S&P Acquires Salomon Smith Barney Global Indexes, Considers Move To Free Float

January 01, 2004

In a high profile acquisition for the indexing industry, Standard & Poor's inked a deal with Citigroup to move Smith Barney's global benchmark index business (previously the Salomon Smith Barney (SSB) Global Equity Index System) to S&P's Index Services. The indexes will be renamed the S&P/Citigroup Global Equity Indices. The existing S&P indexes, including the S&P 500, will not be affected by the announcement, according to S&P.

"Through the addition of this world-class benchmarking business, Standard & Poor's becomes a full-service index provider offering the marke tplace a wider range of index products and services," said Paul Aaronson, executive managing director of Standard & Poor's. "With the new S&P/Citigroup index series, Standard & Poor's boosts its ability to offer broad market benchmarks as well as custom indices on a global basis, building on the extensive index data, calculation and analytical tools available in both the S&P/Citigroup and investable indices Standard & Poor's has developed over the last 75 years."

The SSB Global Equity Indexes were introduced in 1989, and were the first global index series to be fully floatadjusted for crossholdings and investment restrictions. The non-U.S. components of this series has some institutional following, with several billion dollars in indexed assets tied to both its large-/mid-cap Primary Market Index (PMI) and it's small-cap Extended Market Index (EMI).

S&P/Citigroup constituent issues will be classified according to the Global Industrial Classification Standard (GICS).

According to David Blitzer, chairman of the S&P 500 Index Committee, the ramifications are significant:

Q: What is the long-term vision for the new S&P/Citi indexes? What was the core strategic significance of the acquisition?

A: We think they're a good set of global benchmarks that cover the whole waterfront of the international m a r kets. They' re not going to become the basis for trading products -they're not designed for that. They're benchmark indexes, and that's what they'll remain.

The indexing business in general has slowly but surely developed two focuses. One focus is benchmarks, and the other is developing indexes designed to support tradable products -the S&P 500 being a prime example of a tradable index, with all the assets tied to it. Tradable prod- ucts include futures, options and ETFs. With benchmarks, the idea is that you have to cover the entire accessible market, and do it as cleanly as possible. With tradable products, liquidity counts more than anything else. It's like location in real estate: liquidity, liquidity, liquidity. Traders want something they can hedge.

Our sense is that index providers should be in both camps. With one or two exceptions, it's very difficult to argue successfully that an index does both-benchmark and tradable product. Making sure that all stocks are liquid usually means excluding some of them. We made the move because we think it's important to have a leading position in both camps.

Q: MSCI recently introduced a domestic family of benchmarks that have been adopted by Vanguard's index funds. Now S&P is entering the international space with the new S&P/Citi indexes. There's a lot going on there in terms of moving into each other's turf.

A: I agree. From our perspective on benchmarking, the S&P/Citi indexes have everything that investors want. They have a float-adjusted history going back to 1989, which is longer than anyone else. They've been floatadjusted since the beginning. They' v e operated on a consistent methodology since the beginning.

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