We’ve talked about the basic ingredients before. index structure. One ingredient is finding out which country a stock belongs to.

What makes a stock “American”?

On a basic level, it sounds like a company’s domicile should be easy; Many companies have their headquarters and shares traded in the same location as their company.

For many index providers, this is actually the first test they use.

But today, many companies operate internationally and are publicly traded in more than one country; This makes it difficult to find out which country a company belongs to.

Do you recognize a US company when you see it?

Most index providers have special rules that take into account less clear-cut situations, such as:

• Where the assets and income are.
• Where shareholders or management are located.
• If companies file accounting returns with the U.S. Securities and Exchange Commission as a U.S. or foreign issuer.

Many then list or blend these factors in such a way that a company cannot qualify for two countries at the same time (same shares).

There are 29 companies in the S&P 500 that you might probably consider American

Case in point: There are 29 companies in the S&P 500 that you probably think of as “American” but that don’t have trading centers, headquarters, or incorporations (the S&P’s primary domicile factors). global residence policy) in the USA We list them all in Table 1, with additional columns showing how. S&P rules expands to include almost all of the other residence factors listed above (purple heading). The “fine print” in the last header line contains details about how the S&P rules are then applied.

Table 1: S&P 500 “foreign” companies

Click to see enlarged image

You can also see from the table:

• pink shadow It shows that not all stocks pass all of the “American” tests, but they pass most of them.
• light green shade indicates that there are also special rules for some specific countries; Here, for historical incorporation reasons, S&P rules specifically allow a company headquartered or incorporated in another country to be more easily treated as a U.S. company.

Some companies also use their 10-Ks (a filing with the SEC) to publicly disclose additional details about the whereabouts of their staff, management or customers.

But at the end of the day, S&P reserves the right to consider “other factors deemed relevant” by the index committee.

In short, what Table 1 really shows is that determining a company’s country in the real world is complicated!

That may be about to change for S&P

In September 2024, S&P announced: proposed changes according to their residence policy.

The two major proposed changes are:

• Establishment It will be much more important.
• Priority listing will be eliminated.

Additionally, for these “complex” cases there will be four additional secondary factors to consider:

1. Location of company meetings
2. secondary lists
3. Reporting currency
4. Company history

A simple way to think about the new rules is in Table 1 below.

• The first is the test of fundamental factors (no longer includes “primary” listing but still requires a liquid US stock).
• Failing one of these three tests will introduce purple “secondary factors”, including new factors in light purple.
• If that’s not certainThe new rules suggest that concatenation should be the primary determinant (gray squares).

Chart 1: Proposed changes to S&P global residency policy

This will make it even more difficult for companies with international founders

We know that aggregation is an easy and clear data point to collect. But that doesn’t make it the best way to describe a “US company.”

It often reveals more about where a company’s founder grew up, rather than where a company’s business and investor base is currently.

For companies with foreign founders, this has the potential to significantly limit their access to U.S. capital markets and institutional investors in the future. For the rest of us, this could be a headwind for U.S. capital markets, making them less attractive for listing, slowing IPOs, and eventually reducing U.S. economic growth.

The important thing is that you have time to comment!

S&P founded advice using the form Here. S&P also set a short deadline for acceptance and comments are expected to close On October 31, 2024and the rule would potentially be adopted as early as December 1, 2024.

Economic Research Senior Specialist Nicole Torskiy contributed to this article.