The FTSE Russell is likely to exclude companies with only non-voting rights from some of its equity indices, possibly including the Russell 3000, after institutional investors expressed outrage over Snap Inc.'s (SNAP) move earlier this year to have initial public offering with shares holding no voting rights, according to two people familiar with the situation.
If the FTSE adopts a proposal it has under consideration, as many expect, it would likely represent a major defeat for the company behind the Snapchat app because it means that major institutional investors, including big pension funds, won't be investing in it.
Many big index funds, exchange-traded funds, and public pension funds invest passively following major indices, such as the Russell 3000. The FTSE Russell, which is owned by the London Stock Exchange, has at least for now temporarily excluded Snap from the Russell 3000 as it reviews whether changes should be made to the characteristics of companies that are permitted to participate in its indices.
The serious likelihood that Snap would be excluded from the index is likely a key contributor weighing down the company's shares, which traded at $15.26 a share on Wednesday morning, significantly down from its $27.00 a share high near its IPO debut.
The index firm, which expects to reach an official decision this month, has issued a proposal that would require at least 5%, 10% or 25% of the votes be in the public sphere. If passed, Snap would not be included.
Also, the S&P Dow Jones Indices, which produces the S&P 500 index, recently issued a series of questions to investors on the issue of non-voting shares, including one that asked whether a company listing shares with no voting rights should be eligible for an index. The deadline for comments ended June 30, but the questions suggest to some that the S&P appears to be moving in the direction of excluding a company from their indices if they only issue non-voting shares. An S&P spokesperson declined to comment on when it would release an update.