the role of the index provider index providers a data Publishers and own the methodology and data for the wide range of indexes that they offer the main providers include S&P Dow Jones who produce the Dow Jones Industrial Average and the S&P 500 msci who responsible for the msci world index and footsie Russell who maintain the foot c100 and the Russell 3000. Each index provider is responsible for setting the methodology. They will use to build their indexes many user rules-based approach but there are also some indexes which use committees in addition to rules to make decisions providers must determine which security should be included within the index what weight each constituent has in the index and how frequently the constituent securities within the index are reset. These rules are not consistent between index providers and can vary widely. For example, the reconstitution of the Russell Equity indexes takes place annually while Bloomberg Barclays fixed income indexes are reconstituted on a monthly basis. Index providers also need to ensure that they have rules for dealing with other issues which might affect an index such as the inclusion of new issuances all the impact of corporate actions and to ensure that these rules are followed as necessary. Some indexes include all the securities within a certain sector or strategy so as new Securities, which meet the criteria for inclusion within the index are issued the index needs to have an approach detailed in advance which determines how and when that security should be added to the index. Corporate actions or activities which alter a company and may well have an impact on its share price. Some examples of corporate actions are rights issues stock splits and m&a activity since these activities could alter the number of shares or the price per share of a company. They could have an impact on how the index provider calculates the value of the index and the index provider needs to have rules in place to deal with these events. We will look at an example of this shortly in addition Equity indexes can Implement new issuances and corporate actions on different timelines. For example, Tesla was added to the Russell 1000 index in September 2010, but the S&P committee didn't decide to include the company in the S&P 500 Index until the December 2020 quarterly rebalancing the stock price volatility and the company's profitability were factors in the S&P committee's decision to delay Tesla's inclusion. In addition index providers will consult with Market participants for example asset managers such as BlackRock or other index managers on changes to the indexes or the development of new indexes to meet with changing client demands and investment philosophies. This can be seen in the creation of a large number of ESG that is environmental social and governance indexes in more recent years. So what's in it for the index provider? Typically, they charge a fee for the creation of bespoke indexes. They provide index funds with access to detailed information regarding the constituents and their ratings within the index. The role of the index provider an example to demonstrate the impact of m&a activity on an index. Let's take an imaginary index which contains five companies companies a b c d and e they have a market capitalization in millions of dollars or 35, 25, 20 10 and 10 respectively giving an index waiting that corresponds to their market capitalization in this example. We will look at the impact of company C acquiring Company E. The treatments of this acquisition within the index will depend on the nature of the acquisition. If this were an all Equity transaction where companies see creates new shares in itself to give the existing shareholders of Company E, the market capitalization of C would increase since there would be more shares outstanding following the acquisition as a result the weight that the now larger company see would hold in the index would increase for simplicity's sake in this example. It has been assumed that the acquiring entity would be worth the combined value of c and e priority acquisition that is Million, + 10 million. This means that c would have an index weight of 30% following the acquisition. If the deal was in all cash transaction, there would be no direct increase in the market capitalization of company C since it would have to pay out cash that it either already had on its balance sheet or that it had to borrow in either case there is unlikely to be an immediate increase in the market capitalization of company c as a result of the acquisition imagine that you held all the shares of the index and this acquisition went ahead as an all cash transaction. You would no longer hold all of the value that you previously held as shares since you would have received cash from company C for selling your shares in Company E as a result many indexes redistribute the waiting that Company E had in the index across the remaining members of the index proportionate to their existing ratings The Rules governing the timing of this recalculation of the index weights and the rules relating to when Company E is replaced in the index all need to be set by the index provider and understood by any index fund manager looking. To track the performance of the index.