Market Consultations

FTSE Russell completed phase 1 of the inclusion of China A shares in the FTSE Global Equity Index Series (FTSE GEIS) in June 2020. Eligible China A shares are included in the FTSE GEIS across Large, Mid and Small Cap segments at a 25% inclusion factor via the Northbound Stock Connect Scheme. China A constituents represent approximately 7.07% of the FTSE Emerging All Index as of 31 March 2023.

On 19 January 2023, the Stock Exchange of Hong Kong Limited (HKEX) issued a circular on the updated eligibility criteria in relation to the expansion of eligible stocks within the Stock Connect programme.

The expansion of eligible stocks became effective from 13 March 2023, resulting in the addition of 598 stocks listed on Shanghai Stock Exchange (SSE) and 436 stocks listed on Shenzhen Stock Exchange (SZSE) on the eligible Northbound Stock Connect buy and sell list.

Consultation Process

In light of the significant increase in number of newly eligible stocks under the Northbound Stock Connect, FTSE Russell is seeking feedback from the market participants on:

i) Whether the newly added stocks resulting from the expanded Stock Connect universe that meet the FTSE GEIS eligibility criteria for index inclusion should be implemented in a single tranche or multiple tranches.
ii) When the implementation should commence.
iii) The minimum period of notice required in advance of the implementation.

The FTSE Russell Index Governance Board is responsible for the approval of this proposal and any changes. Index users and other stakeholders are informed of FTSE Russell’s decisions via Index Announcements.

FTSE Russell is seeking market participant feedback on its proposal to use enhanced sovereign ESG scores in the FTSE ESG Government Bond Index Series.

The FTSE Sovereign Risk Monitor (SRM) is designed to measure the material financial risk from ESG factors for sovereign issuers, with data available for 151 countries from 1999 onwards. SRM scores are used in the FTSE ESG Government Bond Series, as set out in the published ground rules.

In the notice issued on 22 February 2023, FTSE Russell proposed specific enhancements to the environmental pillar of SRM and published a research paper and methodology document on 2SRM. FTSE Russell is now proposing that 2SRM is used instead of SRM in the FTSE ESG Government Bond Series.

FTSE Russell welcomes any feedback and questions on this proposal by Thursday 04 May 2023. Consultations responses should be sent to info@ftserussell.com. Further details on the proposal, its implications, and the feedback requested can be found below.

The FTSE Russell Index Governance Board is responsible for the approval of this proposal and any changes. Index users and other stakeholders are informed of FTSE Russell’s decisions via Index Announcements.

The Johannesburg Stock Exchange (JSE) and FTSE Russell are seeking the views of index users on the proposal to ‘harmonise’ the indices within the FTSE/JSE Index Series. Harmonising the series would involve the following:

• Aligning the free float calculation specified in the methodology (ground rules) for each index in the series to ensure that the index treatment for all companies is consistent and the indices represent the underlying market accurately.
• Ensuring the series meets the needs of index users and does not include indices that are surplus to requirements, indices which are duplicates in relation to methodology or other factors, and indices for which usage has decreased significantly.

• To achieve this objective, FTSE Russell and the JSE would aim to decommission any indices carrying the FTSE/JSE Shareholder Weighted ‘SWIX’ label and incorporate the existing SWIX weighting methodology into the FTSE/JSE All Share, Top 40, South African Sector and ICB indices, as relevant.

The FTSE TWSE Taiwan Dividend+ Index is a dividend yield weighted index designed to measure the daily performance of the 30 highest-yielding stocks within the universe of the FTSE TWSE Taiwan 50 and FTSE TWSE Taiwan Mid-Cap 100 indices. The index ground rules are available here: FTSE TWSE Taiwan Dividend+ Index ground rules.

FTSE Russell proposes to increase the number of constituents in the FTSE TWSE Taiwan Dividend+ Index from 30 to 50. FTSE Russell is consulting on this proposal and its aim of ensuring that the market capitalisation percentage representation of the FTSE TWSE Taiwan Dividend+ Index is appropriate, and both the objective of the index and index users’ needs are met.

FTSE Russell is consulting index users on whether a minimum set of exclusions should apply to FTSE Russell’s standard sustainable investment indices and is soliciting feedback on the following:

• whether there should be a minimum set of exclusions for FTSE Russell’s sustainable investment indices and what this ‘minimum’ should be;
• how subsidiaries, instances of minority ownership, and missing or incomplete company data should be treated; and

• the implementation of a minimum set of exclusions.

FTSE Russell aims to build on its Guide to the Construction and Maintenance of FTSE Exclusion Lists. The consultation has in its scope FTSE Russell’s standard equity and fixed income sustainable investment indices.

FTSE Russell is inviting index users and other stakeholders to participate in a consultation on the FTSE China A index offering.

The purpose of the consultation is to ensure that the FTSE China A indices continue to meet the requirements of index users. On this basis, FTSE Russell is soliciting market feedback on a number of aspects in relation to: index market representation, the index weighting methodology and index constituent accessibility.

The FTSE MTS Bond Index Series comprises several benchmarks which measure the performance for European sovereign and covered bond markets. The data underlying FTSE MTS Bond Indexes is drawn from real-time tradable prices on the MTS platform, a leading electronic marketplace for the trading of European cash bonds. The requirements for index inclusion also incorporate criteria that are dependent on the MTS platform, such as a bond’s listing status.

FTSE Russell seeks to engage with index stakeholders to gather comments on considerations as they relate to the design and methodology of FTSE MTS Bond Indexes.

The recommendations resulting from The UK Listing Review, chaired by Lord Hill, were published on 03 March 2021. Consequently, the Financial Conduct Authority (“FCA”) launched its own Primary Markets Effectiveness Review consultation (Consultation Paper) on 05 July 2021. The FCA’s consultation will close on 14 September 2021, with any changes to the UK Listing Regime expected to be announced and implemented prior to the end of 2021.

FTSE Russell seeks to review whether any potential, proposed changes to the UK Listing Regime that may result from the Hill Review and the associated FCA consultation may impact the eligibility criteria for the FTSE UK Index Series. To this end, FTSE Russell is inviting index users to participate in a market consultation to facilitate this review and any further analysis of potential amendments to the UK Listing Regime.

The two, key areas on which FTSE Russell is seeking feedback and that are related to the inclusion criteria for the FTSE UK Index Series are:

i) Dual Class Share Structures and the associated Minimum Voting Rights Requirement; and

ii) the Minimum Free Float Requirements.

Please note that FTSE Russell’s indices are designed to serve the FTSE Russell client base and there is no guarantee that any changes to the UK Listing Regime will result in significant updates to the FTSE UK Index Series as they pertain to index eligibility. Furthermore, the potential, long-term impact to the FTSE UK Index Series is largely unknown – this will depend on whether a change to the UK Listing Regime results in an increasing number of index eligible companies choosing to list in London going forward.

Further to the ‘Executive Order 13959 - Proposed Treatment of Newly Sanctioned Names’ notification published on 07 July 2021, please refer to the attached spreadsheet regarding the securities being deleted from the FTSE GEIS, the FTSE Global China A Inclusion indices and associated indices in relation to the updated EO 13959, effective from the open on Wednesday 28 July 2021.

Further to the ‘Executive Order by the President of the United States of America – Updated EO 13959’ notification published on 03 June 2021, FTSE Russell invites comments from index users on the appropriate treatment in FTSE Russell indices in relation to the updated Executive Order (EO) 13959 - Chinese Military-Industrial Complex Companies (CMICs) and Frequently Asked Question 902 (FAQ 902).

FTSE Russell has provisionally identified the following FTSE Russell index family that may continue to hold CMIC listed names and invites feedback from index users on other FTSE Russell indices that would no longer fall within the scope of EO 13959.

FTSE MPF Index Series

Following a review of the feedback, FTSE Russell will issue a further notice detailing the treatment of sanctioned names within the indices that FTSE Russell deems to no longer fall within the scope of the updated EO 13959 and the treatment of additional index constituents that now fall within the scope of the updated EO 13959 effective from 02 August 2021.

Index partners FTSE Russell, the European Public Real Estate Association (EPRA) and the National Association of Real Estate Investment Trusts® (Nareit) invited users, market participants and other stakeholders to participate in a consultation on the FTSE EPRA Nareit Global Real Estate Index Series.

The purpose of the consultation was to ensure that the nationality assignments of index constituents, overall regional representation and index composition remain appropriate and consistent with the index objectives. The feedback received from the consultation will assist FTSE Russell, EPRA and Nareit in their consideration of potential future enhancements to the Index Series.

FTSE fixed income indexes must keep pace with the evolving markets they measure, however its index methodologies cannot anticipate or codify every eventuality. In such circumstances, FTSE Russell will seek to determine the appropriate treatment by reference to the guiding principles set out in its Statement of Principles, which also summarizes the ethos underlying our approach to index construction.

As announced on 5 March 2021, FTSE Russell formally opened a market consultation to solicit feedback on the index eligibility of a new coupon reset structure of recently issued non-financial hybrid capital securities in the FTSE Canada Bond Index Series.

In advance of the March 2021 Fixed Income Country Classification review and subsequent results announcement, FTSE Russell asked for feedback from global index stakeholders on considerations related to the inclusion of China and Switzerland in the FTSE World Government Bond Index.

For further details, please see the announcement.

Further to the ‘Executive Order by the President of the United States of America’ notification published on 13 November 2020, FTSE Russell invited comments from market participants on the appropriate treatment of affected constituents of FTSE Russell indexes.

Effective from Monday 11 January 2021, the Executive Order prohibits United States persons from transacting securities investments in any Communist Chinese military company as defined in section 4(a)(i) of the Executive Order. FTSE Russell understands the affected companies to be those listed by the US Department of Defense (link), but has requested the Office of Foreign Assets Control (OFAC) to confirm the scope of the sanctions.

The FTSE Russell Index Policy Guide for its equity indexes, "In the Event Clients are Unable to Trade a Market", section 2.3, “Sanctions are imposed which restrict investment into foreign jurisdictions” states:

“Should sanctions, either primary or secondary, be imposed that prohibit US, UK and or European Union (EU) natural or legal persons from investing in particular countries, industries, named companies or companies linked to sanctioned individuals, FTSE Russell will delete the sanctioned securities from FTSE Russell indexes”.

In the light of the imminence of the effective date of the Executive Order, FTSE Russell sought rapid feedback from clients and other stakeholders on the scope of the sanctions and the timing of the deletion of the affected securities from FTSE Russell indexes.

FTSE Russell is currently reviewing the impact of the Executive Order to its fixed income indexes and will provide an update in due course.

Investor focus on climate risk has grown significantly in recent years. In response to this, FTSE Russell has developed a number of data and index tools to better measure and manage these risks. As part of these efforts, FTSE Russell is also reviewing the way climate change is addressed as part of its ESG Scores.

Through this consultation, clients and other stakeholders are invited to provide feedback on proposed enhancements to the climate change assessment of corporate issuers in ESG Scores with implications for a number of indexes that rely on these Ratings and related enhancements to the FTSE4Good index rules.

These can be summarised as follows:

Proposal 1: Enhancing the Climate Change theme score within ESG Scores.
Proposal 2: Introducing minimum Climate Change score thresholds to the FTSE4Good Index Series inclusion rules.

The responses will be reviewed by the FTSE Russell Product Governance Board and an update on FTSE Russell’s proposed approach will be communicated in due course.

Since its launch in 2017, the FTSE Blossom Japan Index has helped to catalyse improvements in corporate practices with respect to global environmental, social and governance standards in Japan. This has been achieved in part through a programme of positive engagement and communication with corporates, giving them a clear understanding of FTSE Russell’s ESG scores data model.

Approximately 40% of the constituents of the companies in the underlying index qualify for inclusion in the FTSE Blossom Japan Index. This has been achieved through the improving corporate practices of large and mid cap companies in the underlying benchmark.

In addition, the opportunity for inclusion in the index provides further incentive for companies to improve their ESG scores by enhancing their ESG practices and disclosure in order to meet the index eligibility criteria.

Results: FTSE Russell reviewed the responses to the consultation and discussed them with FTSE Russell’s external independent advisory committees. After careful consideration of the responses, FTSE Russell will include Japanese small cap securities within the FTSE Blossom Japan Index and change the underlying universe from the FTSE All World Japan Index to the FTSE All Cap Japan Index. This change will be effective from the December 2020 index review.

FTSE Russell reviewed the preliminary details of a new Limited Recourse Capital Note (LRCN) structure being marketed by a Canadian bank. On July 15, 2020, the Canadian Office of the Superintendent of Financial Institutions published a Capital Ruling that “LCRNs can quality as Additional Tier 1 regulatory capital by the bank and other FRFIs, subject to certain limitations and disclosure requirements”. FTSE Russell invited comments from market participants on the index eligibility of this structure by the close of business on Friday, July 17, 2020.

Results: An extraordinary meeting of the FTSE Canada Fixed Income Advisory Committee was convened on Friday July 17, 2020 to discuss this topic. After careful consideration of the consultation results and a thorough review of the security structure, on 21 July, 2020, FTSE Russell announced that this structure will not be deemed eligible for the FTSE Canada Universe Bond Index or other FTSE Canada fixed-rate indexes.

Further details: The coupon structure of the LRCNs is incongruent with the eligible coupon types for inclusion in the FTSE Canada Universe Bond Index: fixed-rate, fixed-to-floating rate or fixed-rate step-up where the future interest rate is predetermined at issuance. Setting the Effective Maturity Date for this bond as the first Interest Reset Date (in line with the handling for fixed-to-floating rate bonds) appears to be inconsistent with investors’ views of its materially longer duration and complex risk profile as a non-bullet security. Further, it would not be appropriate to set the Effective Maturity Date after the first Interest Reset Date since, after the first reset, the rate is variable rather than fixed. FTSE Russell has therefore determined that the Limited Recourse Capital Note is not appropriate for inclusion in fixed-rate benchmarks. FTSE Russell has received feedback that this structure could in future constitute a significant portion of the Canadian corporate market. We therefore intend to review both the needs of index users to track this asset type, as well as the analytic modelling capabilities required for this new coupon structure.

The Financial Stability Board (FSB) is leading the reforms for major interest rate benchmarks and to reduce reliance on inter-bank offered rates (IBORs). The volumes in the underlying IBORs have been decreasing since 2008 and the measure is no longer liquid. There also have been controversies/concerns about the reliability and robustness of these rates. The UK’s Financial Conduct Authority (FCA) has said that it will no longer persuade or compel banks to make London Inter-Bank Offered Rate (LIBOR) submissions after the end of 2021 and market participants should not rely on its continued availability beyond that date. FTSE Russell has live index products that use the overnight and term IBORs that could be directly impacted by interest rate benchmark reform. Given the above FTSE Russell will like to set out a transition roadmap for LIBOR and EONIA. In this respect we invite market participant and index users’ views for the transition away from these rates to alternative overnight and term rates.

The ground rules for the FTSE Global Equity Index Series (GEIS) specified that only securities with free floats of greater than 5% were eligible for index inclusion (GEIS rule 6.2.A). The rule was intended to ensure that an index represents an investment portfolio that excludes inconsequential stakes in companies. It also helped to ensure that index constituents have adequate liquidity and the 5% threshold is consistent with squeeze-out levels in certain jurisdictions. However, the presence of the rule meant that certain very large companies with free floats less than 5% were excluded from GEIS and GEIS was arguably less representative than it might be as a result. Following feedback and enquiries from index users, FTSE Russell invited comment on whether the eligibility requirement for securities to have a free float of above 5% should be waived for very large constituents in the FTSE Global Equity Index Series. Note: the FTSE UK Index Series is maintained according to separate ground rules and was not affected by this consultation proposal.

Japanese Real Estate Investment Trusts (J-REITs) have been listed on the Tokyo Stock Exchange since September 2001. However, at the time of the consultation, they were considered ineligible for the FTSE Global Equity Index Series (GEIS). The purpose of this consultation was to invite index users and other stakeholders to provide feedback as to whether the J-REIT definition under Japanese law constitutes as grounds to continue their exclusion from the FTSE Global Equity Index Series.

FTSE Russell to consulted with market participants to understand how they use our sustainable investment products and how enhancements can be implemented to further support clients.

FTSE Russell, the European Public Real Estate Association (EPRA) and the National Association of Real Estate Investment Trusts (Nareit) – proposed clarifications to the calculation of eligible EBITDA to Appendix 7 of the Ground Rules of the FTSE EPRA Nareit Global Real Estate Index Series. These clarifications reflected operational practice and did not affect the composition of the indexes.

Note F – Where General and Administrative, Corporate, Overhead or other operating expenses are not clearly allocated to any of the reporting segments in the annual report, the model considers a proportionate allocation based on the revenue breakdown of the different operating segments.

Note G – Any share of Net Operating Income from property funds managed by the company is considered eligible income if appropriate disclosure is provided in terms of the nature of the fund, the percentage of company ownership in a fund, and adequate provision of a breakdown of operational income. Any profit/loss arising from property revaluations, fair value adjustments and management fees will be excluded.

A distinguishing feature of multi-currency fixed income benchmarks is their approach to local market inclusion. There are a number of dimensions across which global markets can be evaluated to establish how they are represented as peer groups in broad-based benchmarks. These can include market size, credit rating, asset-type, designation as an emerging or developed market, and degree of market accessibility.

Users of global fixed income benchmarks require a robust and transparent framework for evaluating such local market inclusion considerations that can be applied to both flagship and bespoke benchmark construction. To provide the necessary foundation and enhance our benchmarking approach, this consultation proposed a robust and transparent scoring system to assign a “Market Accessibility Level” for local government markets. Given the proposed annual nature of the review for Market Accessibility Levels, FTSE Russell also solicited user preferences for a continual versus annual application of the objective market size and credit rating criteria for local market inclusion in flagship indexes once the accessibility framework is formally adopted.

As part of FTSE Russell's commitment to ensuring that our benchmarks remain representative of the markets they are intended to track and continue to address the needs of index users, market participants were consulted on several topics related to the securitized products market. In particular, feedback was solicited relating to how our mortgage benchmarks reflect the evolution of the agency mortgage backed securities market and the Single Security Initiative.

A bond's amount outstanding represents an observable and transparent proxy for liquidity, with larger bonds generally being more widely held than small issues. As such, the minimum amount outstanding is a key design element for fixed income indexes. To ensure that an index continues to capture issuance at a level commensurate with the critical mass of investment and issuance of a market, the amount outstanding thresholds for index consideration should be periodically reviewed.

The presence of suspended constituents in an equity index can create tracking difficulties for investment firms managing passive funds and ETFs, particularly in the presence of significant cash flows. Accordingly, index providers will typically delete suspended constituents from their indexes after some specified time period. However, the timing of the deletion, and the price at which the deletion takes place, can cause problems in their own right. The difficulties are exacerbated if the investment manager is using swaps or other derivatives to obtain the requisite exposure. This consultation paper detailed FTSE Russell’s existing rule for the treatment of suspended companies and described how the rule was formulated. It then provided a series of questions to establish whether further enhancements might be made.

Over the previous two years, FTSE Russell had been working to align the methodologies of the FTSE Global Equity Index Series (GEIS) and the Russell Global Indexes (RGI). This consultation set out the path FTSE Russell envisaged to bring the two global index series into alignment, and included consultation questions on the important outstanding convergence question of how the index series should be reconstituted and reviewed.

The SNAP IPO was highly unusual in that there were no voting rights attached to the offered share class. The lack of voting rights raised governance concerns, particularly for pure passive managers who are forced buyers. In the light of these concerns, FTSE Russell announced that it would defer consideration of SNAP at the forthcoming Russell index reconstitution and FTSE index quarterly reviews pending a consultation with index users and other stakeholders with regard to the future inclusion of such securities.

On 5 June 2017, FTSE Russell announced that newly issued non-viability contingent capital (NVCC) bonds would be eligible for the flagship FTSE TMX Canada Universe Bond Index, effective from 1 July 2017. This decision was made after careful consideration to ensure that the FTSE TMX Canada Universe Bond Index continued to accurately measure and represent the domestic Canadian investment grade fixed income market. While inclusion of these securities ensured that the Universe Bond Index continued to have appropriate representation of core Canadian banking debt going forward, there were additional considerations for handling the outstanding issuance, which required further review. We are therefore solicited stakeholder feedback regarding index treatment of previously issued (settled prior to 1 July 2017) non-viability contingent capital (NVCC) bank debt in the Universe Index.

As part of our commitment to deliver the best possible solutions for our clients, we have reviewed the current methodologies of the FTSE WMA Private Investor Index Series (renamed FTSE Private Investor Index Series from 1 March 2017).

To help align the methodologies of the FTSE and Russell indexes, this consultation set out a proposal for a unified nationality assignment rule that could be applied consistently across both FTSE and Russell global index series.

The market was consulted on an index evolution pathway for the FTSE TMX Canada Indexes that is designed to capture and track new and developing asset categories in Fixed Income.

To ensure that the FTSE EPRA/NAREIT Global Real Estate Index Series continues to capture the investable global real estate universe in a clear, comprehensive and transparent way, this consultation sought feedback on a number of proposed enhancements.

Consultation on a proposed unified classification structure for the Industry Classification Benchmark (ICB) and Russell Global Sectors (RGS).

On 5 June 2017, FTSE Russell announced that newly issued non-viability contingent capital (NVCC) bonds would be eligible for the flagship FTSE TMX Canada Universe Bond Index, effective from 1 July 2017. This decision was made after careful consideration to ensure that the FTSE TMX Canada Universe Bond Index continued to accurately measure and represent the domestic Canadian investment grade fixed income market. While inclusion of these securities ensured that the Universe Bond Index continued to have appropriate representation of core Canadian banking debt going forward, there were additional considerations for handling the outstanding issuance, which required further review. We are therefore solicited stakeholder feedback regarding index treatment of previously issued (settled prior to 1 July 2017) non-viability contingent capital (NVCC) bank debt in the Universe Index.

As part of the ongoing effort to align the methodologies of the FTSE and Russell indexes, this consultation sought feedback on a proposed unified process for updating shares outstanding and free float.

Market consultation on how extended suspensions should be treated in the FTSE China A Index Series.

Market consultation on the eligibility of various security and company types.

Market consultation on proposed changes to the structure and definitions for the FTSE NAREIT US Real Estate Index Series.

User consultation on a range of proposed enhancements including the use of depository receipts in preference to local shares, the treatment of stocks near foreign ownership limits, and fast entry requirements.

Market consultation on open offer implementation in the FTSE UK Index Series.

Consultation on FTSE’s proposed approach to determining the eligibility of markets and the classification of countries.

Market consultation on nationality, cross holding and free float rules in FTSE Indexes.