During the trial period, Standard & Poor's will assess whether its use of Amex prices for the 12 NASDAQ-listed stocks meets Standard & Poor's objective of improving the basis for calculating the S&P 500, the premier benchmark for U.S. stock market performance. The Amex closing prices are determined by a market auction system that includes a market-on-close process, ensuring that any investor can transact at the same closing price. There are currently 74 NASDAQ-listed stocks in the S&P 500; the 12 stocks to be used in the pilot will be proposed by the Amex, subject to Standard & Poor's approval, and will be published by the Amex and Standard & Poor's shortly. There are no changes currently being contemplated for intra-day, real-time calculation of the S&P 500, nor are there any changes being considered for other S&P indices at this time.
"Our objective is to improve the reliability of closing prices on the S&P 500 for investors who use the index," said David M. Blitzer, Managing Director and Chairman of the Index Committee for Standard & Poor's. "We have been monitoring efforts by NASDAQ to provide for a single-price closing for NASDAQ-listed stocks and we believe that at least for the time being, it is in the interest of the investment community to consider alternative approaches for closing index values." He added, "We will continue to monitor these efforts and their impact on the 62 NASDAQ-listed stocks not affected by the pilot."
Since early this year, Standard & Poor's has been exploring the idea of using closing prices determined on the Amex in an auction market system, as opposed to the dealer market maintained by NASDAQ. As part of its review, Standard & Poor's invited and received substantial feedback from the investment community including members of the S&P U.S. Index Advisory Panel. Those commenting included trade associations, major broker-dealers, trading firms and money managers. Based on this feedback, Standard & Poor's has concluded that there are substantial concerns among its index clients about the reliability of closing prices on dealer markets such as NASDAQ. While there is no widespread agreement on steps that should be taken to improve pricing, there is significant support for a trial of alternative pricing approaches.
Standard & Poor's will announce before the end of the trial period whether it will expand the pilot to additional NASDAQ-listed stocks or conclude the pilot and revert to its current policy of using NASDAQ closing prices to determine S&P 500 closing values.
