January 16, 2015 / 6:43 PM / 3 years ago

UPDATE 2-MSCI to allow overseas listings to be included in major indexes

(Adds another fund affected by the index change)

By Ashley Lau and Jessica Toonkel

NEW YORK, Jan 16 (Reuters) - Index provider MSCI Inc said it plans to change its rules to allow foreign-listed companies traded outside of their home countries to be included in its Global Investable Market Indexes.

The move would allow so-called “orphan companies” such as Chinese online retailer Alibaba and China’s online search engine Baidu Inc to be eligible for potential inclusion in both MSCI Global Indexes and MSCI Country Indexes.

Previously, companies that were based in one region, but whose shares were listed in a different region, were not allowed to be included in some of MSCI’s biggest emerging markets indexes.

“We feel that global indexes should have as exhaustive coverage as possible,” said Pavlo Taranenko, a member of MSCI’s Index Research team, noting that the rule change had been a priority for index provider “for quite some time.”

On a regional basis, the biggest impact as of now will be for MSCI’s China indexes, which will potentially have 17 additions with the rule change, and Hong Kong, with three potential additions. The decisions will be subject to a semi-annual index review in November, at which time foreign-listed companies will become eligible for inclusion in those indexes, as well as in the MSCI Bahrain, Mauritius, Ukraine and Romania indexes.

MSCI decided to hold off on including any additions to its Russia indexes because of concerns around the current market environment.

Some $9.5 trillion in assets track the MSCI Global Investable Market Indexes.

Among some of the biggest funds that could be affected are the iShares MSCI Emerging Markets ETF, which has some $32.2 billion in assets tied to it, and the iShares Core MSCI Emerging Markets exchange-traded fund, which has about $6.1 billion in assets.

The much-anticipated decision follows a three-month consultation with market participants that began in September, around the time when Alibaba went public. During that time, investors, many of whom wanted to own shares of Alibaba, pushed MSCI to reconsider its rules.

Alibaba was a “very visible example” of the need to fill the gap in index coverage, Taranenko said.

The inclusion of companies like Alibaba and Baidu could also boost to the small number of funds that currently hold the stocks, such as the KraneShares CSI China Internet ETF and the Emerging Markets Internet and E-commerce ETF . (Reporting by Ashley Lau and Jessica Toonkel in New York; Editing by Tom Brown, Meredith Mazzilli and David Gregorio)

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