available on the FTSE
Russell public website.
Please submit your response to the questions included in this consultation online athttps://www.surveymonkey.com/r/MY8H7YS
All responses will be treated as confidential. FTSE Russell may publish a summary of theconsultation feedback, but no individual responses will be published and no respondents will benamed.
If you have any questions about this survey, or if you encounter any technical issues, please contact
committeesecretary@ftserussell.com.

FTSE Russell

2

Background and Context for the Market Consultation
FTSE Russell is conducting a consultation with market participants in response to the recent increase inmarket concentration within the large and mega cap growth indexes, which has caused some Russell US
Style Indexes to breach 25/5/50 US RIC IRS capping thresholds.
Historically, FTSE Russell has provided exclusion and regulatory capping methodologies in addition to theindex family and has maintained the standard index as uncapped, in order to provide an accurate reflectionof the markets.
In response to growing market concentration and the impact to our clients, FTSE Russell is consulting
regarding potential methodology changes impacting style component weighting methodology to be applied
to the standard Russell US Style Indexes and the sentiment across our client base regarding the need toalign with regulatory diversification rules that apply to investable products.

Example impact of US RIC Capping methodology on the Russell Top 200 Growth Index as ofJune 28, 2024:
Index constituent
MicrosoftApple
NvidiaAmazon.com
Alphabet Class A
Alphabet Class C
Aggregate weight ofcompanies >5%

Russell Top 200
Russell Top 200 Growth
Weight difference
Growth Index
RIC Capped Index
13.2%
11.8%
-1.5%
12.2%
11.0%
-1.2%
11.7%
10.7%
-1.0%
6.9%
6.5%
-0.4%
4.3%
4.1%
-0.2%
3.7%
3.5%
-0.2%
52.0%

47.6%

-4.4%Source: FTSE Russell, data as of US market close on June 28, 2024. Alphabet company weight includes both Class A and Class Cshares.

The following indexes are impacted by this consultation (refer to Russell US Equity Indices Ground Rules(lseg.com)):
••
•
••
•

Russell 1000® Growth Index
Russell 1000® Value Index
Russell Top 200® Growth Index
Russell Top 200® Value Index
Russell Midcap® Growth Index
Russell Midcap® Value Index

Market Consultation on Capping the Russell US Style Indexes••••••••••••••

Russell 2500™ Growth Index
Russell 2500™ Value Index
Russell 2000® Growth Index
Russell 2000® Value Index
Russell 3000® Growth Index
Russell 3000® Value Index
Russell Small Cap Completeness® Growth Index
Russell Small Cap Completeness® Value Index
Russell Top 500 Growth Index
Russell Top 500 Value Index
Russell 3000E™ Growth Index
Russell 3000E™ Value Index
Russell Microcap® Growth Index
Russell Microcap® Value Index

FTSE Russell’s RIC Capping methodology summary
To limit over concentration in any single security, constituents are capped quarterly so that no more than
20% of the index's weight may be allocated to a single constituent and the sum of the weights of all
constituents representing more than 4.5% of the index should not exceed 48% of the total index weight. The
index is reconstituted annually in June and reviewed quarterly in line with the underlying Russell Index. For
more information, refer to Capping Methodology (lseg.com).

Source: FTSE Russell.

FTSE Russell

4Market Consultation on Capping the Russell US Style Indexes

Questions
1. In light of recent market concentration, do you feel that FTSE Russell should consider applying theabove RIC capping methodology to the standard Russell Growth and Value indexes?
☐Yes

☐

No

Comments:

2. If you agree with question 1, what is the single most important reason driving your response to thisquestion?
Comments:

3. Which indexes should be in scope for applying quarterly RIC capping?
Comments:

FTSE Russell

5Market Consultation on Capping the Russell US Style Indexes

4. Do you feel that FTSE Russell should maintain the standard Russell growth/value/core benchmark
components as unrestrained, and that FTSE Russell should provide regulatory capping methodologyproducts as additional indexes separate from the standard indexes?
☐Yes

☐

No

Comments:

5. If you agree with question 4, what is the single most important reason driving your response to thisquestion?
Comments:

6. Do you agree that the capping methodology should be applied as part of the quarterly index review
process (i.e. no need to cap intra-review)? (The capping cut-off date will be based on prices at closeon the Friday of the review month one week ahead of implementation)

Yes
NoFTSE Russell

6Market Consultation on Capping the Russell US Style Indexes

Comments:

7. Do you feel the proposed standard RIC buffers are sufficient?


Yes
No

8. If you answered no to question 7, please provide detail regarding alternative approaches that shouldbe considered
Comments:

9. If capping adjustment is made to one style component (e.g. Russell 1000 Growth), do you agree thatthe core weight (e.g. Russell 1000) should NOT be reduced to force the growth and value
components to sum to core?
☐Yes

☐

No

Comments:

FTSE Russell

7

Market Consultation on Capping the Russell US Style Indexes

10. If you answered no to question 8, please explain what issues you feel this creates
Comments:

11. If the FTSE Russell Index Governance Board was to approve capping the standard Russell Growthand Value indices, how much advanced notice do you require to be prepared to implement this?
Comments:

12. Do you have any additional comments or questions regarding the proposed changes?
Comments:

Please contact your local client services team on info@ftserussell.com or your respective account manager
if you have any questions or would like to schedule a call to discuss this topic in greater detail.

FTSE Russell

8Market Consultation on Capping the Russell US Style Indexes

ABOUT FTSE RUSSELL
FTSE Russell is a leading global provider of index and benchmark solutions, spanning diverse asset classes and investment objectives. As a trusted
investment partner we help investors make better-informed investment decisions, manage risk, and seize opportunities.
Market participants look to us for our expertise in developing and managing global index solutions across asset classes. Asset owners, asset
managers, ETF providers and investment banks choose FTSE Russell solutions to benchmark their investment performance and create investment
funds, ETFs, structured products, and index-based derivatives. Our clients use our solutions for asset allocation, investment strategy analysis andrisk management, and value us for our robust governance process and operational integrity.
For over 35 years we have been at the forefront of driving change for the investor, always innovating to shape the next generation of benchmarks
and investment solutions that open up new opportunities for the global investment community.

CONTACT US
To learn more, visit lseg.com/ftse-russell; email info@ftserussell.com; or call your regional Client Service team office:
EMEA +44 (0) 20 7866 1810

Asia-PacificNorth America +1 877 503 6437

Hong Kong +852 2164 3333
Tokyo +81 3 6441 1430
Sydney +61 (0) 2 7228 5659

Disclaimer© 2024 London Stock Exchange Group plc and its applicable group undertakings (the “LSE Group”). The LSE Group includes (1) FTSE International Limited (“FTSE”), (2) Frank
Russell Company (“Russell”), (3) FTSE Global Debt Capital Markets Inc. and FTSE Global Debt Capital Markets Limited (together, “FTSE Canada”), (4) FTSE Fixed Income Europe
Limited (“FTSE FI Europe”), (5) FTSE Fixed Income LLC (“FTSE FI”), (6) The Yield Book Inc (“YB”) and (7) Beyond Ratings S.A.S. (“BR”). All rights reserved.
FTSE Russell® is a trading name of FTSE, Russell, FTSE Canada, FTSE FI, FTSE FI Europe, YB and BR. “FTSE®”, “Russell®”, “FTSE Russell®”, “FTSE4Good®”, “ICB®”, “The YieldBook®”, “Beyond Ratings®” and all other trademarks and service marks used herein (whether registered or unregistered) are trademarks and/or service marks owned or licensed bythe applicable member of the LSE Group or their respective licensors and are owned, or used under licence, by FTSE, Russell, FTSE Canada, FTSE FI, FTSE FI Europe, YB or BR.
FTSE International Limited is authorised and regulated by the Financial Conduct Authority as a benchmark administrator.
All information is provided for information purposes only. All information and data contained in this publication is obtained by the LSE Group, from sources believed by it to be accurate
and reliable. Because of the possibility of human and mechanical error as well as other factors, however, such information and data is provided “as is” without warranty of any kind. No
member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any claim, prediction, warranty or representation whatsoever, expressly, orimpliedly, either as to the accuracy, timeliness, completeness, merchantability of any information or of results to be obtained from the use of FTSE Russell products, including but notlimited to indexes, data and analytics, or the fitness or suitability of the FTSE Russell products for any particular purpose to which they might be put. Any representation of historical
data accessible through FTSE Russell products is provided for information purposes only and is not a reliable indicator of future performance.
No responsibility or liability can be accepted by any member of the LSE Group nor their respective directors, officers, employees, partners or licensors for (a) any loss or damage inwhole or in part caused by, resulting from, or relating to any error (negligent or otherwise) or other circumstance involved in procuring, collecting, compiling, interpreting, analysing,editing, transcribing, transmitting, communicating, or delivering any such information or data or from use of this document or links to this document or (b) any direct, indirect, special,consequential or incidental damages whatsoever, even if any member of the LSE Group is advised in advance of the possibility of such damages, resulting from the use of, or inability
to use, such information.
No member of the LSE Group nor their respective directors, officers, employees, partners or licensors provide investment advice and nothing in this document should be taken asconstituting financial or investment advice. No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any representation regarding
the advisability of investing in any asset or whether such investment creates any legal or compliance risks for the investor. A decision to invest in any such asset should not be made inreliance on any information herein. Indexes cannot be invested in directly. Inclusion of an asset in an index is not a recommendation to buy, sell or hold that asset nor confirmation thatany particular investor may lawfully buy, sell or hold the asset or an index containing the asset. The general information contained in this publication should not be acted upon withoutobtaining specific legal, tax, and investment advice from a licensed professional.
The information contained in this report should not be considered “research” as defined in recital 28 of the Commission Delegated Directive (EU) 2017/593 of 7 April 2016supplementing Directive 2014/65/EU of the European Parliament and of the Council (“MiFID II”) and is provided for no fee.
Past performance is no guarantee of future results. Charts and graphs are provided for illustrative purposes only. Index returns shown may not represent the results of the actual
trading of investable assets. Certain returns shown may reflect back-tested performance. All performance presented prior to the index inception date is back-tested performance.
Back-tested performance is not actual performance, but is hypothetical. The back-test calculations are based on the same methodology that was in effect when the index was officiallylaunched. However, back-tested data may reflect the application of the index methodology with the benefit of hindsight, and the historic calculations of an index may change frommonth to month based on revisions to the underlying economic data used in the calculation of the index.
This document may contain forward-looking assessments. These are based upon a number of assumptions concerning future conditions that ultimately may prove to be inaccurate.
Such forward-looking assessments are subject to risks and uncertainties and may be affected by various factors that may cause actual results to differ materially. No member of theLSE Group nor their licensors assume any duty to and do not undertake to update forward-looking assessments.
No part of this information may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise,
without prior written permission of the applicable member of the LSE Group. Use and distribution of the LSE Group data requires a licence from FTSE, Russell, FTSE Canada, FTSE
FI, FTSE FI Europe, YB, BR and/or their respective licensors.

FTSE Russell

9