Russell Index Rebalancing Clarity – How It Impacts Sirius XM
More often than not, we don’t have to watch pennies when considering what equities will be a part of the Russell, or which ones will be removed. However, this is Sirius XM, so a little drama is par for the course. The common question is whether Sirius XM simply needs to be at a dollar on the last day of May, or whether it needs to average above a dollar for the whole month. Given the current stock price (hovering around $1.00) , the concern is more highlighted than ever.
The Rule In Layman’s Terms:
First off, Sirius XM qualifies on all categories except the share price, which is yet to be determined. Knowing that, we can look at simply what the rule is with regard to the share price. Simply stated, SIRIUS XM NEEDS TO CLOSE ABOVE $1.00 ON THE LAST DAY OF THE MONTH. This differs from the NASDAQ listing requirement which uses the BID price at the close. The average price for the month only comes into play for equities that are being considered for removal from the Russell Indexes. This was the situation for Sirius XM last year, but as they are now trying to re-enter, the stock price simply needs to close above $1.00 on the last day of the month.
What Will The Impact Be, And When Will It Happen
The first part of the good news here is that there is virtually little downside. If Sirius XM does not qualify, things will be just as they already are. No forced sell-off will happen. Sure, investors will be disappointed, but the reality is that funds will not be forced to sell the equity.
The second part of the good news is that if Sirius XM does qualify, many funds that deal with the Russell Indexes, or mirror them, will have to take a position in Sirius XM Radio. This will create buying pressure. The key is knowing when that will happen, and being prepared as far in advance as possible.
Key Dates
Would you consider it an advantage to know an equity is going to be added and that at a future date buying pressure will occur? Certainly. The first key date is the final trading day in May. That happens to be Monday, May 31stFriday, May 28th (May 31, 2010 is a holiday). If Sirius XM closes above $1.00, they will be added to the Russell Indexes. You will now have the advantage of knowing that buying pressure will start. It could start earlier if the stock is comfortably above $1.00, so it behooves you to pay attention over the next few weeks. Bear in mind, this early buying pressure is not the re-balancing itself. That happens at a later date. Between qualification and re-balancing, speculators are taking advantage of the knowledge that there will be substantial buying when the Russell Re-balance date happens.
Reconstitution Schedule
June 11 – Preliminary additions and deletions to the Russell Global Index, Russell 3000® and Russell Microcap® published after 3:00 p.m. PST
June 18 – Updates to the list of additions and deletions
June 25 – Updates to the list of additions and deletions. Reconstitution final after the close of the U.S. markets
June 28 – Final membership lists posted for the Russell Global, Russell 3000, Russell 1000®, Russell 2000®, Russell Midcap® and Russell Microcap Indexes
As you can see, June 25th is the magic date. Keep yourself informed through the end of May, and throughout June, and bear in mind that there are other equities that will be involved in this as well. Some good research could be worth your while.
Position – Long Sirius XM Radio
yet, May 31 is a holiday, so is it the prior friday or Tuesday june 1st?
any input as to the other companies being considered?
tia
China….
Good catch….correction made in the article. May 28 is the key day.
Other equities….working on that at the moment
Good Weekend to all!!! GLTA!!!
Excellent work Spence!
Thanks for clearing up the questions . . . if the sell-off that resulted from Siri’s removal from the Russell is any barometer of expected buy-side pressure, an argument could be made for taking out upper-end resistance levels . . . of course clearing the $1.00-Close requirement first may not be as easy as we thought just a few days ago.
Not only will this increase demand by companies that mirror the Russel, but in effect removes any share bought by these ccompanies from the market since they are not likely to be sold as long as SXM remains on the index and in effect reduces supply that should create more upward pps momentum…