Is stock index membership for sale?

• Published date: 09 November 2021

Investors might assume membership is governed by a strict set of rules regarding market capitalisation, free float, and so on. These are factors, but index providers also have some discretion.

S&P 500 membership decisions have a "non-trivial amount of discretion", the paper says, more than other indices such as the Russell 1000. The study found that when companies buy credit ratings from S&P, it seemingly improves their chances of entering the index, whereas buying ratings from rival rating agency Moody's do not.

Companies, especially those ranked from 300 to 700 in market capitalisation, typically buy more S&P ratings (but not Moody's ratings) when there are openings in the index membership.

Additionally, the study notes that a rule change in...