In June we announced that we’ll launch a full set of global indexes soon. In addition, we have a family of Japanese equity indexes that we produce jointly with Nomura Securities. Those indexes have been picking up ground as benchmarks for Japanese investors over the past couple of years.

Q: Could you explain your reconstruction process in more detail?

A: The Russell 3000 simply represents the 3,000 largest companies in the United States by market value at the close of May 31. Because of the changing nature of the capital markets, the 3,000 largest stocks change over time. There are IPO ’s, mergers, bankruptcies, value changes, or private equity takeouts. The list of the 3,000 largest publicly traded companies by market value changes over time, and we reconstruct our indexes once a year. We use the data as of the end of May to determine the 3,000 largest companies but the reconstructed index becomes effective on the last Friday of June.

We’ve made several revisions to our process, which improve its efficiency and cost effectiveness. For example, because of the increasing scale of Russell’s annual reconstitution, the NASDAQ exchange implemented a closing cost mechanism in which there is an auction at the end of the day to determine the final price. That has made our reconstitution process flow smoothly in determining the closing price.

Q: Why have you chosen the end of May instead of the end the year or a specific quarter?

A: December 31 would not be a good day as it is fairly illiquid. Many people are not at work at that time, including people who work at the stock market, so it wouldn’t be representative. Originally, we picked the end of June, but there was a concern that there’s T enough trading during that day related to the end of the quarter.

Regarding the announcement date, investors wanted to be able to have a weekend for their operations department to catch up, so we moved the date from the last trading day in June to the last Friday in June to allow the operations departments to catch their breath. The reason for having two separate dates is providing investors with plenty of time to get ready for the changes. Part of our transparency policy is to give everyone time to adjust and to be able to look at what’s going to happen. It just makes the reconstruction easier for all the relevant parties.

The idea of the reconstitution process is to freshen up the index and make sure that it continues to be representative of the overall market. To illustrate why this is so important, I’ll give you the example of Amazon. The stock was included in the Russell 3000 Index in 1998 as part of our reconstitution process, while it joined the S&P in 2005, when it was eight times the size in terms of market cap. The continuous updates are very helpful for making the index truly representative of the stocks that you can buy. For seven years Amazon was available for purchase and was not represented in the S&P.

Q: So you’d have only a twelvemonth lag in the worst case, while a committee may or may not decide to include a stock.

A: That’s correct. It may be never or it may be much later. Another rule that we’ve instituted is looking at IPOs and adding appropriately sized IPO’s on a quarterly basis. So a brand new IPO would not even have to wait twelve months to be included. The delay, at the most, would be about three months. Just think about Microsoft, which was included in the Dow Jones 25 years after its IPO.