RN Prime Index Futures

Characteristics

Broad Market Coverage

The Russell/Nomura Prime Index (RN Prime Index) consists of the 1,000 largest stocks in terms of free-float adjusted market capitalization, selected from among all listed stocks on all markets in Japan. This means The RN Prime Index has broad market coverage.

  • The RN Prime includes firms listed on all Japanese equity markets including those not listed on the first section of Tokyo Stock Exchange
  • The RN Prime accurately reflects new developments in the Japanese stock market

Free-float Adjusted Market Capitalization Index

A "Free-float adjusted market capitalization index" is calculated based on shares available for trading in the market at any time (free-float shares). Accordingly, the shares not available for trading in the market (non free-float shares) are excluded from the index calculation.

Characteristics of Free-float Adjusted Market Capitalization Index

  • Reflects what is really happening in Japanese equity markets The following example shows how stock price changes are reflected in index values, due to differences in calculation methods, by comparing a Simple Market Capitalization Stock Index and Free-float Adjusted Market Capitalization Index. Assume that the value of both a Simple Market Capitalization Index and Free-float Adjusted Market Capitalization Index are 1,000 points, respectively. Each index consists of 3 issues (A, B, C) and each stock price and market capitalization is shown on the following table (See "Table 1" below.).
  • Simple Market Capitalization Index = 1,000 points
  • Free-float Adjusted Market Capitalization Index = 1,000 points

Table1

Issue Stock price
(yen)
Market Capitalization
(¥ mil)
Weight
(Simple Market Capitalization)
Free-float ratio (%) Free float Adjusted Market Capitalization
(¥ mil)
Weight
(Free float Adjusted)
A 200 200 0.20 100 200 0.40
B 300 300 0.30 60 180 0.36
C 500 500 0.50 25 125 0.25

Simple market capitalization of each component issues is C > B > A (in descending order), while Free-float Adjusted Market Capitalization based on the shares available for trading is A > B > C (in descending order).

If the price of C moves up by 20% from ¥500 to ¥600, how will this price movement be reflected in Simple Market Capitalization Index and the Free-float Adjusted Market Capitalization Index?

  • Simple Market Capitalization Index = 1,100 points (10% up)
  • Free-float Adjusted Market Capitalization Index = 1,050 points (5% up)

As shown in the above example, the price movements of component issues affect each index differently according to the calculation methods.

It depends on individual needs which index is more useful for investors. However, a Free-float Adjusted Market Capitalization Index shows more precisely the trends of a "real stock market", in which investors are actually able to trade at any time.