The NASDAQ-100
is a stock market index of 100 of the largest domestic and international
non-financial companies listed on the NASDAQ stock exchange, it
is a modified market value-weighted index; the companies weights
in the index are based on their market capitalization, with certain
rules capping the influence of the largest components. It does
not contain financial companies, and includes companies incorporated
outside the United States; both of these factors differentiate
this index from the S&P 500 and the Dow Jones Industrial Average.
History
The NASDAQ-100
began on January 31, 1985 as a way for the Nasdaq Stock Market
to support enhanced media coverage for itself. The index was introduced
the same day as the NASDAQ Financial-100 Index and as a result,
financial companies were, and still are, excluded from the NASDAQ-100.
The base price of the index was initially set at 250, but when
it closed near 800 on December 31, 1993, the base was reset at
125 the following trading day, leaving the halved NASDAQ-100 price
below that of the more commonly known NASDAQ Composite.
The first
annual adjustments were made in 1993 in advance of options on
the index that would trade at the Chicago Board Options Exchange
in 1994. Foreign companies were first admitted to the index in
January 1998, but foreign companies had higher standards to meet
before they could be added. Those standards were relaxed in 2002,
while standards for domestic firms were raised, ensuring that
all companies met the same standards.
The all-time
highs for the index, set at the height of the dot-com bubble in
2000, stand above 4,700 points, while its recent bear market lows
in 2002 occurred below the 900 point level. The NASDAQ-100 closed
above the 2,200 point milestone on October 23, 2007 for the first
time in over 80 months and reached an intraday high of 2,239.51
on October 31, 2007, the highest reached since February 16, 2001.
However, the index has corrected below the 2,000 level in early
2008 amid high energy prices and recession fears. As of January
22, 2008, its close, nearly 20% below the recent highs (but 50
points above its intraday low), places the index on the brink
of the common definition of a bear market.
Options
and ETF
NASDAQ-100
is often abbreviated as NDX. Its corresponding futures contracts
are traded on the Chicago Mercantile Exchange. The regular futures
are denoted by the Reuters Instrument Code ND, and the smaller
"e-mini" version uses the code NQ. Both are among the most
heavily traded futures at the Chicago Mercantile Exchange.
The NASDAQ-100
Trust Series 1 Exchange-traded fund, sponsored and overseen since
March 21, 2007 by Powershares, trades under the ticker NASDAQ: QQQQ.
On December 1, 2004, it was moved from the American Stock Exchange
where it had the symbol QQQ to the NASDAQ and given the new four
letter code QQQQ.
It is sometimes
referred to as the "Quad Qs," "Cubes," or simply as "the Qs."
In 2000 it was the most actively traded security in the United
States, but has since dropped to second place after Standard &
Poor's Depository Receipts. On July 17, 2007, the ETF closed above
$50 for the first time since early 2001.
Standards
The NASDAQ
has over the years put in place a series of stringent standards
for which companies must meet before being included in the index.
Those standards include:
- Being listed
exculsively on NASDAQ in either the Global Select or Global
Market tiers
- Being listed
for two years(or if it meets certain market capitalization standards,
one year)
- Having
average daily volume of 200,000 shares
- Being current
in regards to quarterly and annual reports, and;
- Not being
in bankruptcy proceedings.
Additionally,
companies with multiple classes of stock are only allowed to have
one class included in the index (usually the largest class in
terms of market capitalization).
Yearly
Rebalancing
While the
composition of the NASDAQ-100 changes in the case of delisting
(such as transferring to another exchange, merging with another
company, or declaring bankruptcy, and in a few cases, being delisted
by NASDAQ for failing to meet listing requirements), the index
is only rebalanced once a year, in December, when NASDAQ reviews
its components and makes the appropriate adjustments. All changes,
regardless of when it occurs, are publicly announced via press
releases at least five business days before the change is scheduled
to take place.
There are
two tools the NASDAQ uses to determine the market values of companies
for the annual review:
- Share Prices
as of the last trading day of October (usually the 31st unless
the 31st falls on a weekend);
- Publicly
announced share totals as of the last trading day of November
(usually the 30th unless it falls on a weekend).
Those components
that are in the top 100 of all eligible companies at the annual
review are retained in the index. Those ranked 101 to 125 are
retained only if they were in the top 100 of the previous year's
annual review. If they fail to move into the top 100 in the following
year's review, they are dropped. Those not ranked in the top 125
are dropped regardless of the previous year's rank.
- A company
will also be dropped if, at the end of two consecutive months,
the component fails to have an index weighting of at least one-tenth
of a percent. This can occur at any time.
The companies
that are dropped are replaced by those who have the largest market
value and are not in the index already. Anticipation of these
changes can lead to changes in the stock prices of the affected
companies.
Differences
from NASDAQ Composite Index
The NASDAQ-100
is frequently confused with the Nasdaq Composite Index; the latter index (often
referred to simply as "the NASDAQ") includes the stock of every
company that is listed on NASDAQ (more than 3,000 all together)
and is quoted more frequently than the NASDAQ-100 in popular media.
The NASDAQ-100
is a modified capitalization-weighted average.
The methodology
was created in 1998 in advance of the creation the NASDAQ-100
Index Trust, which holds portions of all NASDAQ-100 firms. The
only time it is to be rebalanced again is if
- One company
is worth 24% of the index, or
- Those companies
with a weighting of at least 4.5% constitute 48% of the index.
Differences
From Other Indices
In addition
to its lack of financial companies, the Nasdaq-100 includes 13
companies incorporated outside the United States. The Dow Jones
Industrial Average has never included foreign companies, and the
S&P 500 also includes 13 non-U.S. companies (a coincidence
- the 13 in each index are completely different).
External
links
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