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1. Calculate the Total Constrained Weight = (Sum of all the constrained weights).
   Constrained weights = (the newly assigned weight for the segment or security – the vendor-supplied weight for the segment or security).
   Sum the constrained weights from Step 1.
2. Calculate the Sum of the Total Original Source Weight at all constrained levels.
   Sum the original source weight before the constraints.
3. Calculate the New Weights for the constrained securities and segments and the securities and segments below the constrained level using:
   Weight Change = (Source weight for segment or security * That Segment or Security's Constrained Weight) / (That Segment or Security's Total Original Source Weight)
   New Weight = Weight Change + Original Source Weight
4. Calculate the New Weights for all remaining (nonconstrained) levels.
   Weight Change = –1*((Source weight for segment or security * Total Constrained Weight (Step  1b)) / (1 – (Sum of the Total Original Source Weight at all Constrained Levels (Step 2))
   New Weight = Weight Change + Original Source Weight
5. Copy all the security and segment returns, except those for the constrained level and above, from the source to the target (custom benchmark).
6. Calculate the New Returns for the segments above the constrained segment.
   Reproportion the New Weights (calculated in Steps 3 and 4) to 100 percent for the target benchmark.
   Calculate the New Returns: Sum (Return * New Weight) of all the underlying segments or securities.

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Constrained Benchmark Example

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1. Calculate Total Constrained Weight = 10% - 17.97% = -7.97%.
2. Calculate the Sum of the Total Source Weight at all Constrained Levels = 17.97%.
3. Calculate the New Weights for the constrained segments/securities and those below the constraints. For example:
   Total Australia Weight Change = (17.97% * -7.97%) / (17.97%)
   Total Australia New Weight = -7.97 + 17.97% = 10%
4. Calculate the New Weights for the remaining (nonconstrained) levels. For example:
   Total UK Weight Change =1*((21.65% * -7.97%)/(1 17.97%)) = 2.10%
   Total UK New Weight = 2.10% + 21.65% = 23.75%
5. Copy all security and segment returns, except those for the constrained level and above.
   For example: Total UK Return = 3.475919
   Returns above the constrained node are recalculated — in the example in the following table, only the Total return is recalculated.

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