Earlier this week, the S&P Dow Jones Indices announced that the S&P Composite 1500 and its component indices (the S&P 500, S&P MidCap 400 and S&P SmallCap 600) will no longer add companies with “multiple share class structures.” Existing index constituents will be grandfathered in. This decision follows a similar, but less sweeping proposal announced last week by FTSE Russell, with FTSE focused on multiple classes with limited or no voting rights. (The proposal is expected to be published, subject to any further feedback, as changes to the “ground rules” on August 25.) Another index, MSCI, has made a similar proposal. While these changes in methodology are imposed against the backdrop of an ongoing conversation about voting rights, the S&P confirmed to me informally that the change in methodology for the S&P Composite 1500 applies to multiple classes of listed or unlisted outstanding common equity, regardless of whether any class has limited or no voting rights. The S&P also confirmed that the phrase “multiple class share structures” is not intended to capture any class of preferred stock. Why do these changes in methodology matter? As described in this article from Reuters, “[i]nclusion in a stock index has been an important milestone for young companies, bringing their shares into many passive funds and others that closely follow indexes like the S&P 500, a guide for trillions of dollars of capital worldwide.”
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