FB to Nasdaq-100 – Why People Care

By now even casual market observers are aware that Facebook (FB – 27.71) is being added to the NASDAQ-100 (NDX) as of December 12, 2012 (12/12/12). FB is being added to replace Infosys (INFY – 43.50) which is going to begin trading on the NYSE. One of the stipulations for membership in the NDX is trading on the NASDAQ market. The significance for traders is the sudden demand that is created for shares of FB based on this addition. ETFs and other index funds that track the NDX must now acquire shares of FB in order to track their benchmark. 

I checked the market cap of FB relative to other NDX member stocks. Based on market cap, FB will be the 12th largest company in the NDX and be about 2% of the capitalization of the index. This puts FB between Ebay (EBAY – 52.02) and the biotech company Gilead Sciences (GILD – 74.54) on the list of largest companies in the NDX. For some perspective – the QQQ Exchange traded fund holds over 13 million shares of EBAY and close to 8 million shares of GILD. The point, many shares of FB will need to be purchased by index funds with FB as an index addition. 

By the way, the changes are not nearly done regarding the composition of the NASDAQ-100. Just after FB joins, on December 14 an announcement will be made as far as the rebalancing and additions / deletions from the index. There will be a handful of stocks added and deleted from the index as of December 21. We’ll report on that when the time comes.