New York - February 16, 2003. In the latest chapter to an evolving story that will change the way index fund managers operate, Standard & Poor's Indexes announced the twelve Nasdaq-listed securities that will be used in its upcoming closing prices pilot program. The program will involve Nasdaq listed stocks in the S&P 500, and will be calculated using closing prices as determined on the American Stock Exchange (Amex).
"We are implementing this pilot program as a result of concerns expressed by some in the investor community about the reliability of the closing prices for Nasdaq-listed securities. For example, on the date on which one or more stocks are added to or removed from the S&P 500, or when the futures or options based on the S&P 500 expire, investors tracking the index need reliable and achievable prices at which they can reasonably expect to trade," said David Blitzer, Chairman of the S&P 500 Index Committee.
This pilot will begin Monday, March 1, 2004 with six stocks:
Standard & Poor's will add six more stocks to the pilot program on Monday, March 8, 2004:
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The pilot program will end on Friday, May 14, 2004 at which time pricing on the twelve stocks will revert to Nasdaq closes. Plans for the pilot plan had initially been delayed after concerns were voiced by the Nasdaq Stock Exchange, in a letter to the Securities and Exchange Commission (SEC), as well as in letters by the Financial Information Forum to both Standard & Poor's and the SEC.
The choice of the American Stock Exchange (AMEX) for the program was an interesting one, as the AMEX is not noted for having the best technology of the exchanges, and trades a very small amount of Nasdaq stock volume. The AMEX is, however, known as an innovator, and the move by S&P highlighted the problem with getting good closing prices for Nasdaq stocks. Click here to read the story covering the Nasdaq opening and closing prices systems in detail.
Clearly, S&P above all simply wants a reliable pricing system for its licensees. Indeed, it is possible that the AMEX pilot program was meant as a message to Nasdaq to get its house in order on closing prices. If so it worked, because Nasdaq has since announced a program for unified opening and closing prices and executions.
A new permanent system will come soon enough, as Blitzer noted, "Following the testing period we will evaluate the performance of the Amex pilot program and the new Nasdaq closing price system, and will be soliciting feedback from the investment community. We expect to publish our findings shortly thereafter."
When the dust has settled and a new opening and closing pricing and execution system has been implemented for Nasdaq stocks, investors will be better for it. The reason as Blitzer notes, is simple, "Index funds want an achievable closing price."