#RussellReconstitution #Russell2000 #OptionsTrading #VolatilityTrading #RetailInvestors #FTSERussell
In this episode of the Futures Radio Show, Anthony Crudele is joined by Catherine Yoshimoto from FTSE Russell and Paul Woolman from CME Group to discuss the 2025 Russell Reconstitution. They explain how companies are added or removed from the Russell 1000 and 2000 indexes, the importance of the $4.6 billion market cap threshold, and how institutional and retail traders use futures to manage volatility, hedge risk, and improve capital efficiency during this major liquidity event. Subscribe to stay updated on futures trading, market trends, and exclusive industry insights.
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Learn more about the Russell Reconstitution:
https://www.lseg.com/en/ftse-russell/russell-reconstitution
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https://www.lseg.com/en/ftse-russell/research/russell-2000-index-quarterly-chartbook-april-2025
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00:00:00:00 - 00:00:21:53
Unknown
What's up traders Anthony Crudele here. And thank you for tuning in to the Futures Radio Show podcast. It's that time of year again, Russell reconstitution. And I've got two incredible guests joining me, Catherine Yoshimoto from Footsie, Russell and Paul, woman from CME Group. We're breaking down how companies move in and out of the Russell 1002 thousand. Why that process matters.
00:00:21:58 - 00:00:45:26
Unknown
How it drives market flows and how traders, both retail and institutional, can use futures to manage volatility, risk and capital during this major event, whether you're hedging, exposure or looking to trade the rebalance. This episode has what you need. Let's get started. Today's podcast is sponsored by Footsie Russell and CME Group. Footsie Russell is the home of the Russell 2000 index.
00:00:45:38 - 00:01:11:32
Unknown
Did you know that with an 81% share and 1.5 trillion and institutional assets benchmarked, the Russell 2000 is the top choice by far among institutional investors. Like all Russell US indexes, it's rules based, transparent and reliable. Regularly updated with the latest IPOs and annually rebalanced. To learn more about Footsie Russell and their products, please go to Footsie russell.com.
00:01:11:37 - 00:01:51:29
Unknown
This podcast is brought to you by CME Group. Whatever the obstacles, CME Group provides the tools that global market participants need to manage risk and capture opportunities. With 24 hour access to futures, options, cash and OTC products across all major asset classes. You can drive your trading strategy forward with confidence and precision. CME Group where risk meets opportunity.
00:01:51:34 - 00:02:17:27
Unknown
Catherine and Paul, welcome back to the show. Thank you so much for having us. Thanks, Anthony. Great to be back. It's that time of year. Catherine Russell, recon, I want to start off with you. And just to get an understanding, how were the companies selected or removed from the Russell 1000 or 2000? Great question. So our full ground rules are on the Russell's website.
00:02:17:31 - 00:02:42:11
Unknown
There is a Russell reconstitution landing page. The rules that determine when whether a company is added or removed from the Russell US indexes at reconstitution are outlined at a high level. You know, it must be a US company. It must meet, the minimum market cap size, which is $30 million, in total, as well as a minimum traded price of a dollar on Rank Day.
00:02:42:11 - 00:03:02:34
Unknown
So rink day, April 30th this year is a really important day for all of the information for the companies to be in. And again, I just touched on a few, criteria, but there's also invest like considerations like minimum 5% voting rights, for the company as well as minimum 5% float for the share class. So at the end of the day, we are transparent in our rules.
00:03:02:34 - 00:03:30:59
Unknown
And then the determination of the Russell 1000 2000 membership is based on the total company size by rank. So, each company's market cap is calculated total shares times price. It's market cap is calculated then sorted largest to smallest. And the 1000 stock determines the break point between the Russell 1000 and Russell 2000. Now there's also a banding in place to make sure there's very little unnecessary turnover between the Russell 1000 and Russell 2000.
00:03:30:59 - 00:03:54:47
Unknown
So each year if a Russell 2000 stock has not exceeded the band to move into the Russell 1000, it'll stay in the Russell 2000 and vice versa. If a Russell 1000 stock has not declined below the band for the Russell 1000 to move into the Russell 2000, it will stay with the Russell 1000. So that's just a quick overview of how the reconstitution process works for the Russell US indexes.
00:03:54:52 - 00:04:17:42
Unknown
Oh perfect. Thank you. And we'll put that link in the YouTube description and on our website for people to go directly to see that. Let's talk about the thresholds. What is the threshold to get into the 1000 or the 2000. So this year, the break point between the Russell 1000, Russell 2000, like I said around that, between that, 1000 stock and 1,001st stock, was $4.6 billion.
00:04:17:42 - 00:04:40:36
Unknown
That's roughly unchanged from last year. Now, because of this band, you know, a company as large as $7.4 billion could have stayed in the Russell 1000, in a much smaller company below the $4.6 billion band. Might have stayed in the Russell 1000. So. So those are the thresholds around that break point. Paul, I want to bring you into the conversation, for CME Group.
00:04:40:47 - 00:05:06:55
Unknown
What impact does the annual Russell reconstitution have on trading volumes volatility open interest on CME groups. Russell products. We do see elevated volumes and open interest around the reconstitution period. And really if you think about it, the it's such a big trading event. There's over 3000 stocks which might be traded around the Russell 1000 Russell 2000 reconstitution.
00:05:07:00 - 00:05:26:51
Unknown
And so if you're an institutional investor or niche or a retail investor even, and you're trying to, have a portfolio of stocks which are trying to track these indices, you might actually want to outsource some of that operational burden to an index product, such as a future. And a lot of clients choose to do that over this period of time.
00:05:27:05 - 00:05:57:32
Unknown
And so in terms if we look at last year for the futures themselves, on reconstitution day, we saw that volumes were about 50% higher than throughout the rest of June. And into that run up of the reconstitution, we saw clients moving into futures. And that's represented by open interest growing by approximately $3 billion last year. Another thing which, is, is often overlooked, but around there are other risks to consider just then the beta risk of what you're trying to track.
00:05:57:45 - 00:06:24:11
Unknown
So in terms of dividend exposure or dividend risk associated with these indices, that's changing because the constitution of the what's inside these indices is changing. And so we see clients using dividend futures in an elevated way around this period as well to manage some of that dividend risk. And there's also financing risk around this too, in terms of, how easy some of these stocks are to finance or repo out.
00:06:24:18 - 00:06:46:09
Unknown
And we see clients using the total return futures we have available at CME, the adjusted interest rate tied to return futures, a lot of those are used are over this period around June, targeting the June point to try and manage some of those financing rates. So there's other types of risk to manage alongside the actual directional and beta risk of of the Russell one and 2000 futures.
00:06:46:14 - 00:07:06:20
Unknown
I was going to go to see if see me did any preparation for this because we talked about how much of a volume boost you see. But before I even get into that, I think it's smart for us to talk about the different choices of futures that they have, to use at CME Group during this time.
00:07:06:24 - 00:07:28:21
Unknown
Yeah, that's a good question and a great point out. So we have a variety of futures available. So if you think about it on Russell 1000 and Russell 2000, we have E-mini size futures. So the larger standard future that a lot of institutional clients trade. But we also have micro versions of those futures. So micro versions of the Russell 2000.
00:07:28:21 - 00:07:52:39
Unknown
That's one tenth of the size of the parent E-mini. And a lot of clients use that, both on the retail side, but also for some institutional clients, it's useful to use that to fine tune some of their, portfolios where needed, using those smaller size futures. And then, like I say, depending on if you're trying to manage other risks around the complex, we have style futures.
00:07:52:39 - 00:08:23:02
Unknown
So value and growth versions of both the Russell 1000 and Russell 2000 and that they're very popular, especially at times of regime change, which you can argue we've seen this year with the Trump administration. So that can be important in terms of clients moving between the value and growth versions of these indices. And then lastly, even trends of managing certain risk like dividend risk or financing risk, we have dividend futures available and we have the total return futures.
00:08:23:10 - 00:08:49:27
Unknown
So all of these things that is widely used by clients by how far we've come in the future space. Hi, Paul, to have all of these different kinds of futures, and tools for, large investors, small investors to be able to utilize during these times. It's it's pretty incredible, to see how the evolution of futures has come along and how much of an important role they play and so much of what happens in the finance, space.
00:08:49:27 - 00:09:11:29
Unknown
But, quickly before we get back to Catherine, is there anything that CME does at all, to prepare for this or is this is just like any other day. All the products are out there. Go ahead and use them. We're always prepared. There's nothing special that we do per se for this event itself, other than obviously trying to alert clients to all the toolkit that's on the shelf there.
00:09:11:34 - 00:09:39:35
Unknown
But one of the, important functionalities that we have, what we haven't mentioned so far, which is very, popular into this period, is the functionality called Btig that stands for Basis Trader Index. Close. And what that allows clients to do is trade a future tied to the official index. Close. And this is great for clients coming into this period who've got new, inflows into Russell 2000, Russell 1000 or any of the complex around it.
00:09:39:48 - 00:10:04:24
Unknown
And if you just want to outsource that risk straight away into an index based product boutique allows you to do that in a very seamless, easy, to trade manner. And that way you don't have to buy all the stock portfolio. You can just move that new AUM straight into futures over this period. Similarly, if you already have a stock portfolio, you can use B tech to potentially, migrate on the close into futures.
00:10:04:36 - 00:10:33:00
Unknown
Or we have another functionality called EFP or exchange fil related products. And what that allows you to do is switch a portfolio of stocks or ETFs into a future and vice versa. And again, that's widely used over this period of time as clients move out of their, stock portfolio into futures and then subsequently post the event, might move back into their, stock portfolio.
00:10:33:05 - 00:10:53:24
Unknown
Catherine, we'll go back to you. Similar question. Any specific preparation that Footsie is doing? I mean, obviously we're sitting here talking with same group today. We'll be talking with Cboe. How much communication is going on between you and the other exchanges and maybe any specific things that you guys are doing at Footsie in the background to prepare for Ross Russell recon.
00:10:53:29 - 00:11:16:54
Unknown
Certainly in terms of preparation it is a big trading day. It is one of the busiest trading days in the US equity markets. And by that standard globally, right, the US being the largest market in the world. So Recon Day, June 27th this year is anticipated to be a very busy day. So that's why Susie Russell is an index provider.
00:11:16:54 - 00:11:39:14
Unknown
We make sure that the market is well informed ahead of the changes that are coming. We do talk to the exchanges. Nisa and Nasdaq, for example, for their, you know, just just their awareness of the calendar and schedule. You know, even in advance of, announcement day. So May 23rd was this year's announcement day. Rank day again was April 30th.
00:11:39:19 - 00:12:04:26
Unknown
And then our website gets updated with the Russell 3000 and Micro-cap additions and deletions beginning on May 23rd. And they are updated every Friday going into the recon effective day. Now, I will also call out that there is a query period, a two week query period from the announced date to make any adjustments that are necessary to fine tune the membership, any updates that might be required.
00:12:04:31 - 00:12:28:19
Unknown
But then from June 9th, the membership will be locked down. And from there we continue to prepare into the, you know, the close of Russell reconstitution June 27th. So, generally speaking, again, we've seen large amounts of trades, I would say over the last five years or so, the volume at the close across the Nasdaq has exceeded over $100 billion over the last five years.
00:12:28:24 - 00:12:53:08
Unknown
And then last year was a record almost $220 billion traded across the close, across Nisa and Nasdaq. Now, I want to bring back to Paul and why he's here talking about the futures. I hear that, you know, futures, and derivatives are a good way to hedge risk going into that close. Right. And all the traders, all the index fund managers, they are preparing, going into that close to make sure they're not disrupting the market.
00:12:53:08 - 00:13:14:25
Unknown
Right. And so that's actually why, you know, we have for example the closing crossed with Nasdaq. Right to to close at one trade, one price at the close of the trade. And as well as just keeping tabs on what is going on in the markets. You know, obviously we have to keep track of holidays. Like now we have Juneteenth to worry about in June.
00:13:14:30 - 00:13:41:59
Unknown
But, you know, I would also comment on the fourth Friday for June for Russell reconstitution being effective is an important date because, you know, that was actually very thoughtful in terms of, you know, we don't want to double up with, S&P and triple, which, options expire on the third Friday of June. So that that is specifically why Russell reconstitution effective date is the fourth Friday of June and not the third Friday of June.
00:13:42:04 - 00:13:58:28
Unknown
Oh, that's good to know. I didn't know that all the years we've been talking, I did not know that that was the reason for that. But that makes a lot of the reason why is. Yeah, really? Yeah. One of the reasons. Yes. No doubt. Otherwise you like you said, you have a really, really busy day, across the board, massive volumes.
00:13:58:28 - 00:14:21:14
Unknown
So, I want to understand a little bit more about the preliminary phase and then like that final phase. Right. So you're saying June 9th is that time period where by June 9th, we know who's going to be in the 1000 or 2000. Is that correct? Yes. That's right. And so basically these companies leading up to this are waiting to see.
00:14:21:27 - 00:14:35:57
Unknown
It's got to be like, and where am I going to land? Is that really how it is? And it's I know it's an automated process. We've talked about this a lot in the past that you guys aren't going and just going, we'll take you and we'll take this one. It doesn't work that way. It's an automated process.
00:14:35:57 - 00:15:02:11
Unknown
And so these companies are I'm assuming there are final numbers are coming in, and then they're being chosen purely based on, you know, statistical reasons on why they end up moving into one or the other. That's correct. So Russell, U.S indexes is widely known as transparent and based on objective rules based process. That being said, that data could have some differences, nuances.
00:15:02:11 - 00:15:26:08
Unknown
So, you know, sometimes updates need to be made if let's say the nationality determination, is different from what was, you know, what the initial data showed, or voting rights or float clarification. So there are some additional elements. But usually, you know, we we can count on, not questioning the close price or, you know, the security type, right, of the company.
00:15:26:08 - 00:15:47:44
Unknown
So it's generally, I would say if I were to, pinpoint some of the reasons updates might need to happen, it's because of, nationality flow and voting rights. Perhaps needed some, clarification during this query period. But, largely, you know, we were announcing the membership of 3000 stocks. There is no, banding at the bottom of the Russell 3000.
00:15:47:44 - 00:16:13:11
Unknown
So, you know, we we know there's roughly 3000 stocks. And, they are included based on, you know, the band applies based on current membership. And that's again, to minimize turnover. But but for the most part, you know, the companies Russell 1000 or Russell 2000 membership is that on that announcement day, May 23rd. And some of the updates may be due to some of those elements I mentioned earlier.
00:16:13:16 - 00:16:43:18
Unknown
Got it. Thank you. Catherine. Back to you, Paul. Because we know it's going to be a busy time. I'm curious, is the exchange change margin requirements? Do they make any risk adjustments during this period? That's a good question. The answer is no in terms of margins. They don't fluctuate because of the reconstitution itself. The only reason that the margin would change, which is because there be higher or lower volatility over a period of time compared to the previous, the previous calculation.
00:16:43:29 - 00:17:10:55
Unknown
So actually no margins won't change. But margins are good. Topic to bring up because that's another potential benefit of moving into futures, in that it is a very capital efficient product with margins typically in the 4 to 5%, range for Russell indices. And at a time where capital is very precious for a lot of clients in terms of balance sheet and how that's, potentially constraining some of the things that they can trade.
00:17:10:59 - 00:17:36:30
Unknown
Actually, what we see is a lot of clients moving to futures because of that capital efficiency, and that frees up capital in the rest of their portfolio to, to manage in other ways and generate yield, etc.. Got a question about IWM? I know this is the future show, but, how much is there any communication, with the people that host the IWM product?
00:17:36:30 - 00:18:08:34
Unknown
I mean, you got to assume during this time period, you know, the futures are playing a big role, in what's happening in Russell recon. Is there any sort of impacts or conversations between the idea of IWM folks and how, the futures are potentially working together? I'm just curious how that unfolds. Yeah, I wouldn't say there's, conversations per se directly on this, but I think, you know, when, we think about the ecosystem, all of the products play their part.
00:18:08:34 - 00:18:28:30
Unknown
So you have the cash market, you have ETFs and you have futures and you have options. And all of that intersection of liquidity is very important. We think about liquidity. That's ultimately what a lot of clients care about. And when it comes to liquidity and points of price discovery, we find that futures trade around four times more per day.
00:18:28:30 - 00:19:02:38
Unknown
Notionally, than all of the, Russell 2000 ETFs combined. So the futures point of price discovery plus it trades around the clock in terms of pretty much 24 hour availability and liquidity. But in terms of thinking about arbitrage channels, using futures to help manage creation redemptions, using bid ticks against Nav all of these things are interrelated. And that's where, clients and liquidity providers are very, adept at understanding how all of these things connect and are interacting together.
00:19:02:49 - 00:19:27:51
Unknown
And they will choose what mechanisms and what trading vehicle is best for them at that point in time. Got it. You know, Catherine, back to you. I'm curious, is there any historical trends that you noticed during this time period? I would say, you know, I think what surprises some people is, actually, the June is tends to be a lower volatility month.
00:19:27:55 - 00:19:53:11
Unknown
That that's generally thought because, Russell does such a great job communicating with the markets. You know, we announced the upcoming changes as well in advance. And so June tends to be a more stable month in terms of just just volatility in the market. So I think some people are surprised by that fact. And I'm sure that is also helped by the derivatives ecosystem as well as the liquidity.
00:19:53:11 - 00:20:25:45
Unknown
Russell. Reconstitution, I would say, is viewed primarily as a liquidity event. Yes, there are changes occurring based on the $10.6 trillion assets benchmarked, with higher volumes. I think Nasdaq, has said that it sees maybe 30% increase in volumes, for the second day trade. But but that being said, I think generally speaking, the month of June tends to be, lower volatility in terms of going into the close because, the changes are communicated well in advance to the market.
00:20:25:50 - 00:20:52:23
Unknown
Yeah, I know that on the futures side, I mean, that's that in that we see, like I said, about 50% extra volume on reconstitution day across the Footsie futures and on Btig itself. We see actually three times what we normally see. So, you know, do you see a lot more activity tied to that closing period. And people using the liquidity that is available both through the cash and through the futures tied to that closing period?
00:20:52:28 - 00:21:13:18
Unknown
Yeah, that's a testament to all the preparation all of you do to get Russell Ricard, in the position to be able to really go out seamlessly. Probably most retail people never even know what's happening if they if they're not watching the show or going out there doing research, they just know, you know, markets continue as normal. Obviously, they'll probably see the spikes of volume in their charts.
00:21:13:18 - 00:21:34:54
Unknown
But aside from that, it's done, you know, flawlessly. And that's pretty interesting. It's pretty cool. You know, and, you know, I want to stay with you just for a second, Paul. And pretty much kind of close out here because I think that, what I want to know is participation trends. You know, how much of of the participation are you seeing at CML?
00:21:34:54 - 00:21:58:24
Unknown
Is this really an institutional day? Is this a day where you're seeing a big influx of retail, our retail traders actually noticing this? I just mentioned that maybe they don't, but maybe they do. Are you seeing you know, people across the board come in to trade Russell recon. How does that look. Yeah, I think the institutions are definitely very active here that ultimately they're benchmarking to these indices and they need to manage these risks.
00:21:58:37 - 00:22:21:05
Unknown
So it's a very important day for institutions. And they're active across the board. Whether that be managing that replication physically by hatching, trading all of those individual stocks or like I say, outsourcing it to an index product such as a future. However, we have seen retail be much more active in Russell, indices over the last few years.
00:22:21:05 - 00:22:44:44
Unknown
That's part of the reason why we launched micro version of the Russell 2000. And we've seen that, volumes in that grow over time, and be traded very actively. I think the Richaun is a, significant trading event within the, calendar year and brings a lot of attention to the Russell indices. But as stocks move in and out between Russell 1000 Russell 2000.
00:22:44:55 - 00:23:08:46
Unknown
And so that is important as a retail for retail and as a signaling effect for retail between some of those companies. And thus retail definitely are involved around this period. Wanted to trade both across Russell 2000 Russell 1000 products. I think it's just because retail trader has become a lot more sophisticated. Technology has helped that you guys as exchanges have helped that education.
00:23:08:46 - 00:23:28:28
Unknown
What we're doing here, I think is extremely important. People have become, you know, so much more involved in managing their portfolios and with the different products that CME Group and with everything that Footsie is doing, you know, it's it's an interesting time because the the retail trader isn't really so retail as much as they used to be. And of course there's always going to be new people coming in.
00:23:28:28 - 00:23:49:11
Unknown
But what is classified as retail is pretty wide, variety of traders. Catherine, I want to end with you today. Same question I asked Paul, is this more of a retail, day, or is this more of an, institutional day? Is it a combination? Is it more institutional? How does that look from a fuzzy standpoint?
00:23:49:16 - 00:24:09:58
Unknown
I would say it's probably a combination to Paul's point. Probably see a little bit, growing retail activity, but largely still institutional because of you know, the assets benchmark. You know, we have a lot of institutional investors tracking the benchmarks. So, and then a lot of that a trading activity is going to be your ETF issuers, right there.
00:24:10:00 - 00:24:34:06
Unknown
They are preparing to move their, large passive assets into the closed. They might be trading a little bit ahead. So, you know, just but then they want to minimize tracking error. Right. So so the goal for index fund managers is to track the benchmark as closely as possible. So I would say it's still, a largely an institutional, impact.
00:24:34:06 - 00:24:58:49
Unknown
But I think to Paul's point, we've definitely seen growing retail interest. Right? I think, platforms like Robinhood, for example, right, has made trading more accessible, democratizing investing to the retail investor. There's like a lot more interest, I think, in trading in indexes in general. I would say, so also, I'm, on the advisory board of the Index Industry Association.
00:24:58:49 - 00:25:26:02
Unknown
And, you know, we talk about how, you know, indexed knowledge. I mean, it's still nascent, across the board. But there's definitely an interest, growing interest to see, you know, just learn more about indexes and how they impact the investment ecosystem. Yeah. No. Fantastic. Last thing, Catherine. I'm sure some people are wondering where can they get that final list of what is and the 1002 thousand.
00:25:26:02 - 00:25:52:18
Unknown
And also, is there any way to get notifications and updates? For Russell, reconstitution? Certainly. So for our public, you know, the I mentioned earlier, the Russell 3000 and Russell Microcap additions and deletions are posted to our website for the 1000, 2000. It's not as, you know, public, you know, our clients obviously have all the details.
00:25:52:23 - 00:26:12:11
Unknown
But there are reports that we do publish with some information. And after the closed, usually the fact sheets will reveal, you know, the top ten members, for example. And so there are resources on our website. So certainly encourage you to go to our website. And if you have questions, you can send an inquiry to info at Fitzy russell.com.
00:26:12:24 - 00:26:33:56
Unknown
That's right go to Footsie russell.com. And of course see me group.com. Catherine and Paul we do this every year. I can't thank you enough for taking us inside behind the scenes of what's happening within the exchanges and this very important moment every year. That happens in June, with the Russell 1002 thousand. Thank you so much for joining me today.
00:26:34:00 - 00:26:48:26
Unknown
Thanks, Anthony. Thank you very much.