Market Consultation

FTSE Russell Client Consultation onSecurity Eligibility

ftserussell.com

October 2015

FTSE Russell Client Consultation on Security
Eligibility
Introduction
We have been working hard to bring together the combined insights,
knowledge and client focus of the FTSE and Russell Index businesses. We
are committed to protecting and enhancing the strengths of both businesses,
and recognize that high client engagement, market consultation andconsensus building play an important role in this process. As part of ourcommitment to strive to develop the best possible index solutions for ourclients, we have been reviewing the methodologies of our global indexes
with a view to their converging on best practice. A number of methodology
and index policy changes have already been enacted as part of this process,most notably in the area of corporate action treatment.

As part of the methodology review, we would now like to solicit client
feedback on the eligibility of various security and company types. This
feedback will be used to fine tune the eligibility requirements set out in theindex methodology documents.

To this end, we would like to solicit index stakeholder feedback on theeligibility of the following security types in global indices:a. Depositary receipts
b. Variable interest entities
c. Preference sharesd. Non-voting shares
e. Certificates and savings shares

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We would also like to solicit preliminary feedback on the desirability of
imposing additional eligibility requirements on constituent securities and/orcompanies. This feedback will be used to judge the likely demand for
additional index series that incorporate quantitative governance eligibility
hurdles.

Responding to the consultationPlease provide answers to this consultation online athttps://www.surveymonkey.com/r/LT3GWKKThe consultation will close on November 22, 2015. All responses will be treated as confidential.

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Note: questions 1-4 in the online questionnaire relate to your personalinformation.

Depository Receipts
5. Should securities that trade only as Depositary Receipts beeligible for global index inclusion?
 Yes
 no6. Where companies have issued shares and Depositary Receipts,
when should the DR be included in preference to theunderlying share?
 Always Never Only when the underlying share fails liquidity requirements
whilst the DR passes
o If so, must the DR and underlying share trade in thesame time zone?

Variable Interest Entities (VIEs)
VIEs give the holder contractual rights to certain income streams but
do not necessarily provide voting rights.
Alibaba and Baidu do not furnish voting rights
Tencent does

7. Should VIEs be eligible for inclusion in global indices?


AlwaysOnly when the VIE trades as a share (as distinct from aDepositary Receipt)
Never

Variable Interest Entities (VIEs) - Nationality
Assignment
8. If VIEs are eligible, what nationality should they be assigned
assuming that the incorporation is in a low taxation or benefit
driven country?
The location of the underlying company’s assets
The location of the underlying company’s revenue
The location of the underlying company’s headquarters

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The primary location of trading of the VIE’s shares or depositary
receipts

9. Would it matter if a VIE were assigned a nationality in adifferent time zone to the primary location of trading?

Preference Shares
Preference shares give holders preference to dividend payments overholders of ordinary shares but usually with decreased or no votingrights.

10. Should preference shares be eligible for inclusion in FTSE
Russell global indices?
 Always Only when they are clearly not fixed income instruments
 Only for certain countries where their use is prevalent (e.g.
Sweden) Never

Certificates and Savings Shares
Certain countries issue other equity-like securities with different, orno, voting rights and different dividend entitlements.

11. Which of the following should be eligible for inclusion in FTSE
Russell global indicesParticipation certificates (e.g. Austria, France, Switzerland)
Investment certificates (e.g. France)
Savings shares (e.g. Italy)
Limited or non-voting shares (e.g. Norway, Sweden)

Company Eligibility
12. Which company structures should ordinarily be considered
eligible for FTSE Russell Global Indices?





Limited Partnerships
Limited Liability Partnerships
Master Limited Partnerships
Limited Liability Companies
Investment Trusts

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13. Where you think a company structure should be included onlyin certain countries, please specify which countries

Minimum Governance Requirements Longer term considerations
14. Should FTSE Russell create versions of its global indices that
only include securities with some minimum share of the totalcompany voting rights?
••
•

NoYes
If so, what percentage?

15. Should FTSE Russell create versions of its global indices that
only include companies in which the aggregate voting rights
available to non-restricted investors exceeds some minimumthreshold?
••
•

NoYes
If so, what percentage?

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7About FTSE Russell
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