Nasdaq Eases Index Eligibility Rules

Nasdaq OMX has changed the “seasoning rules” for three of its most popular indices, including the flagship Nasdaq 100, in a move that may hasten the entry of the social media giant Facebook into the US-listed US$35 billion PowerShares QQQ Trust (NasdaqGM: QQQ) following the company’s planned initial public offering (IPO) in May.

The new rules, effective April 23, 2012, shorten to three months the period of time companies must be trading on the Nasdaq or the New York Stock Exchange before they are eligible for index inclusion. Previously, companies had to wait one year (for companies that ranked in the top 25 percent of the index by market capitalisation) or two years (for all other firms) before they were eligible for the index.

When will Facebook, whose planned share sale could value the whole company at over US$100 billion, enter the new index and what will its weighting be? That is uncertain because Facebook has not yet gone public and Nasdaq bases its weightings on the market value of the security that is issued, not the total value of the company. Further, some companies issue more than one security.

Traditionally, Nasdaq rebalances its Nasdaq 100 index each December, based upon the price of a security as of the end of October and the total shares outstanding as of the end of November. Assuming Facebook succeeds in pricing its IPO before the end of July, it would have enough seasoning time to qualify under the new “three month” seasoning window.

Other Rule Changes

In addition to new seasoning rules for certain indices, Nasdaq also is applying changes to its special dividend policy, effective May 1, 2012, across all indices calculated in the US (including Nasdaq, Nasdaq OMX and PHLX-branded indexes).

Currently, in the case of a special cash dividend, a determination is made on an individual basis whether to make an adjustment to the last sale price of an index security on the ex-date of the dividend. Following the methodology change, a special cash dividend announced by the listing exchange for an index security will result in an adjustment to the last sale price of the security prior to market-open for the special dividend amount.

Nasdaq is also changing the annual evaluation of its family of Nasdaq OMX Green Economy Indexes, to be effective after the close of trading on the third Friday in June (June 15, 2012), in conjunction with the quarterly rebalance. The quarterly rebalance will continue to use eligibility criteria through the end of May, with all changes becoming effective after the close of trading on Friday, June 15, 2012.

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