Nasdaq on Tuesday announced a rebalancing of its benchmark Nasdaq 100 index next month that will slash Apple Inc's weighting and add to market volatility.
The rebalancing of the Nasdaq 100, which is weighted by capitalization, is not an unusual event in itself, but Nasdaq's timing of the move was a surprise, even though many investors have noted Apple's outsized influence on the index.
The rebalancing will affect the relative weights of all the securities in the index and cause popular index-tracking funds such as the PowerShares QQQ to buy and sell shares to match the new composition.
In the short-term this is going to have a significant impact and create additional volatility, said Oliver Pursche, president at Gary Goldberg Financial Services in Suffern, New York.
Apple will be by far the most affected by the move, with its weighting slashed from 20.5 percent to 12.3 percent, though it will remain the largest component of the index. Shares of Apple, which has a market cap of roughly $314 billion, fell 0.6 percent to $339.20.
Companies whose weightings will increase include Microsoft, Oracle, Intel and Cisco.
The announcement of the rebalancing in the middle of the night in New York took markets by surprise. Nasdaq said the timing was because it wanted to announce the change before the opening of European stock markets.
The rebalancing contributed to a fall in Nasdaq futures before the opening bell, though Nasdaq eked out gains in late morning trade.
Nasdaq OMX is cutting the weighting of 82 securities to bring them more in line with their market capitalizations, the exchange said. The extra weighting will then be distributed between the remaining underweight shares.
Much of Apple's excess weighting was distributed between other large cap technology shares that had become underweighted relative to Apple.
Microsoft Corp's weighting will rise to 8.32 percent from 3.4 percent, sending its shares up 1.2 percent to $25.86.
Oracle Corp's weighting will rise to 6.7 percent from 3.3 percent; Intel Corp's weighting will rise to 4.2 percent from 1.8 percent, and Cisco Systems' weighting will rise to 3.7 percent from 1.6 percent.
The relative positions of the issues within the index will remain the same after the once the rebalancing takes effect May 2, according to Nasdaq.
The Nasdaq 100 rebalancing will be based on index securities and shares outstanding as of March 31, the exchange said.
(Editing by Leslie Adler)