Broker/Dealer Index

Introduction:
The AMEX Securities Broker/Dealer Index is the most cited, most widely recognized indicator of the brokerage industry. Started on October 15, 1993, the Broker/Dealer Index was designed to measure the performance of highly capitalized brokerages in the U.S. When it was started, this Index had an initial base value of 300. Included in the Index are companies in the U.S. that provide securities brokerage services, market making, U.S. Treasury Primary Dealer functions and other functions dealing with U.S. and international securities.

How does it work?
The AMEX Securities Broker/Dealer Index is equal-dollar weighted. It is actually one of the few Indices to use such form of weighting. In an equal-dollar rating, each constituent of the Index is given equal footing because all stocks account for an equal percentage of the Index. To ensure continuity, the Index is rebalanced quarterly by the people who manage it. As it is equal-dollar weighted, the AMEX Securities Broker/Dealer Index is not dominated by the biggest or the highest stock-priced brokerages.

Eligibility Criteria:
As mentioned above, the Broker/Dealer Index contains the twelve most widely-recognizable names in the brokerage industry. Aside from having its headquarters situated inside the United States, the companies must have a high market-capitalization and among the leaders of the brokerage sector.

Strengths:
The Broker/Dealer Index gives a fairly good representation of the brokerage industry as a whole. Since it includes twelve of the biggest names in the industry, its it is able to reflect the general direction of the brokerage sector.

Weaknesses:
Not a lot of Indices use the equal-dollar weighting method, and with good reason. In an equal-dollar weighted index, market-capitalization is not considered, as well as stock price of each component. Analysts and investors simply do not agree that the largest companies should have an equal footing with the smallest ones in determining their impact on the Index. It doesn't happen in the real world, therefore they say that the Broker/Dealer Index cannot accurately reflect the true performance of the brokerage industry.

Additional Information:
The Broker/Dealer Index is unlike other Indices which investors can use to trade or create mutual funds.

The AMEX Securities Broker/Dealer Index is the most cited, most widely recognized indicator of the brokerage industry.