Nasdaq OMX announced today that it will cut the weight of 82 securities represented in the Nasdaq-100 to bring them more in line with their market capitalizations. Under normal conditions, the list of annual additions and deletions is publicly announced via a press release in the early part of December. Replacements are made effective after the close of trading on the third Friday in December. Today’s interim evaluation is considered an extraordinary circumstance under the terms of the index.
NDX was rebalanced following a very precise process. The methodology is based on testing the Index Securities for compliance of certain thresholds: if a single Index Security is greater than 24% then the index will be rebalanced, and if all Index Securities greater or equal to 4.5% exceed 48% then the index will be rebalanced.
The most notable change in the rebalance was to Apple, which was cut to 12 percent from 20 percent as a result. Still, Apple remains the largest component of the Nasdaq 100. The changes will bring Apple in line with Nasdaq rules that require a rebalancing whenever a single stock makes up more than 20% of the index. Although the news was announced early this morning, the change goes into effect on May 2.
The NDX Special Rebalance will result in a market event similar to the annual Russell Reconstitution. For every $1 billion benchmarked to NDX, it is expected that 9.5 million shares will execute. Last year’s Russell Rebalance resulted in a record 1.04 billion shares worth $11.2 billion being executed in 0.855 seconds.
Reuters is reporting that, “More than $330 billion in funds and $40 billion in exchange-traded funds are benchmarked to the Nasdaq 100, including the QQQ, the most actively traded Nasdaq-tracking ETF, which has a market capitalization of $24.4 billion.” These ETFs will need to execute trades to bring them inline with the new index structure.
The NASDAQ-100 Index includes 100 of the largest domestic and international non-financial securities listed on The Nasdaq Stock Market based on market capitalization. The Index reflects companies across major industry groups including computer hardware and software, telecommunications, retail/wholesale trade and biotechnology. It does not contain securities of financial companies including investment companies.
NASDAQ-100 SPECIAL REBALANCE: ESTIMATED SHARES PER INDEX SECURITY