#United States #New York #SP Dow Jones #liquidity ratio #U.S. indices

S&P Dow Jones Indices Clarifies Float-Adjusted Liquidity Ratio

In an important update, S&P Dow Jones Indices (S&P DJI) has provided clarification regarding the eligibility criteria for its Float-Adjusted Liquidity Ratio (FALR), which is a critical measure utilized in the evaluation of the S&P U.S. Indices as well as the Dow Jones U.S. Total Stock Market Indices. This clarification aims to enhance transparency and ensure that all parties involved in trading and investing have a clear understanding of the underlying methodologies.

Understanding the Float-Adjusted Liquidity Ratio (FALR)

The Float-Adjusted Liquidity Ratio (FALR) is a key performance indicator used to measure the liquidity of stocks within an index. It is calculated by taking the annual dollar value traded and dividing it by the Float-Adjusted Market Capitalization (FMC). The FALR is essential for gauging how easily shares can be bought or sold without causing significant price fluctuations. This measurement plays a crucial role in assessing how indices manage their constituent companies based on liquidity.

Changes to the Methodology

Before this clarification, the existing rules referred to the use of composite pricing alongside U.S. consolidated volume, excluding dark pools. In the updated methodology, S&P DJI has defined the annual dollar value traded to include all publicly reported U.S. consolidated volumes, thereby broadening the definition and capturing a more comprehensive picture of market activity.

For the purpose of calculating the FALR, the annual dollar value traded is now defined based on the average closing price multiplied by the volume of trades executed over the past 365 days leading up to the evaluation date. For new public companies or spin-offs, which may not have a year’s worth of trading history, the dollar value traded from the evaluation date will be annualized to adjust for the shorter trading period.

Implications for Investors

This improvement means that investors and other stakeholders should expect greater precision and reliability in how liquidity is assessed across various indices. Notable indices impacted by this change include the S&P Composite 1500, S&P 500, S&P 400, S&P 600, and the Dow Jones U.S. Total Stock Market Index.

While current constituents of these indices will not see any changes in their status, the amendment serves to reinforce the existing rules rather than alter them. The requirement for the FALR remains at 0.1, ensuring that companies listed can maintain a threshold of liquidity.

Effective Date

The updated criteria are effective immediately as of December 9, 2024, and all interested parties can review the updated methodologies on the S&P DJI website. This move is part of S&P DJI's ongoing commitment to maintain the integrity and functionality of its indices, enabling investors to make informed decisions in a dynamic market environment.

About S&P Dow Jones Indices

S&P Dow Jones Indices is recognized globally as a leader in index-based solutions, providing an invaluable resource for index-related data and research. The creation and continuous development of iconic indices such as the S&P 500 and the Dow Jones Industrial Average have established S&P DJI as a fundamental player in the financial markets. The organization is dedicated to delivering quality insights that empower individual and institutional investors alike, allowing them to navigate the complexities of global markets with confidence.

For additional details about this announcement and more related insights, visit www.spglobal.com/spdji.