Russell/Nomura Japan Equity Indexes

Global Markets Research
29 March 2024

EQUITY: INDEX SERVICES DEPARTMENT

Index rulebook
Russell/Nomura Japan Equity Indexes have the following characteristics• They are share price indexes that are weighted by free float-adjusted market cap and
•
•
•
•
•
•

cover the top 98% of all stocks listed on all markets in terms of free float-adjusted
market cap, thereby offering broad market coverage
Stocks are chosen from the entire Japanese stock market
Because the indexes take into consideration the stable shareholding ratio, they reflect
the stocks that are actually available for investment
There are style indexes for large and small companies and for value and growthstocksThe Prime Index consists of the top 1,000 stocks in the Total Market Index by free
float-adjusted market cap
Stocks are selected quantitatively based on clearly defined criteria
Each index is reconstituted once a year

Research Analysts
Japan index products
Index Services Department - NFRC
idx_mgr@nfrc.co.jp

Nomura | Russell/Nomura Japan Equity Indexes

29 March 2024

Contents
1 Introduction
2 Russell/Nomura Japan Equity Indexes
3 Periodic reconstitutions
3.1 Periodic reconstitution date
3.2 Periodic reconstitution base date
3.3 Announcement of periodic reconstitutions
3.4 Universe
4 Indicators used in the selection of stocks
4.1 Stable shareholding ratio
4.2 Adjusted P/B
5 Stock selection method
5.1 Overall index: selection of stocks for the Total Market Index
5.2 Selection of stocks for size-based indexes
5.3 Investable index: selection of stocks for the Prime Index
5.4 Selection of stocks for investment style indexes
6 Unscheduled reconstitutions
6.1 Newly listed stocks[26]6.2 Response to stock swaps, stock transfers, mergers, etc
6.3 Removal of stocks
7 Index calculation
7.1 Index calculation method
7.2 Adjusting the base market cap
7.3 Execution and announcement of stable shareholding ratio adjustments outside periodic reconstitutions
Appendix 1: Indexes at a glance
Appendix 2: Main changes/additions to rules
Appendix 3: Previous index rules
Previous calculation methods for stable shareholdings
Previous calculation methods for adjusted P/B
Data services
For further information on the indexes
Disclaimer
Policies with regard to NFRC’s indices

3
4
5
5
5
5
5
7
7
7
10
10
10
11
11
13
13
13
14
16
16
21
22
23
24
25
25
26
33
34
35
36

2

Nomura | Russell/Nomura Japan Equity Indexes

29 March 2024

1 Introduction
The Russell/Nomura Japan Equity Indexes are Japanese equity indexes developed jointly by Nomura Fiduciary
Research & Consulting Co., Ltd. (“NFRC”)[1] and Frank Russell Company (“Russell”).
NFRC is the benchmark administrator. The Indexes are calculated by Nomura Research Institute, Ltd. (“NRI”) anddistributed by NRI and by or on behalf of Russell or its affiliate, agent, or partner[2] .
NFRC is responsible for the daily calculation, production, and operation of the Russell/Nomura Japan Equity indexes
and will:• maintain records of the index weightings of all constituents;• make changes to the constituents and index inclusion ratio for stocks in accordance with the index rules;• carry out the periodic index reviews of the index series together with Russell and apply the changes resulting fromthe reviews following the rules; and• publish changes to the constituent weightings resulting from their ongoing maintenance and the periodic reviews

Russell/Nomura Japan Equity Indexes should be useful in:
•
•
•
•
•
•

determining investment strategies (strategic asset allocation)
determining manager structuresdesignating as benchmarks
supporting portfolio management activities
evaluating the performance of various investment styles
managing risk

The main characteristics of the Russell/Nomura Japan Equity Indexes are as follows:• They are share price indexes that are weighted by free float-adjusted market cap and cover the top 98% of all
stocks listed on all markets in terms of cumulative free float-adjusted market cap, thereby offering broad market
coverage• Stocks are chosen from the entire Japanese stock market[3]• Because the indexes take into consideration the stable shareholding ratio, they reflect the stocks that are actuallyavailable for investment• There are style indexes for large and small companies and for value and growth stocks• The Prime Index consists of the top 1,000 stocks in the Total Market Index by free float-adjusted market cap• Stocks are selected quantitatively based on clearly defined criteria• Each index is reconstituted once a year
1.
2.
3.

NFRC took over the index business of Nomura Securities Co., Ltd., effective 1 February 2023.
Only indexes described in 7.1.5 Calculation of net, hedged, and net hedged return index values are calculated byor on behalf of Russell or its affiliate, agent or partner.
Tokyo Stock Exchange (Prime Market, Standard Market, Growth Market, TOKYO PRO Market), Nagoya Stock
Exchange, Sapporo Securities Exchange, and Fukuoka Stock Exchange

3Nomura | Russell/Nomura Japan Equity Indexes

29 March 2024

2 Russell/Nomura Japan Equity Indexes
The Russell/Nomura Japan Equity Indexes cover the top 98% of stocks listed on all markets in terms of free floatadjusted market cap. Size-based and investment style indexes are also published as subindexes. Stocks are classified
into the size-based indexes on the basis of their free float-adjusted market cap, and between value and growthinvestment style indexes on the basis of their adjusted Price Book-value Ratios.
Fig. 1: Russell/Nomura Japan Equity Indexes

Source: NFRC

• The Russell/Nomura Total Market Index contains the top 98% of all stocks listed on Japanese stock exchanges interms of free float-adjusted market cap• The Russell/Nomura Prime Index contains the top 1,000 stocks in the Total Market Index in terms of free floatadjusted market cap, taking into account “banding” and the “negative list”[4]• Index compositions are based on the cumulative free float-adjusted market cap of the top-ranking constituent stocks
in the Russell/Nomura Total Market Index in terms of free float-adjusted market cap
The Russell/Nomura Large Cap Index contains the top 85%
The Russell/Nomura Small Cap Index contains the bottom 15%
The Russell/Nomura Top Cap Index contains the top 50%
The Russell/Nomura Mid-Small Cap Index contains the bottom 50%
The Russell/Nomura Micro Cap Index contains the bottom 5%• The Russell/Nomura Small Cap Core Index comprises stocks in the Small Cap Index, excluding the Micro Cap
Index• The Russell/Nomura Mid Cap Index contains the stocks in the Mid-Small Cap Index excluding those in the Small
Cap Index
4.

See 5.3 Investable index: selection of stocks for the Prime Index for details of banding and the negative list.

4Nomura | Russell/Nomura Japan Equity Indexes

29 March 2024

3 Periodic reconstitutions
3.1 Periodic reconstitution date
The periodic reconstitution date is 20 November each year (or the following business day if this is a non-business day),and the reconstitution is carried out after the close of trading on the business day preceding the periodic reconstitution
date. Periodic reconstitutions were previously carried out as follows:
Up to January 2001:

First business day in January

February 2002:

First business day in February

December 2002–December 2015:

First business day in December

3.2 Periodic reconstitution base date
The periodic reconstitution base date is 15 October each year (or the preceding business day if this is a non-businessday)[5] . Component stocks are determined based on data as of the reconstitution base date.

3.3 Announcement of periodic reconstitutions
As a general rule, an announcement will appear on our website on the first business day in November at around 16:00(Japan time), except in cases of unforeseen circumstances or when information cannot be confirmed.
NFRC Website: http://qr.nomuraholdings.com/en/frcnri/index.html

3.4 Universe
As a general rule, all stocks listed on all markets[6] at the end of March of the year in question, plus large capequivalent stocks that have been newly listed since the beginning of April or stocks that have carried out stock transfers,
are eligible for inclusion in the universe, with the following exceptions at the time of the periodic reconstitution.
• Equities other than common stock
As a general rule, only common stock is included in the universe. However, exceptions to this rule will be made if
necessary.
• Stocks assigned for delisting
Stocks assigned for delisting are not included in the universe.
• Stocks under supervision (examination) and stocks under supervision (confirmation)
Stocks under supervision (examination) and stocks under supervision (confirmation) , which is not the index
constituent immediately prior to periodic reconstitutions are not included in the universe.
5.

6.

Effective from December 2007 periodic reconstitution. Up to and including the periodic reconstitution of December
2006, selections were made based on data as of the last business day of the month preceding the periodic
reconstitution.
JASDAQ stocks have been included in periodic reconstitutions since January 1989 and stocks listed only on
provincial exchanges have been included in periodic reconstitutions since January 1991. Prior to that, only stocks
listed on the Tokyo Stock Exchange (TSE), Osaka Securities Exchange (OSE), or Nagoya Stock Exchange (NSE)
as at the end of November were eligible for inclusion in the universe for the following year.

5Nomura | Russell/Nomura Japan Equity Indexes

29 March 2024

• TOB target companies[7]Stocks that are the targets of tender offers may be removed from the universe of stock selection only if all of thefollowing requirements are met:
(1) The tender offer has been completed or is due to be completed by the periodic reconstitution date.
(2) The bidder plans to acquire all the outstanding shares in the target company; and(3) The bidder is planning to acquire all of the stock of the target company in exchange either for money or its own
stock, and the target company agrees to the offer.
• Listed investment trusts and REITs• Foreign stocks
Stocks listed on foreign sections of Japanese exchanges or stocks regarded as overseas companies are excluded,
even if these stocks are traded in the Japanese market.
• Other exceptions
Latent stock, warrants, and rights on them are excluded. The Bank of Japan is also excluded.

7.

Effective from December 2010 periodic reconstitution.

6

Nomura | Russell/Nomura Japan Equity Indexes

29 March 2024

4 Indicators used in the selection of stocks
Stocks for the Russell/Nomura Japan Equity Indexes are selected according to free float-adjusted market cap after
adjustment to reflect the stable shareholding. Indexes are reconstituted after determining size on the basis of free floatadjusted market cap and value/growth on the basis of adjusted P/B.

4.1 Stable shareholding ratio
The indexes take into consideration the stable shareholding ratio in order to exclude stocks that are not traded in themarket because they are held as cross-shareholdings or stable shareholdings.
The stable shareholding ratio, expressed as a two-year moving average[8] , is calculated by dividing stableshareholdings, as defined in the next section, by the number of shares outstanding. With the exception of adjustments
outside of periodic reconstitutions, stable shareholdings are adjusted at each periodic reconstitution (for more
information, see 7.3. Execution and announcement of stable shareholding ratio adjustments outside regularreconstitutions).
4.1.1 Estimation for stable shareholdings[9]Stable shareholdings are calculated using the latest data available as of the periodic reconstitution base date, from thefollowing sources[10] :(1) Toyo Keizai’s major shareholder data
(2) List of securities held in an annual securities report(if data overlaps, priority is given to Toyo Keizai’s major shareholder data)
Stable shareholdings = (1) number of shares held by major shareholders+ (2) number of shares held in an annual securities report (excluding those in (1))
Stable shareholdings exclude shares thought to be held purely for investment purposes[11] . Classifications in the
declarations of marketable securities holdings for current asset and fixed assets (deemed long-term holding) are nottaken into consideration.

4.2 Adjusted P/B[12]Adjusted P/B is used to classify stocks into value and growth indexes. In Japan, the book value (BV) recorded on thebalance sheet is not necessarily the market value. In order to classify value and growth properly, the shareholders'equity figures used should ideally reflect companies' actual value. Therefore, the difference between market value and
BV is reduced as much as possible by calculating an estimated market value adjusted for unrealized gains or losses onmarketable securities and unrecognized retirement benefit obligations for the period between the reporting date of theearnings report and the periodic reconstitution base date[13] .

Adjusted P/B = (price × number of shares outstanding)/ (shareholders′ equity (BV) + marketable securities unrealized gains/losses － unrecognized pension liabilities)
8.
9.
10.
11.

12.
13.

Fixed annual figures used, without taking moving averages, for periodic reconstitutions in January 1997 and earlier
and three-year moving averages used for periodic reconstitutions from January 1998 to December 2003.
Revisions have been made to the estimation method for stable shareholdings in accordance with changes toaccounting systems. See Appendix 2 for more on past estimation method.
In some cases, public information such as company prospectuses and stock exchange releases is referenced.
Those held by domestic life insurers, among those held by domestic trust banks, those where the method ofinvestment can be determined (e.g., pension funds, investment trusts), as well as those held by foreign banks,
venture capital companies, etc.
See Appendix 3 for more on past methods of calculation.
Unrealized gain/loss adjustments are not made to shareholders’ equity when figures are reported in accordancewith IFRS.

7

Nomura | Russell/Nomura Japan Equity Indexes

29 March 2024

4.2.1 Shareholder’s equity at book value
Actual shareholders’ equity[14] from the latest reporting period as of the periodic reconstitution base date is used. Usedata available in the following order by accounting standard : IFRS, J GAAP (Consolidated), US GAAP, J GAAP (nonconsolidated). The shareholders’ equity (BV) figure used in the calculation of adjusted P/B is the actual shareholders’equity figure adjusted for changes in capital structure that have occurred between the most recent fiscal year-end andthe periodic reconstitution base date.
4.2.2 Unrealized gains/losses on marketable securities
Marketable securities are classified as follows:
Fig. 2: Marketable securities classifications and value on the balance sheet

Classification

Value on the balance sheet

Trading securities

Market value

Held-to-maturity securities Amortized cost
Available-for-sale securities Market value (however, book value in FY2000 financial results)[15]
Source: NFRCThe Russell/Nomura Japan Equity Indexes are not adjusted for unrealized gains/losses on trading securities and heldto-maturity securities, in view of the probable purpose for which they are held.
The market value of available-for-sale securities is adjusted for the return on the TOPIX between the end of the fiscal
year and the periodic reconstitution base date. In addition, unrealized gains/losses on marketable securities, after
excluding an amount based on the effective tax rate, are reflected in BV-based shareholders’ equity[16] . The effective
tax rate is reviewed at the time of the periodic reconstitution[17] .

Unrealized gains/losses on marketable securities after excluding an amount based on the effective tax rate
= StockMVFTRM × (TOPIXoct / TOPIXFTRM － 1) × (1 － effective tax rate)

14.
15.
16.
17.

StockMV：market value of available-for-sale securities

TOPIX：the value of the TOPIX

oct：periodic reconstitution base date

FTRM

：the latest fiscal period

Includes half-yearly and quarterly data, but excludes deposit for subscriptions to shares.
Some available-for-sale securities were valued at cost for FY01 financial results, but for the indexes they arevalued at market value.
Since the February 2002 periodic reconstitution, after-tax unrealized gains/losses have been used.
Effective from the November 2016 periodic reconstitution.

8

Nomura | Russell/Nomura Japan Equity Indexes

29 March 2024

4.2.3 Unrecognized pension liabilities[18]Provisions for the unfunded portion of the pension obligation, or the pension obligation minus pension plan assets, arerecognized on the balance sheet as a general rule, but this can be done over time. This unrecognized portion is known
as unrecognized pension liabilities, a potential liability that will have to be accounted for eventually. Recognition of theunfunded portion of the pension obligation varies by company, with some having recorded substantial provisions on
their balance sheets and others having a large amount of unrecognized pension liabilities. To eliminate this discrepancy,
P/B is adjusted for unrecognized pension liabilities.
Specifically, the total amount of the following three unrecognized pension liability items disclosed in securities filings are
deducted, taking into account the effective tax rate, from shareholders’ equity at BV. The effective tax rate is reviewed at
the time of the periodic reconstitution[17] .
• Unrecognized benefit obligation at transition• Actuarial assumption adjustment• Unrecognized prior service costs

18.

Since new pension accounting took effect from fiscal years ending in March 2001, this adjustment was applied
from the February 2002 periodic reconstitution.

9

Nomura | Russell/Nomura Japan Equity Indexes

29 March 2024

5 Stock selection method
The selection of component stocks for the Russell/Nomura Japan Equity Indexes is based on free float-adjusted market
cap after adjustment to reflect the stable shareholding ratio[19] . Reconstitutions are carried out after determining size interms of free float-adjusted market cap and value/growth in terms of adjusted P/B.

5.1 Overall index: selection of stocks for the Total Market Index
The Russell/Nomura Total Market Index, which encompasses all the indexes, whose component stocks are selectedfrom the universe in descending order of free float-adjusted market cap until the total free float-adjusted market cap of
the index exceeds 98% of that of all stocks listed on all markets and the number of stocks reaches a multiple of 100[20] .

5.2 Selection of stocks for size-based indexes
The Russell/Nomura Japan Equity Indexes include size-based indexes that reflect the free float-adjusted market cap ofcomponent stocks. The selection methods for the indexes are as follows:• Large Cap Index
The Russell/Nomura Large Cap Index is built one stock at a time from stocks in the Russell/Nomura Total Market
Index in order of free float-adjusted market cap, starting with the highest, until the total free float-adjusted market
cap of the index is as close as possible to 85% of that of the Russell/Nomura Total Market Index and the number ofstocks in the index is a multiple of 50[21] .
• Small Cap Index
The Russell/Nomura Small Cap Index contains all stocks in the Russell/Nomura Total Market Index that are notincluded in the Large Cap Index. It comprises roughly the bottom 15% of the Total Market Index in terms of free
float-adjusted market cap.
• Top Cap Index
The Russell/Nomura Top Cap Index is built one stock at a time from stocks in the Russell/Nomura Total Market
Index in order of free float-adjusted market cap, starting with the highest, until the total free float-adjusted market
cap of the index is as close as possible to 50% of that of the Russell/Nomura Total Market Index and the number ofstocks in the index is a multiple of 10[22] .
• Mid Cap Index
The Russell/Nomura Mid Cap Index contains all the stocks in the Large Cap Index that are not in the Top Cap
Index. It comprises the band between the top 50% or so and the top 85% or so of the Russell/Nomura Total Market
Index in terms of cumulative free float-adjusted market cap, and thus represents the mid-ranking 35% or so of the
Total Market Index’s free float-adjusted market cap.
• Mid-Small Cap Index
The Russell/Nomura Mid-Small Cap Index is a combination of the Mid Cap Index and the Small Cap Index. It
contains all the stocks in the Total Market Index that are not in the Top Cap Index. It represents the bottom 50% of
the Total Market Index in terms of free float-adjusted market cap.
• Small Cap Core Index
The Russell/Nomura Micro Cap Index contains all stocks in the Small Cap Index that are not included in the Small
Cap Core Index. It represents roughly the bottom 5% of stocks in the Total Market Index in terms of free floatadjusted market cap.
19.
20.

21.

22.

Free float-adjusted market cap adjusted to reflect the stable shareholding ratio is calculated on the basis of thenumber of shares outstanding used for index calculation purposes.
However, up to the February 2002 reconstitution, the number of stocks had to be no fewer than in the previous
year and the total free float-adjusted market cap of the index had to exceed 98% of that of all stocks listed on all
markets.
However, up to the January 2001 reconstitution, the number of stocks had to be both a multiple of 100 and nofewer than in the previous year, and the index had to cover the top 85% of the total free float-adjusted market capof the Total Market Index.
However, up to the January 2001 reconstitution, the number of stocks had to be both a multiple of 10 and no fewer
than in the previous year, and the index had to cover the top 50% of the total free float-adjusted market cap of the
Total Market Index.

10Nomura | Russell/Nomura Japan Equity Indexes

29 March 2024

• Micro Cap Index
The Russell/Nomura Micro Cap Index contains all stocks in the Small Cap Index that are not included in the Small
Cap Core Index. It represents roughly the bottom 5% of stocks in the Total Market Index in terms of free floatadjusted market cap.

5.3 Investable index: selection of stocks for the Prime Index
The Russell/Nomura Prime Index is made up of the top 1,000 stocks in the Total Market Index in terms of free floatadjusted market with consideration of investability, in order to ensure investability. This involves taking into account the“negative list” and “banding,” where the “negative list” takes precedence over “banding”[23] .
(1) Negative list (exclusion of low liquidity stocks)
This rule is meant to restrict the inclusion of stocks with exceptionally low liquidity. Stocks ranked 2,001st or lower interms of average monthly trading value in the year to the periodic reconstitution base date[24] are excluded from thePrime Index.
(2) Banding (900–1,100 rule)This rule is meant to limit the frequent replacement of stocks owing to small changes in market cap. Stocks ranked
900 or higher by free float-adjusted market cap are included in the Prime Index, regardless of whether or not they
were included in the index prior to the reconstitution. Stocks ranked 901 to 1,100 are included in the index only if they
were included in it prior to the reconstitution, until 1,000 stocks have been selected. If 1,000 stocks are not selected
after going through the 1,100 stocks in this way, stocks ranked between 901 and 1,100 that were not included in thePrime Index prior to the reconstitution are selected.

5.4 Selection of stocks for investment style indexes
The Russell/Nomura Japan Equity Indexes also include value and growth indexes that reflect value and growthinvestment styles.
Value indexes are indexes made up of stocks with low adjusted Price Book-value Ratios and growth indexes are thosemade up of stocks with high adjusted Price Book-value Ratios, after determining style probability based on adjusted
P/B.
5.4.1 Style probability
Style probability is the ratio of market cap apportioned to value and growth for each stock. Style probability is calculatedwith a nonlinear probability function, as shown in Figure 2, using adjusted P/B[25] .
The probabilities of stocks at the median are 50% value, 50% growth. The probabilities are 100% value for stocks in thefirst quartile and 100% growth for stocks in the fourth quartile. The probabilities of stocks falling between these (ie, thesecond and third quartiles) have both value and growth probabilities that depend on their Price Book-value Ratios. The
sum of growth and value probabilities must always be 100%.
Except for special cases, style probabilities are adjusted at every periodic reconstitution. For more on adjustments tostyle probabilities outside of periodic reconstitutions, see 6. Unscheduled reconstitutions.
23.
24.
25.

The negative list and banding apply only to the Prime Index.
Refers to the rank in the universe as of the periodic reconstitution.
For details of adjusted P/B, see 4.2 Adjusted P/B.

11

Nomura | Russell/Nomura Japan Equity Indexes

29 March 2024

Fig. 3: Determination of style probability with a nonlinear probability function

Source: NFRC

5.4.2 The 5% rule
For stocks with probabilities of 95% or higher, assume it as 100%. For stocks with probabilities of 5% or lower, assume
it as 0%. The aim of this is to keep down the number of stocks with extremely small market caps in the value andgrowth indexes.
5.4.3 Market cap of value/growth indexes
The market cap of value/growth indexes is weighted according to style probability.
The free float-adjusted market cap of stocks with probabilities of 100% growth or 100% value is placed entirely in thegrowth or value indexes. For a stock with an 80% value probability and a 20% growth probability, like Stock A in Figure
2, 80% of its free float-adjusted market cap is assigned to the value index and the remaining 20% is assigned to thegrowth index.
The free float-adjusted market cap of the Total Market Index is split roughly evenly between its value and growthsubindexes. The free float-adjusted market cap of the group of stocks between the stock with the lowest (or highest)
P/B ratio and the median stock and that of the group of stocks between the first and the third quartile stocks is designed
to be approximately 50% of the Total Market Index’s market cap. The 5% rule described above boosts the number ofstocks with 100% growth or value probabilities, as a result of which the market cap of stocks in the lowest and highest
quartiles is in practice greater than 25%.

12

Nomura | Russell/Nomura Japan Equity Indexes

29 March 2024

6 Unscheduled reconstitutions
Unscheduled reconstitutions are announced on our website as a general rule, about two weeks prior to the event,except in cases of unforeseen circumstances or when information cannot be confirmed.
NFRC website:

http://qr.nomuraholdings.com/QR/FRCNRI/constituents.html

6.1 Newly listed stocks[26]
Stocks that newly listed during the period of the "Newly listing date" corresponding to each "Determination date" in the
figure below and that are eligible for inclusion in the Large Cap Index are included in the Large Cap Index on the firstbusiness day of the second month following the determination date. For example, if the determination date is the end of
April, stocks that newly listed in Jan-Mar of that year are determined to be appropriate stocks and included in the index
on the first business day of June, which is the inclusion date.
What is meant here by "eligible for inclusion in the Large Cap Index" is that the free float-adjusted market cap of therelevant stocks is above the minimum free float-adjusted market cap, as of the determination date, for the group of
stocks arrived at by applying the method for selecting constituents of the Large Cap Index set out in "5.2 Selection ofstocks for size-based indexes".
Taking the same approach to the Top Cap Index, newly included stocks are included in the Top Cap Index if they are
eligible, or are otherwise included in the Mid Cap Index.
The method for determining the style probability of newly included stocks is to assign 100% value probability if adjusted
P/B is in the lowest quartile of total market cap, 100% growth probability if it is in the highest quartile, and 50% value
and 50% growth if it is in either of the middle quartiles.
The style probabilities of other stocks are not changed.
Fig. 4: Determination date and inclusion date for newly listed stocks

Newly listing date

Determination date Inclusion dateJan.–Mar.

End of April

First business day in June

Apr.–Jun.

End of July

First business day in September

Jul.–Sep.

Reflected at the regular reconfigurations

Oct.–Dec.

End of JanuaryFirst business day in March

Source: NFRC

6.2 Response to stock swaps, stock transfers, mergers, etc[27]Changes to stocks in the indexes are made to take into consideration the situation following each cause of action on acase-by-case basis. The objective is to avoid temporary exclusions and thus maintain the consistency of the stocks
included in the index.
26.
27.

Applied to stocks included in the indexes since June 2002.
Applied to capital changes since April 2002.

13

Nomura | Russell/Nomura Japan Equity Indexes

29 March 2024

6.2.1 Stock swaps, absorption-type mergers
When a stock is delisted because it is about to become a wholly owned subsidiary or be merged into another company,
it may be included in the index after its delisting but must be removed from the index on the day of the listing change.
Following its delisting, and until the business day prior to the listing change, the merged company's valuation is basedon the market value of the company that will become the parent company or the surviving company multiplied by theexchange or merger ratio. Based on the merger ratio, the stable shareholding ratios of the surviving parent company
and the merged company are changed. Also the surviving parent company’s style probability is changed to reflect
merger ratio and moves to the highest-ranked size based index on the day of the listing change to which the companies
involved in the capital movement previously belonged.
In the case of stock swaps and mergers taking place during the period from the first business day of October through tothe periodic reconstitution date, the aforementioned 5% rule (see 5.4.2 The 5% rule) does not apply in the calculation of
the style probability.
[28] .

6.2.2 Stock transfers, consolidation-type mergers
When an unlisted parent company assumes the operations of another company and becomes listed after a short periodof time, the stock of the wholly owned subsidiary is removed from the index on the date of the parent company's listing.
The merged company's valuation is based on the price on the day before its delisting. On the date of the listing, thestock of the parent company is included in the highest-ranked size-based index to which the delisted subsidiarypreviously belonged. However, if it has been confirmed that the stock of the parent company will not be included in theindex following a periodic reconstitution, the stock of the subsidiary will be excluded from the index on the date of itsdelisting.
The stable shareholding ratios and the style probability of newly added stock of an assuming parent company isdetermined in light of the allocation ratio or the merger ratio of the subsidiary. However, in the case of stock transfers,
etc, taking place during the period from the first business day of October through to the periodic reconstitution date, theaforementioned 5% rule (see 5.4.2 The 5% rule) does not apply in the calculation of the style probability[28] .

6.3 Removal of stocks
6.3.1 Designation as securities to be delisted[29]Stocks designated as securities to be delisted will be removed from indexes four business days after the move (onebusiness day later if the day for the security to be assigned falls on a holiday). However, stocks that are listed on morethan one market and continue to be traded on any one of the markets will not be removed.
6.3.2 Delisting
Stocks delisted for any of the reasons other than those noted in 6.2 Response to stock swaps, stock transfers, mergers,
etc are removed from indexes on the date of the delisting.
28.
29.

Effective from October 2007.
Effective from 21 April 2010. Prior to 28 December 2001, stocks assigned for delisting were removed on the dateof the move; between 29 December 2001 and 23 August 2009, stocks assigned for delisting were removed on thesecond business day following the move; between 24 August 2009 and 20 April 2010, stocks assigned for delisting
were removed on the third business day following the move.

14

Nomura | Russell/Nomura Japan Equity Indexes

29 March 2024

6.3.3 Marked loss of eligibility for inclusion in universe
In the case of an event that significantly damages a component stock's eligibility in line with the criteria described in 3.4
Universe, the stock may be removed from the index following an official announcement by the company in question, thestock exchange, or a government/regulatory agency. However, after the stock has been removed from the index, if thereason for its exclusion has been withdrawn, as of the periodic reconstitution base date, it will no longer be regarded as
ineligible for inclusion in the universe[17] .
6.3.4 Exclusions between regular reconstitutions for Prime Index stocks[30]This rule allows stocks to be removed early if the likelihood of removal at the next periodic reconstitution is increasing
owing to a sharp decline in market cap.
The stocks accounting for the top 99.9% of cumulative free float-adjusted market cap are selected from Total Market
Index on the determination date. If a Prime Index’s component stock is not included in this group, it will be removed
from the Prime Index (also from the Prime Value Index, Prime Growth Index, and Prime sector indexes in the samemanner) on the first business day of the second subsequent month.
However, it will not be removed from other Russell/Nomura Japan Equity Indexes or their subindexes.
Fig. 5: Prime Index removal determination date and removal date

Determination date

Removal date

End-AprilFirst business day of June

End-JulyFirst business day of September

End-JanuaryFirst business day of March

Source: NFRC

30.

Effective from 1 June 2009 (The determination date was 30 April 2009, the removal date was 1 June 2009).

15

Nomura | Russell/Nomura Japan Equity Indexes

29 March 2024

7 Index calculation
7.1 Index calculation method
Russell/Nomura Japan Equity Indexes are market value weighted stock indexes, in the following manner.
7.1.1 Calculation of market cap
Value inclusion ratio = Value probability × (1 – stable shareholding ratio)
Growth inclusion ratio = Growth probability × (1 – stable shareholding ratio)
Value no. of shares included = No. of shares outstanding for index calculation purposes × Value inclusion ratio
Growth no. of shares included = No. of shares outstanding for index calculation purposes × Growth inclusion ratio
Total no. of shares included = Value no. of shares included + Growth no. of shares included
Value market cap = Nomura composite price × Value no. of shares included
Growth market cap = Nomura composite price × Growth no. of shares included
Total market cap = Value market cap + Growth market cap
Value index market cap = Σ i each stock’s Value market cap
Growth index market cap = Σ i each stock’s Growth market cap
Total index market cap = Σ i each stock’s Total market cap
Where i indicates the i th constituent stock and Σi indicates the sum for all index constituents• Nomura composite price
The Nomura composite price refers to the stock price on the exchange considered to represent the most appropriate
price of the stock, selected based on the number of traded days and volume of contracts in the last 60 trading days. As
a general rule, the exchange is selected on a daily basis. The share price is selected according to the following order ofprecedence:Contract price on selected exchange (see note) > standard price on selected exchange >Nomura composite share price on previous business day
Note: Priority is given to the special quotation price or continuous confirmed quotation price on the selected exchange ifthese are available.
• Number of shares outstanding for index calculation purposes[31]The number of shares outstanding for index calculation purposes is the number of shares outstanding after reflectingchanges in the number of shares, in accordance with section 7.2 below (7.2 Adjusting the base market cap). In thecase of stock splits, reverse stock splits, and changes in face value, the number of shares changes on the ex-rights
day. Government shareholdings are included.
31.

Added to August 2016 rulebook

16

Nomura | Russell/Nomura Japan Equity Indexes

29 March 2024

7.1.2 Calculation of index values
Indexes must be protected from changes in market cap not influenced by market fluctuations, such as changes incapital structure and changes in component stocks. This is done by adjusting the base market cap as follows:• Base market capitalization (excluding dividends)
Base market capitalizationt = index market capitalizationt -1 + adjusted market capt
t is the day in question. t -1 is the preceding business day.
• Base market capitalization (including dividends)
Base market capitalizationt= index market capitalizationt-1 + adjusted market capitalizationt - adjusted total dividendt
t is the day in question. t -1 is the preceding business day.
• Index excluding dividends
Returnt = index market capitalizationt / base market capitalizationt -1
Index valuet = index valuet -1 × (1 + returnt )t is the day in question. t -1 is the preceding business day.

• Index including dividends
Returnt = (index market capitalizationt + total dividendst ) / base market capitalizationt – 1
Index valuet = index valuet -1 × (1 + returnt )t is the day in question. t-1 is the preceding business day.

Adjusted market capitalization refers to the movement of market capitalization due to the change in the capital structureor the change in component stocks. Adjusted total dividends is calculated as the difference between forecast dividends
and actual dividends.
• Method of reflecting dividends
For indexes including dividends, dividend data are reflected on the ex-dividend date. However, on the ex-dividend date,
the amount of the dividend is not yet definite. As such, dividend forecasts announced by companies are used (ifunavailable, Toyo Keizai’s dividend forecasts are used)[32] . The discrepancies between the dividend forecast and theactual dividend will be readjusted on the last business day of the month of the earnings announcement[33] , exceptthat announcements made on the last day of the month are reflected at the end of the following month. In addition,
when a dividend adjustment is necessary, the base market cap is adjusted on the last business day of the month inwhich this became clear (or the last business day of the following month if the day on which this became clear is thelast business day of the month)[31] .
32.
33.

Ex-dividend dates prior to 26 September 2013 are based on Nomura dividend forecasts, and if not available,
Toyo Keizai dividend forecasts.
Applied from end-June 2007. Prior to that, adjustments were made on the first business day of the monthfollowing the announcement of results.

17

Nomura | Russell/Nomura Japan Equity Indexes

29 March 2024

7.1.3 Calculation of US dollar-denominated index values
The US dollar-denominated indexes are calculated based on the yen-denominated indexes and the exchange rate asof the base date for each index[34] , using the following formula. Indexes are calculated for both those including andthose excluding dividends.Calculations use the mid-rate announced by the Bank of Japan (at 17:00).
USD denominated index value＝ Yen−denominated index value × (exchange rate on base date for each index / exchange rate)
7.1.4 Calculation of dividend tax adjusted index values
Dividends are subject to taxation, and index values based on total dividends adjusted for the dividend tax are
calculated using the following formula. Index values are calculated in accordance with tax rates applied to residents
and nonresidents. For more on the method of calculating US dollar-denominated index values, see 7.1.3 Calculation of
US dollar-denominated index values.
Tax adjusted total dividends[35] use tax rates as of the business day before the ex-dividend date. Reviews are
conducted quarterly, at the time of periodic reconstitutions and unscheduled reconstitutions.
Tax adj base market capt = index market capt −1 + adj market capt − adjusted tax adj total dividendst
Returnt = (index market capt + tax adj total dividendst ) / tax adj base market capt – 1
Index valuet = index valuet -1 × (1+returnt )Where, t is the day in question,t -1 is the preceding business day.

7.1.5 Calculation of net, hedged, and net hedged return index values
The following Russell/Nomura indexes are calculated based on price return and total return indexes in JPY and theexchange rate provided by LSEG (16:00 UK time).
Note that price return and total return in this section correspond to the index values defined in section 7.1.2 (index
excluding dividends and index including dividends, respectively).
• Total return indexes in foreign currencies[36] and price return index in USD
Index values are calculated in JPY and then converted to each of the currencies[37] .
34.
35.
36.
37.

For more on index base date, see 7.1.6 Publication start date and base values for indexes.
Parent company dividend forecast (or Toyo Keizai dividend forecast if this is not available) used for periods
ending end-December 2011 onward. Before this, actual dividend as of ex-dividend date was used.
The index values are available in AUD, CAD, CHF, EUR, GBP, KRW, SGD, USD, and ZAR.
For more details on the currency conversion method, please see “FTSE currency hedging algorithms” in “Guide
to Calculation FTSE Global Equity Index Series” published by FTSE
Russell.https://www.lseg.com/content/dam/ftserussell/en_us/documents/ground-rules/ftse-global-equity-indexseries-guide-to-calc.pdf

18Nomura | Russell/Nomura Japan Equity Indexes

29 March 2024

• Net total return indexes[36]
Net total return indexes are based on net total return index in JPY and then converted to each of the currencies[37] .
Net total return index values in JPY are calculated in a simple way using the following formula:
Returnt = (1− tax ratet ) × total return in JPYt + tax ratet × price return in JPYt
Index valuet = index valuet-1 × (1 + returnt )Where,t is the day in question, t -1 is the preceding business day.
Tax rate is same as that applied to nonresidents noted in section 7.1.4.
• Hedged and net hedged total return indexes[36]Hedged and net hedged total return indexes in each of the currencies are calculated respectively as a combination of
the performance from the total and net total return index performance in each of the currencies and the impact ofhedging. Please see "Russell Currency Hedging Methodology" published by FTSE Russell for details:

https://research.ftserussell.com/products/downloads/Currency_Hedging_Ground_Rules.pdf

19Nomura | Russell/Nomura Japan Equity Indexes

29 March 2024

7.1.6 Publication start date and base values for indexes
The base dates and publication start dates for the Russell/Nomura Japan Equity Indexes are as follows (includes
value/growth indexes, indexes excluding dividends, indexes including dividends, and US dollar and yen-denominatedindexes).
Fig. 6: Base date and publication start date of indexes

Index

Base date (=base value)

Publication start dateSize-based indexes, with the
exception of those with*

29 Dec. 1979 (=100)

Dec. 1995*Mid-Small Cap

29 Dec. 1979 (=100)

Jan. 2001*Prime Index

30 Dec. 1996 (=1,000)

Jul. 2004*Small Cap Core/Micro Cap
indexes

30 Dec. 1999 (=100)

Jun. 2006

Dividend tax adjusted indexes

29 Dec. 2000 (=100)(Prime=1,000)

Jul. 2013

Total return index and price return
27 Sep. 2006[38]index in USD
Total return indexes in foreign
currency*excluding the total return 30 Mar. 2007[38]index in USD

Mar. 2008
Oct. 2020

Net total return indexes

30 Dec. 2008(=1.108893324462)

Apr. 2011

Hedged total return indexes, withthe exception of those with*

28 Jun. 2002(=100)

Apr. 2011*Mid-Small Cap/Prime indexes

31 Aug. 2004(=100)

Apr. 2011*Small Cap Core/Micro Cap
indexes

29 Sep. 2006(=100)

Apr. 2011

Net hedged total return indexes

31 Mar. 2011(=100)

Apr. 2011

Source: NFRC

38.

Base values are calculated using the JPY index values in section 7.1.2 as the starting value and then converted
to USD. The exchange rate provided by WM/Refinitiv Closing Spot Rates (16:00 UK time).

20

Nomura | Russell/Nomura Japan Equity Indexes

29 March 2024

7.2 Adjusting the base market cap
In the case of changes in a stock’s capital structure or in index component stocks, base market cap is adjusted. No
adjustment to base market cap is made for capital changes not requiring payment, including stock splits, reverse stock
splits, and changes in face value, as these do not affect market cap.
Fig. 7: Timing of adjustments of base market capitalization and share price used

Change in capital structure
Adjustment date
Share price used
Stock transfer, stock swap, merger Date of listing change
Previous day's priceCorporate
Corporate divestiture
reorganization
Not used[39]Ex-rights date(company/division spinoff)
Shareholder allocation
Ex-rights dateIssue priceAllotment of acquisition rights to
Ex-rights date
Exercise priceshares without contribution
Allotment of treasury stock without
Ex-rights datePrevious day's pricecontribution
Business day following payment datePublic offering(listing date of new shares when
Previous day's pricesettlement is on issuance date)
CapitalFive business days after date of listing
Third-party allocation of shares
Previous day's priceincreasechangeLast business day of month in which
Conversion of preferred stocknumber of converted shares becomes
Previous day's priceknown
Conversion of CBs
Last business day of month in which
number of new shares for which rights
Previous day's price
Exercise of stock acquisition rights
were exercised becomes known
Corporate divestiture (new shares
Date of listing change
Previous day's priceof successor company)
Last business day of month following
Retirement of treasury stock
Previous day's pricemonth of treasury stock retirement
Last business day of month in which rights
offering refusal is announced (or lastCapitalForfeiture of stock acquisitionbusiness day of following month if
Issue pricereductionrightsannouncement is within five business daysof month-end)
Capital reduction with
Effective datePrevious day's pricecompensation
Other adjustments to base market
capitalization, if required, are made on the Share price whenlast business day of the month of thecapital change
Other
Other adjustments
disclosure of the relevant information (or reflected or closing
the last business day of the following
price on day before
month if the disclosure is made within five adjustment
business days of the month-end)
Source:39.

In the case of a corporate divestiture (company/division) or spinoff, the base market cap is adjusted for the
reduction in capital as follows:• When the company does not announce the value of the divested division or of the shares of the divested
company,
Capital reduction = the amount by which shareholders' equity is expected to be reduced• When the company does announce the value of the divested division or of the shares of the divested company,
Capital reduction = the value of the division or the value of the divested company’s shares times the total numberof shares.

21

Nomura | Russell/Nomura Japan Equity Indexes

29 March 2024

7.3 Execution and announcement of stable shareholding ratio adjustments outside
periodic reconstitutions[40]As a rule, stable shareholding ratio adjustments outside of periodic reconstitutions are announced on our website nolater than five business days before the date of adjustment, except in cases of unforeseen circumstances or when
information cannot be confirmed.
NFRC website:

http://qr.nomuraholdings.com/QR/FRCNRI/constituents.html
7.3.1 Adjustments to stable shareholding ratio for third-party allocations of shares
Because new shares issued in third-party allocations of sharescan be regarded as stable shareholdings, the stableshareholding ratio is adjusted as follows on the day (t) in which the number of shares changes. This ensures that the
number of shares included in index calculations, which is adjusted for stable shareholdings, remains the same both
before and after the private placement.
Stable shareholding ratiot= (stable shareholding ratiot -1 × number of shares outstanding for index calculation purposest -1+ the change in shares outstanding)/ (number of shares outstanding for index calculation purposet -1 + the change in shares outstanding)
Where, t is the day in question, t-1 is the preceding business day.

7.3.2 Adjustments to stable shareholding ratio for retirement of treasury stock
The stable shareholding ratio is adjusted as follows on day (t) in which the number of shares changes as a result of theretirement of treasury stock. This rule ensures that the number of shares adjusted for stable shareholding for index
calculation purposes remains the same both before and after the retirement. However, no adjustment is made if thenumber of treasury shares, which falls as a result of the retirement, is greater than the immediately preceding numberof shares adjusted for stable shareholdings for index calculation purposes[31] .

Stable shareholding ratiot= (stable shareholding ratiot -1 × number of shares outstanding for index calculation purposest -1－ the change in shares outstanding)/ (number of shares outstanding for index calculation purposet -1 － the change in shares outstanding)
Where, t is the day in question, t-1 is the preceding business day.
7.3.3 Conversion of preferred shares, merger with or acquisition of an unlisted company, tender offer, etc
The stable shareholding ratio is adjusted if a transfer of capital in such forms as the conversion of preferred shares, amerger with or acquisition of an unlisted company, or a tender offer causes a substantial change in stableshareholdings.
7.3.4 Stock swap, merger of listed companies, etc
The stable shareholding ratio is changed on the basis of the exchange ratio (merger ratio) for the surviving wholly
owning parent or the merging company.

40.

Effective from 1 December 2004.

22

Nomura | Russell/Nomura Japan Equity Indexes

29 March 2024

Appendix 1: Indexes at a glance
On top of a core index, there are indexes by sector, excluding and including dividends, adjusted for dividend tax, anddenominated in yen and dollars.
Fig. 8: Indexes at a glance

Basic index

Official name

Total Market

Russell/Nomura Total Market Index

Total Market Value

Russell/Nomura Total Market Value Index

Total Market Growth

Russell/Nomura Total Market Growth Index

Large

Russell/Nomura Large Cap Index

Large Value

Russell/Nomura Large Cap Value Index

Large Growth

Russell/Nomura Large Cap Growth Index

Top

Russell/Nomura Top Cap Index

Top Value

Russell/Nomura Top Cap Value Index

Top Growth

Russell/Nomura Top Cap Growth Index

Mid

Russell/Nomura Mid Cap Index

Mid Value

Russell/Nomura Mid Cap Value Index

Mid Growth

Russell/Nomura Mid Cap Growth Index

Mid-SmallRussell/Nomura Mid-Small Cap Index

Mid-Small Value

Russell/Nomura Mid-Small Cap Value Index

Mid-Small Growth

Russell/Nomura Mid-Small Cap Growth Index

Small

Russell/Nomura Small Cap Index

Small Value

Russell/Nomura Small Cap Value Index

Small Growth

Russell/Nomura Small Cap Growth Index

Small Core

Russell/Nomura Small Cap Core Index

Small Core Value

Russell/Nomura Small Cap Core Value Index

Small Core Growth

Russell/Nomura Small Cap Core Growth Index

Micro

Russell/Nomura Micro Cap Index

Micro Value

Russell/Nomura Micro Cap Value Index

Micro Growth

Russell/Nomura Micro Cap Growth Index

Prime

Russell/Nomura Prime Index

Prime Value

Russell/Nomura Prime Value Index

Prime Growth

Russell/Nomura Prime Growth Index

Source: NFRC

23

Nomura | Russell/Nomura Japan Equity Indexes

29 March 2024

Appendix 2: Main changes/additions to rules
10 August 2016

Change to periodic reconstitution date(see 3.1 Periodic reconstitution date)
Timing of revision to effective tax rate
(see 4.2.2 Unrealized gains/losses on marketable securities and 4.2.3
Unrecognized pension liabilities)
Timing at which stocks regarded as ineligible for inclusion in the universe
become eligible once again(see 6.3.3 Marked loss of eligibility for inclusion in universe)

26 March 2020

Addition of section regarding calculation of net, hedged, and net hedged returnindex values(see 7.1.5 Calculation of net, hedged, and net hedged return index values)

5 October 2020

Addition of description of total return indexes in foreign currencies(see 7.1.5 Calculation of net, hedged, and net hedged return index values)

24Nomura | Russell/Nomura Japan Equity Indexes

29 March 2024

Appendix 3: Previous index rules
Previous calculation methods for stable shareholdings
Previous methods for calculating the stable shareholding ratio are as follows.
Periodic reconstitutions up to January 1985
(1) Toyo Keizai’s major shareholder data and (2) declarations of marketable securities holdings contained in securities
filings are only valid from 1985. In periodic reconstitutions through January 1985, the number of shares in major
shareholder data from the Nihon Keizai Shimbun was used to estimate the number of stable shareholders in thefollowing way.
• Stocks existing after 1985 for which major shareholder data are available for 1984 and earlier
Stable shareholding ratio =shareholder ratio for top n major shareholders ×individual stock adjustment multiple
n is the number of major shareholders (up to 10) at each point in time up to and including 1984.
The individual stock adjustment multiple is the 1985–87 average ratio of shareholdings of all stable shareholders toshareholdings of the top n major shareholders.
• Stocks not existing after 1985 for which major shareholder data are available for 1984 and earlier
Stable shareholding ratio = shareholder ratio for top n major shareholders x individual stock adjustment multiple
Again, n is the number of major shareholders (up to 10) at each point in time up to and including 1984.
The sector adjustment multiple is the ratio, weighted for the number of shares outstanding adjusted for lot size for
1985–87, of the shareholdings of all stable shareholders to the stable shareholdings of the sector to which the stock inquestion belongs.
• Stocks not existing after 1985 for which major shareholder data are not available for 1984 and earlier
The average, weighted for the number of shares outstanding adjusted for lot size for 1985–87, of the stableshareholding ratio for the sector to which the stock in question belongs is used.
Bank stocks in periodic reconstitutions from January 1986 to January 1999
Bank stocks have a large number of stable shareholders but relatively small holdings per shareholder and usable (2)declarations of marketable securities holdings contained in securities filings could only be obtained for stocks listed on
the TSE, and thus more extensive adjustments were needed. After interviewing banks, we determined that the above
estimated values based on (1) Toyo Keizai’s major shareholder data and (2) declarations of marketable securities
holdings contained in securities filings had not been sufficiently adjusted, and also took into consideration shareholdingsof (3) below.
No. of stable shareholdings = no. of shareholdings of (1) major shareholders + no. of shares in (2) declarations ofmarketable securities holdings contained in securities filings (excluding those included in (1)) + (3) no. of shareholdings
not included in marketable securities declarations

25

Nomura | Russell/Nomura Japan Equity Indexes

29 March 2024

Small shareholder holdings (3) that do not appear in published data are estimated using the following method. First, thenumber of shares included in (2) is determined. Next, (3) is deduced from (1), (2), and the stable shareholder ratios
obtained from bank interviews. The result is an average value for (3) of approximately 50% of (2). The average
shareholdings in (2) are then multiplied by 1.5[41] , producing a combined figure for (2) and (3). For example, theaverage holding ratio per stock for (2) is 1%. If(2) subsumes 40 shareholders, the shareholding ratio for (2) is 40%. Since the figure for (3) is half that of (2), 1.5
multiplied by 40 produces 60% as the combined shareholding ratio for (2) and (3). If (1) is 15%, the total stableshareholding ratio is 75%.
Since 1999, marketable securities declarations have been available for all registered stocks in all markets. Using the
newly available information in a variety of ways to calculate stable shareholder ratios, and comparing these results withfindings from subsequent interviews with banks, led to the conclusion that adding (3) was no longer necessary and thus
it was abandoned.
Nonbanking stable shareholdings in periodic reconstitutions from January 1986 to January 2001
As for nonbanking stable shareholdings in periodic reconstitutions from January 1986 to January 2001, (1) data isbased on the number of shares held by the top 10 shareholders[42] .

Previous calculation methods for adjusted P/BThrough the December 2003 periodic reconstitution, unrealized gains/losses on land were calculated using available
data and adjusted Price Book-value Ratios were derived via the following formula. The book and market values of land
assets have differed greatly in the past, but by how much has varied from company to company.

Unrealized gains/losses on land were based, when possible, on data from reassessed land market values. When thesewere not available, they were based on land value tax data[43] . However, land value taxes have been frozen since 1998
and valuation amount calculations using land value tax data since that time may be less accurate. Mark-to-market
valuation of real estate available for sale was introduced in FY00 and the early adoption of impaired asset accounting
was allowed from FY03. This has meant that mark-to-market values are fully reflected in companies’ financial
statements. For this reason, Price Book-value Ratios were no longer adjusted for land valuation gains/losses as of the
December 2004 periodic reconstitution.
41.
42.

43.

Adjustments were made using a multiple of 1.5 for data in company reports for TSE-1 and TSE-2 stocks after
1995 and a multiple of 1.6 for TSE-1 company reports in 1994 and earlier.
We count the number of shares held by all shareholders included in declarations of marketable securities holdings
because the number listed in these declarations fell following changes to accounting standards in the financial
year ended March 2001.
In the case of companies that did not revalue their landholdings and for which land value tax data were notavailable, unrealized gains/losses on landholdings were set to zero.

26

Nomura | Russell/Nomura Japan Equity Indexes

29 March 2024

Calculation method for unrealized gains/losses on land
Periodic reconstitutions from January 1994 to December 2014
• Companies with revalued land
When land is revalued, revaluation gains/losses after tax are calculated as follows:

The BV before the revaluation plus the gains/losses on the revaluation is the BV after the revaluation. The footnotes ofcompanies’ securities filings include the difference in value the time of the revaluation and at the end of the fiscal year of
the filing. Unrealized gains/losses on the land are calculated in the following manner. A uniform effective tax rate[44] of
40% is assumed.
Unrealized gains/losses on land = revaluation difference-difference between the value at the time of revaluation and theend of the fiscal year×60%• Calculation method for companies with no revalued land but with land value tax data available
For stocks with no revalued land but with land value tax data available, values based on the latest land value tax data
are used, factoring in the increases or decreases[45] during the period. A uniform effective tax rate of 40% isassumed.
The details of the calculation are as follows:

The land price indexes used were as follows. These land price indexes are released twice a year by the Japan Real
Estate Institute.
• For manufacturing, electric power, and gas companies: land price index for six major cities (industrial land)• For nonmanufacturing companies other than electric power and gas companies: land price index for six major cities(commercial land)
44.
45.

For periodic reconstitutions in January 2001 and before, the calculation of adjusted P/B used unrealized
gains/losses before taxes.
Increases and decreases in asset value are disclosed in the property, plant & equipment section for all industries.
Using this data, we calculate unrealized gains/losses on land.

27

Nomura | Russell/Nomura Japan Equity Indexes

29 March 2024

The calculation of unrealized gains/losses on land was adjusted because of changes in accounting standards. For
reference, the earlier calculation method was as follows.
Up to the January 1993 periodic reconstitution (ie, before the land value tax was in force)
Russell/Nomura Japan Equity Indexes were launched in 1995. As such, for periods before the land value tax was inforce, unrealized gains/losses are estimated.
• When the book value of land is rising
If the BV of the land at time t is greater than at time t–1, the market value of the land of the company in question isassumed to have grown at the same rate as the Japan Real Estate Institute’s land price index.

• When the book value of land is falling
If the BV of the land at time t is less than at time t–1, the market value of the land of the company in question isassumed to have grown at the same rate as the Japan Real Estate Institute’s land price index minus the decrease in
BV.

28

Nomura | Russell/Nomura Japan Equity Indexes

29 March 2024

From the January 1994 periodic reconstitution to the January 1999 periodic reconstitution (period when land
value tax was in effect)
Land has been revalued since FY97. Land value taxes were assessed from 1993 to 1998. Unrealized gains/losses onland were estimated using land value tax data for periodic reconstitutions from January 1994 to January 1999. Landvalue tax was assessed on the value of land as of 1 January of each year. Land value tax was essentially calculated in
the following manner:
Land value tax =total market value of land – market value of nontaxable portion – basic exemption×tax rate
The basic exemption for companies with capital of ¥100mn or greater was defined as the greater of taxable land area x¥30,000 or ¥1bn. However, because the basic exemption complicates the estimate in question, it is set to zero. The
nontaxable portion is also set to zero, except for railway companies, electric power companies, and gas companies.
(1) General businesses
Because general businesses all pay tax at the same rate, the market value of real estate held by each company can becalculated as follows[46] :We calculate R, the percentage change in the land price index between the time of land value tax assessment (Januaryof the preceding year) and the time of data acquisition (November each year), as follows. The estimated market value isdivided by 0.8 because the value of the land that the tax is assessed on is set at 80% of the published standard land
value. We will now look at the method used to calculate the change, using November 1995 as an example. In this case,the time when land value tax was levied is January 1994.

46.

For example, the land value tax rate was 0.2% at the time of the 1993 periodic reconstitution and 0.3% at the timeof the 1994 and 1995 periodic reconstitutions.

29Nomura | Russell/Nomura Japan Equity Indexes

29 March 2024

(2) Railway companies, electric power companies, and gas companies
East Japan Railway, electric power companies, and gas companies do not pay taxes on land[47] that is used in the
public interest, and thus pay little land value tax despite the large BV of their land. The market value of taxable land,deduced from the land value tax, is added to the BV of the tax-exempt land to arrive at an estimate of market value. The
market value of the land not taxed is thus assumed to be the same as the BV of that land. Estimated market value iscalculated using the following equation:(3) Large companies with real estate divisions
Land value tax was assessed at a lower rate on commercial land held as inventory assets than on fixed asset land,
generally at one-fifth the rate for fixed assets. Companies with real estate divisions have land for sale in inventory andalso prime housing lots taxed at exceptional rates. These two additional factors make deducing market value from theland value tax difficult. Therefore, for 23 particularly large companies[48] of this nature, consideration has also been
given to the market value of housing lots. The tax rate is calculated at one-fifth the rate for the housing lot portion of
inventory assets[49] .

47.
48.

49.

This includes railways, electric power stations, and gas production facilities.
Railway companies are among the 23 companies mentioned. These companies have railway segments, andlandholdings directly connected to railway operations are exempt from taxes on land. That said, since the ratio of
the book value of land at the railway segments of these companies is comparatively small, unlike in the cases of
JR companies and others, we ignore the nontaxable portion.
Since special tax rates do not apply to condominium land sites, the market value of the inventory portion of assets
is overvalued, but since we have not taken into account basic exemptions and the nontaxable portions of tangible
fixed assets, we think these assets are well undervalued. These factors largely offset each other, in our view.

30

Nomura | Russell/Nomura Japan Equity Indexes

29 March 2024

(4) Calculating land market value for stocks for which land value tax data are unavailable
When the amount of the land value tax is unknown, market value is estimated from the sector-average market value
multiple for the fiscal year in question. Stocks that have no land BVs either are assumed to have little or no land andunrealized gains/losses are set at zero.
Previous calculation methods of unrealized gains/losses on marketable securities
Unrealized gains/losses on marketable securities were previously calculated as follows.
Periodic reconstitutions up to January 1991
(1) Nonfinancial stocks
Market value data for holdings of marketable securities have only existed since 1991. Unrealized gains/losses onmarketable securities for 1990 and earlier are calculated only if market value data have been published since 1991 andpast marketable securities are contained in the declarations of marketable securities holdings. Otherwise, unrealized
gains/losses are set to zero. For points in time before market value data were published, past values are estimated fromcurrent data:• When the BV of marketable securities is increasing:• When the BV of marketable securities is falling:31

Nomura | Russell/Nomura Japan Equity Indexes

29 March 2024

(2) Financial stocks
Financial stocks generally have large unrealized gains/losses and therefore have a major impact on shareholders’equity. For stocks that have published market value data since 1991, BV is estimated even if BV data does not exist forperiods before 1991. A backward-looking estimate is carried out using the oldest BV data available prior to 1991. For
these estimates, the rate of increase or decrease in individual stocks is assumed to agree with the rate of increase or
decrease found in Japan’s National Accounts, under the entry for corporate shares (BV) of financial institutions.
Periodic reconstitutions from January 1992 to January 2001
Market value data are used for holdings of marketable securities[50] . When there is a gap between the publication ofmarket value data (the fiscal year-end) and the time of data collection (November of each year), the market value ofstocks is adjusted using the TOPIX return. Data from the time of the publication of market value figures are used for themarket value of other assets, as well as the BV of all assets.

50.

Since only TSE, OSE, and NSE First and Second Section stock data are available for 1999 and earlier, unrealized
gains/losses are assumed to be zero for stocks that trade only on a regional exchange and JASDAQ stocks.

32

Nomura | Russell/Nomura Japan Equity Indexes

29 March 2024

Data services
Data for the indices can be obtained via the following channels[51] [52]Index values are published in the following media:
Bloomberg

：

RNJI

Jiji

：

RNSI/12400、RNSIIDV/12400

QUICK

：

NRIJ500～503、510～517

LSEG

：

FRCNRI01、 FRCNRI02、 FRCNRI03、 FRCNRI04、 .JRNP、 .JRNS

Website：http://qr.nomuraholdings.com/en/frcnri/index.html

More detailed data[52] [53]More detailed data on index values and individual stock information can be obtained through Nomura
Research Institute services e-Aurora and IDS.
For information, contact：

Nomura Research Institute
Investment Information Systems Business Departmente-mail

：ids-sales@nri.co.jp

Other reports

Russell/Nomura Japan Equity Indexes - Performance summary (monthly reports)
Russell/Nomura Japan Equity Indexes handbook

51.
52.

53.

Published data are all for reference only.
For more details on the “7.1.5 Calculation of net, hedged, and net hedged return index values”, see the FTSE
Russell website (https://www.ftserussell.com/). FTSE Russell is a trading name of FTSE International Limited andRussell, among other London Stock Exchange Group plc entities (“LSE group”). Please see the Legal Disclaimer
page(https://www.ftserussell.com/legal/legal-disclaimer) for more details.
For Dividend tax adjusted index, please see "For further information on the indexes"

33

Nomura | Russell/Nomura Japan Equity Indexes

29 March 2024

For further information on the indexes
Nomura Fiduciary Research & Consulting Co., Ltd.
Index Services Departmente-mail：idx_mgr@nfrc.co.jp

Website：http://qr.nomuraholdings.com/en/frcnri/index_contacts.html

34

Nomura | Russell/Nomura Japan Equity Indexes

29 March 2024

Disclaimer
The intellectual property rights and any other rights in Russell/Nomura Japan Index belong to Nomura Fiduciary
Research & Consulting Co., Ltd. (“NFRC”) and Frank Russell Company (“Russell”)
NFRC and Russell do not guarantee accuracy, completeness, reliability, usefulness, marketability, merchantability andfitness of the Index, and do not account for business activities or services that any index user and/or its affiliates
undertakes with the use of the Index.
Publication of the index could be delayed or canceled if a computer malfunction, natural disaster, or otherunavoidable event affects the index calculation process.
Should contingencies arise that were unforeseen at the time of the creation of this rulebook, NFRC may prioritize items
not spelled out in this rulebook in its management of the index. In such cases, NFRC will issue an announcement inadvance that details those items.
Please read “About The Index License” before using the indexes, regardless of the channel through which indexes/data
is acquired (NFRC website, services via information vendors, etc)[52] .
"About The Index License"
http://qr.nomuraholdings.com/en/indexlicense.html■ This material has been prepared by NFRC for information purposes only.
■ All opinions and/or predictions contained in this material are based on the determination of NFRC at the time thismaterial was prepared and are subject to change without notice. We do not provide any guarantee or assurance
that opinions contained in this material relating to future predictions will actually take place. Some part of thecontent of this material is based on various information available to NFRC which NFRC determined to be reliable.
However, NFRC does not guarantee the accuracy of such information, and there is a possibility that suchinformation was summarized and imperfect. The past investment performance is not indicative of the future results.
■ This material is not intended as an investment solicitation or an investment advice in connection with any particular
security transaction.
■ If a customer invests in an investment product that uses a market benchmarks developed and provided by NFRC, aportion of the fees for the use of such benchmark may be directly or indirectly attributed to NFRC. For details,
please visit the following website.
Securities Market Benchmarks http://qr.nomuraholdings.com/en/■ This material may only be used by the customer to whom it was distributed. This material is the copyrighted work of
NFRC and you may not copy, transmit or redistribute this material, in whole or in part, without the prior writtenconsent of NFRC.

Nomura Fiduciary Research & Consulting Co., Ltd.
Registration Number: Director-General of the Kanto Local Financial Bureau (Finance & Commerce) Registration
No.451
Membership: Japan Investment Advisers Association No. 011-00961

35

Nomura | Russell/Nomura Japan Equity Indexes

29 March 2024

Policies with regard to NFRC’s indices
The below index-related policies are published on our website. See the following link for details:
http://qr.nomuraholdings.com/en/guides/index.html• Index Governance Framework• Conflicts of Interest Policy• Index Calculation Policy• Complaints Handling Policy

36