Consultation on a proposal to create
Gl b l Broad
GlobalB
d & MiMicrocap IIndicesdiMayy 2010Background and Design Highlights
 The evolution of the international investment management process has led investors
to seek exposure to a deeper opportunity set,
set with ability to focus on specific size andstyle segments. In order to meet this need, MSCI designed the Global Investable
Market Indices (GIMI), which cover approximately 98% of the Equity Universe.

 While most global investors recognize the MSCI Investable Market Indices (IMI) as arepresentationpof their opportunitypp
y set,, some investors requireqa much broader
exposure that includes less investable micro caps. Therefore, MSCI Barra isconducting this consultation to seek investors’ feedback on the need for and design of
MSCI Global Broad Market Indices that would: Increase market coverage to 99.8% of the Developed Markets Equity Universe
 Contain a Micro Cap Segment in addition to the existing IMI Segments (Large

Cap, Mid Cap and Small Cap) An MSCI Global Broad Market Index may potentially be launched in Q4 of 2010
 NOTE: MSCI may or may not adopt the proposal described in this consultation
 Any decision will be announced in advance of any implementation© 2010. All rights reserved.

2

The Broad Market Index and Micro Cap Segment
Construction
 An MSCI Global Broad Market Index would encompass all constituents of the GIMI
as well as smaller securities which would be allocated to the Micro Cap Segment.
TheTh bottom
b tt
off theth Global
Gl b l Broad
B d Market
M k t Index
I d andd MicroMiCap
C SegmentSt would
ld beb
derived using a universal screening criteria, while the top of the Micro Cap Index
would depend on the IMI (Small Cap) Market Size Segment Cutoffs in eachmarket.

 As smaller securities tend to be characterized by lower trading volumes, the Micro
Cap Segment inclusion criteria would have less stringent liquidity requirements
than the GIMI segments. At the initial construction in order to be eligible forinclusion in the Micro Cap Segments, companies would have to meet the following
minimumi irequirements:it

Size: company market capitalization must exceed a Universal Micro Cap Minimum Size Requirement(currently USD 34 million, if indexed to the 99.8th percentile of the Developed Markets universe, or USD
60 million if index to the 99.6th percentile)Free float: security free float must be above or equal15%Liquidity: security 12- month ATVR must be above or equal 5%Length of trading: IPOs must pass a 3-month seasoning period at Semi-Annual Reviews© 2010. All rights reserved.

3

The Broad Market Index and Micro Cap Segment
Construction (cont(cont’d)d) Additionally in order to be eligible for inclusion in the Micro Cap Segment,
companies would have to meet the following conditions:

Index membership: the company must not be part of any GIMI size-segments



Size: the company’s market capitalization must not exceed the top of the Micro Cap Upper Buffer(currently called the Small Cap Entry Buffer Zone)

 Such index design would result in no overlap or gap between the Micro Cap Size
Segment and current GIMI Size Segments.

 In
I addition,
dditi
the
th proposedd methodology
th d loff theth MicroMi
Cap
C S
Segmentt would
ld nottaffect the definition of the Market Investable Universe and therefore thecomposition of the GIMI.

© 2010. All rights reserved.

4

Potential MSCI Global Broad Market Index
Composition
Potential Compositionpof an MSCI Global Broad Market Index and MSCI Micro Cap
p Index
Standard
Number of ConstituentsFree float‐adjusted MC% of Equity Universe
Size‐Segment Cutoff
Small Cap
Number of ConstituentsFree float
float‐adjusted
adjusted MC% of Equity Universe
Size‐Segment Cutoff
IMI
Number of ConstituentsFree float‐adjusted MC% of Equity Universe
Size‐Segment Cutoff
Micro Cap
Number of ConstituentsFree float‐adjusted MC% of Equity Universe
Size‐Segment Cutoff
Broad Index
Number of ConstituentsFree float‐adjusted MC% of Equity Universe
Size‐Segment Cutoff

US

CanadaUnited Kingdom

FranceGermanyJapan

Singapore

Hong Kong

Australia

New Zealand

MSCI Europe MSCI World ex US

MSCI World

602
10,255,117
84.51%
3,251

96
1,027,267
84.9%
2,246

104
2,168,241
87.1%
3,305

76
1,143,983
91.9%
3,305

50
845,668
89.1%
3,305

346
2,105,321
82.6%
1,723

28
136,857
73.6%
2,082

40
240,256
79.3%
2,089

73
872,144
83.4%
2,564

5
11,487
47.3%
1,841

463
6,902,525
86.9%
3,305

1,051
11,295,857
85.2%

1,653
21,550,974
84.9%

1,939
1,617,5871
617 587
13.33%
149

198
132,347
132
347
10.9%
211

279
268,605
268
605
10.8%
145

103
65,339
65
339
5.2%
145

117
74,685
74
685
7.9%
145

824
339,068
339
068
13.3%
202

68
28,998
28
998
15.6%
216

95
30,112
30
112
9.9%
151

167
111,647
111
647
10.7%
222

18
7,669
7
669
31.6%
167

1,091
786,086
786
086
9.9%
145

2,461
1,435,9261
435 926
10.8%

4,400
3,053,5143
053 514
12.0%

2,541
11,872,704
97.84%
149

294
1,159,614
95.86%
211

383
2,436,846
97.89%
145

179
1,209,322
97.12%
145

167
920,353
96.96%
145

1,170
2,444,389
95.91%
20296
165,855
89.15%
216

135
270,368
89.29%
151

240
983,791
94.08%
222

23
19,15578.96%
167

1,554
7,688,611
96.85%
145

3,512
12,731,783
96.05%

6,053
24,604,488
96.90%

970
71,291
0.59%
34

305
28,1422.3%
34

232
16,411
0.7%
34

117
6,078
0.5%
34

164
7,196
0.8%
34

,
1,320
70,867
2.8%
34

175
9,695
5.2%
34

321
13,2474.4%
34352
28,777
2.8%
34

16
1,392
5.7%
34

980
52,105
0.7%
34

3,469
,
204,226
1.5%

4,439
,
275,516
1.1%

3,511
11,943,995
98.42%
34599
1,187,756
98.19%
34615
2,453,257
98.55%
34

296
1,215,400
97.61%
34

331
927,549
97.72%
34

2,490
2,515,256
98.69%
34

271
175,551
94.37%
34456
283,61593.67%
34592
1,012,568
96.83%
34

39
20,54784.69%
34

2,534
7,740,717
97.50%
34

6,981
12,936,009
97.59%

10,492
24,880,004
97.99%

Data as of October 22
22, 2009© 2010. All rights reserved.

5

Discussion Points
 Potential designgWhat is the appropriate depth of coverage and company minimum size? Is 99.8% too
deep (USD 34 million)? Is 99.6% preferable (USD 60 million)?



How relevant are ppotential liquidityqy screenings
g for the micro-cap
p segment?
gIs 12-month ATVR of 5% an appropriate measure for new constituents?

Should existing Micro Cap constituents also be screened on liquidity?

 Potential scope of a Global Broad Market IndexCurrently only the Developed Market micro cap universe is being considered. In the
future Emerging Market Micro Caps may be considered. What should be the ultimate
scope of a Global Broad Market Index?

If the concept of “Broad Market” encompasses both investable and non-investablesegments, wouldn't it be logical to also include Frontier Markets?

© 2010. All rights reserved.

6

Appendix© 2010. All rights reserved.

7

MSCI Global Broad Indices Potential Design


The GIMI provide a complete and consistent family with Large Cap, Mid Cap and Small Cap
Segments covering approximately 98% of the Equity Universe. In order to achieve an even deeper
coverage a potential Micro Cap Segment for Developed Markets would in combination with thecoverage,current ACWI IMI constitute the MSCI Global Broad Market Index.

Large Cap

98%

GIMI

99%
99.8%

Mid Cap

100%

Small Cap
-Target-Cutoff

Investable nottargeted

Not investable

Micro
Cap

-Cutoff
CutoffBeyond Micro

Represents securities excluded due liquidity and free
float-adjusted market capitalization screens© 2010. All rights reserved.

8

A GIMI Refresher: the Investable Universe and theInvestable Market Index (IMI) The GIMI framework provides exhaustive coverage of the investable opportunity
set with a strong emphasis on investability and replicability. The GIMI are
constructed on the basis of a Market Investable Equity Universe, which isderived by applying investability screens to individual companies and securities
in the Equity Universe. More specifically the securities are screened on thefollowing criteria:

Size: a full company market capitalization must exceed the minimum cutoff corresponding to 99th
percentile of the Developed Markets Equity Universe

Free float: securities with free float of less than 15% and/or free float
float-adjusted
adjusted market capitalization
below the ½ of the minimum cutoff for the full company market capitalization are typically excluded

Liquidity: securities with the Average Traded Value Ratio (ATVR) of below 20% and frequency of
trading below 90% are excluded

LengthL
th off ttrading:di
S ll CSmall
Cap IPO
IPOs with
ith tradingt di history
hi t
off lesslthanth 3-month3
th are excluded
l d d att S
Semii
Annual Index Reviews

 In each market the Investable Market Index (IMI) targets the top 98% of theEquity Universe.

© 2010. All rights reserved.

9

Global Broad Market Indices Maintenance

Newly eligible securities may enter the Micro Cap Size Segment only at the time of SemiAnnualAl Index
I d Reviews.
R iIn
I orderd tot beb eligibleli ibl securities
iti would
ld needd tot satisfy
ti f theth newlyl reassessed Universal Micro Cap Minimum Size Requirement and meet all the other criteria
used for the initial construction (see pp. 3 and 4).


The Universal Micro Cap Minimum Size Requirement would be re-assessed as follows: the fullcompany market capitalization of the company with the same rank as at the previous Semi-Annual
Semi Annual
Index Review would be used, as long as the cumulative coverage of the free float adjusted market
capitalization of companies below this rank falls between the 99.7th and the 99.8th percentiles. If thatis not the case, the rank of the company defining the Minimum Size Requirement would be adjusted
up or down in order for the coverage not to remain short of 99.7% or to exceed 99.8%.

Existing micro cap constituents may only exit the index at the time of Semi-Annual
Semi Annual Index
Reviews or as a result of a corporate event. At a Semi-Annual Index Review, an existing
micro-cap constituent will remain in the index unless:

It becomes a constituent of the Investable Market Index

Its full market capitalization exceeds the top of the Micro Cap Upper Buffer (currently called the Small
Cap Entry Buffer Zone)

Its full company market capitalization falls below USD 10 million or the cut-off corresponding to the99.95% percentile, whichever is lower© 2010. All rights reserved.

10

Global Broad Market Indices Maintenance (cont’d) Migrations between the Micro Cap and the Small Cap Segments would bepossible only at the time of Semi-Annual Index Reviews. As reminder, currently
Small Cap constituents are not deleted from the IMI at the time of the Quarterly
Index Reviews due to small size. In order to increase index stability and reduceturnover, buffer zones would apply for potential migrations between the MicroCap and the Small Cap Size Segments.

 Ongoing index maintenance methodology intra regular index reviews (i.e.,reflection of corporate events) for the Micro Cap Segment would generally mirror
the methodology for the existing GIMI Size Segments
Segments.

© 2010. All rights reserved.

11

Broad Index Composition & Coverage Scenarios
MSCI Global Broad Market Index Composition Under Various Coverage Scenarios (includes 5% ATVR screening)US

99.8% coverage base scenario
Number of constituents Micro
Number of constituents Broad
Free float‐adjusted MC Micro
Free float‐adjusted MC Broad
Size‐Segment Cutoff
Alternatives
99.7% coverage scenario
Change in number of constituents
Change in # of Micro Cap,Cap %Change in Ind mc in Micro Cap, %Size‐Segment Cutoff
99.6% coverage scenario
Change in number of constituents
Change in # of Micro Cap, %Change in Ind mc in Micro Cap, %Size‐Segment Cutoff
99 5% coverage scenario
99.5%
iChange in number of constituents
Change in # of Micro Cap, %Change in Ind mc in Micro Cap, %Size‐Segment CutoffCanada United Kingdom

FranceGermanyJapan

Australia

MSCI Europe

MSCI World

970
3,511
71,291
11,943,995
34

305
599
28,142
1,187,756
34

232
615
16,411
2,453,257
34

117
296
6,078
1,215,400
34

164
331
7,196
927,549
34

11,320320
2,490
70,8672,515,256
34

352
592
28,777
1,012,568
34

980
2,534
52,1057,740,717
34

44,439439
10,492
275,516
24,880,004‐(139)‐14.3%
14 3%
‐6.1%
47

(41)
‐13.4%
13 4%
‐4.5%
47

(46)
‐19.8%
19 8%
‐8.6%
47

(19)
‐16.2%
16 2%
‐8.3%
47

(44)
‐26.8%
26 8%‐14.8%
47(225)‐17.0%
17 0%
‐5.9%
47

(65)
‐18.5%
18 5%
‐7.0%
47

(186)
‐19.0%
19 0%
‐8.9%
47

(742)
‐16.7%
16 7%
‐6.7%
47

(277)
‐28.6%‐13.8%
60(76)‐24.9%
‐9.4%
60

(74)
‐31.9%‐15.6%
60(34)‐29.1%‐16.7%
60(67)‐40.9%‐24.5%
60(388)‐29.4%‐12.0%
60(102)‐29.0%‐11.9%
60(317)‐32.3%‐17.0%
60(1,320)‐29.7%‐13.6%
60(371)‐38.2%‐20.4%
74(113)‐37.0%‐16.4%
74(108)‐46.6%‐26.0%
74(49)‐41.9%‐24.6%
74(94)‐57.3%‐38.3%
74(537)‐40.7%‐19.1%
74(136)‐38.6%‐17.4%
74(441)‐45.0%‐26.3%
74(1,835)‐41.3%‐21.1%
74

Germany is the most sensitive country to the increase of the Universal Micro Cap Cutoff.

© 2010. All rights reserved.

12

Broad Index Composition & Liquidity Scenarios
MSCI Global Broad Market Index Composition Under Various Liquidity Cutoff Scenarios (99.8% coverage cutoff is used)US

No liquidity screen scenario
Number of constituents Micro
Number of constituents Broad
Free float‐adjusted MC Micro
Free float‐adjusted MC Broad
Size‐Segment Cutoff
Alternatives
ATVR ‐ 2.5% scenario
Change in number of constituents
Change in # of Micro Cap,Cap %Change in Ind mc in Micro Cap, %Size‐Segment Cutoff
ATVR ‐ 5% scenario (currently proposed)
Change in number of constituents
Change in # of Micro Cap, %Change in Ind mc in Micro Cap, %Size‐Segment Cutoff
ATVR ‐ 10% scenario
Change in number of constituents
Change in # of Micro Cap, %Change in Ind mc in Micro Cap, %Size‐Segment Cutoff

Canada United Kingdom

FranceGermanyJapan

Australia

MSCI Europe

MSCI World

1,071
3,612
75,086
11,947,791
34

368
662
31,524
1,191,138
34

385
768
25,4942,462,339
34

261
440
10,5591,219,881
34

293
460
10,082
930,435
34

1,513
2,683
78,2182,522,606
34

446
686
32,406
1,016,197
34

1,675
3,229
77,6487,766,259
34

5,744
11,797324,31024,928,798
‐

(25)
‐2.3%
2 3%
‐1.2%
34

(41)
‐11.1%
11 1%
‐6.1%
34

(83)
‐21.6%
21 6%‐17.8%
34(119)‐45.6%
45 6%‐34.4%
34(105)‐35.8%
35 8%‐19.9%
34

(71)
‐4.7%
4 7%
‐2.8%
34

(58)
‐13.0%
13 0%
‐6.7%
34

(490)
‐29.3%
29 3%‐20.5%
34(765)‐13.3%
13 3%
‐7.8%
34

(101)
‐9.4%
‐5.1%
34

(63)
‐17.1%‐10.7%
34(153)‐39.7%‐35.6%
34(144)‐55.2%‐42.4%
34(129)‐44.0%‐28.6%
34(193)‐12.8%
‐9.4%
34

(94)
‐21.1%‐11.2%
34(695)‐41.5%‐32.9%
34(1,305)‐22.7%‐15.0%
34(280)‐26.1%‐17.0%
34(106)‐28.8%‐19.3%
34(220)‐57.1%‐52.2%
34(181)‐69.3%‐56.6%
34(157)‐53.6%‐36.9%
34(374)‐24.7%‐17.1%
34(153)‐34.3%‐23.8%
34(927)‐55.3%‐47.4%
34(2,079)‐36.2%‐26.2%
34

Europe has the highest sensitivity to the increase in the liquidity thresholds for the potential
Micro Cap securities.



US and Japan would experience the lowest impact of the increase in stringency of theliquidityqy requirements.
q© 2010. All rights reserved.

13

© 2010. All rights reserved.
2/1/20110

12/1/20009

10/1/20009‐

8/1/200
09‐
6/1/200
0950

4/1/200
09

100

50

2/1/200
09

150

100

12/1/20008150

10/1/20008

200

8/1/200
08

250

200

6/1/200
08

USA IMI Hist Cutoff

4/1/200
08300

2/1/200
08250

12/1/200
07

350

300

10/1/200
07

400

350

7/31/20007

400

5/31/20007

2/1/20110

12/1/20009

10/1/20009

8/1/200
09

6/1/200
09

4/1/200
09

2/1/200
09

12/1/20008

10/1/20008

8/1/20008

6/1/200
08

4/1/200
08

2/1/20008

12/1/20007

10/1/20007

7/31/20007

5/31/20007

IMI Historical Cutoff for US and Europe

Europe IMI Hist Cutoff

14

MSCI Barra 24 Hour Global Client Service

Americas

Europe, Middle East & Africa

Asia Pacific

Americas1.888.588.4567 (toll free)

Amsterdam+31.20.462.1382

China North

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clientservice@mscibarra.com
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pp
Barra Knowledge© 2010. All rights reserved.
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