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Russell indexes reconstitution delivers yet again

Russell indexes reconstitution delivers yet again

By: Ron Bundy, North America Benchmarks CEO

While the US Postal Service does not have an official creed, the phrase most often associated with this venerable institution is an inscription on the historic James A. Farley Post Office Building in New York City:

Neither snow nor rain nor heat nor gloom of night stays these couriers from the swift completion of their appointed rounds.

The message is clear – no matter what challenges arise, you can count on the Postal Service to make sure the mail arrives on time like clockwork.

While our FTSE Russell team may be rebalancing indexes that are used to benchmark approximately $6 trillion in investor assets on a single US trading day, I’m proud that our team “delivered the mail” again this year, despite the unexpected result of the UK referendum  to leave the European Union being announced on the same day as the reconstitution.

As I woke up on the last day of the annual Russell US Indexes reconstitution, or “Russell shuffle” as some market reporters like to describe it, and saw major networks and financial websites using phrases like “plunge,” “sell-off” and “meltdown” to describe the global equity market reaction to overnight news on the results of the UK’s EU Referendum, I was confident, but understood that it would be a test for our recon process.

Our clients were concerned about how the unexpected news and global equity market volatility might impact the market’s ability to realign more than $6 trillion in investor assets benchmarked to and $800 billion in assets passively tracking the Russell US indexes. Indeed, we received a number of questions from reporters and clients that morning about whether our reconstitution would conclude on Friday as scheduled or we would have to delay or postpone it.

We spent the day reassuring clients and investors that our Russell US indexes reconstitution is a well-built, time tested and transparent process. From the announcement of our annual reconstitution schedule in March, to our initial posting of expected adds and deletes to the Russell US indexes in mid-June, to the final day of reconstitution on the last Friday in June, the focus is on transparency and information for our clients.

And, of course, our US equity exchange partners, primarily the New York Stock Exchange and the Nasdaq, play a very important role. We manage the Russell US indexes, but not the assets that track them. These are held by various investors and purchased and sold on the US exchanges. In fact, as we rang the closing bell at the Nasdaq on Friday, our Nasdaq partners informed us that 933 million reconstitution-related transactions encompassing $20.6 billion in assets were executed across 2,464 Nasdaq-listed stocks in 0.8 seconds as part of the annual Nasdaq Russell reconstitution “closing cross.” And Nasdaq is just one of many US equity exchanges on which reconstitution-related trades took place on Friday.

As I rang the bell at Nasdaq’s “MarketSite” facility in the heart of New York’s Times Square to officially close a volatile Friday for the US markets, I couldn’t help but think that like the Postal Service we had reliably completed our rounds again, honoring the time tested process of Russell US indexes reconstitution in the midst of a historic day for the global equity markets.

Source: Nasdaq

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No member of the LSE Group nor their respective directors, officers, employees, partners or licensors provide investment advice and nothing in this communication  should be taken as constituting financial or investment advice. No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any representation regarding the advisability of investing in any asset. A decision to invest in any such asset should not be made in reliance on any information herein. Indexes cannot be invested in directly. Inclusion of an asset in an index is not a recommendation to buy, sell or hold that asset. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.

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