S&P’s Swinging Prices

There is funny business going on at the close for various Nasdaq stocks that are part of the S&P 500. According to Gretchen Morgensen at the New York Times, these companies’ stocks are blipping up at the close on unusual buying patterns. That bugs S&P, of course, so it is going to start pricing some of its stocks on their closing price on Amex rather than Nasdaq.

Traders call this sort of thing — hitting a stock with multiple buy orders near the close — “spraying the market”, and it can be effective. Even mighty Microsoft, with its centi-billion market capitalization, may have been hit. For example, back on June 20th Microsoft shares jumped up 31 cents, or about 1 per cent, in the final five seconds of trading.

For its part Nasdaq says it has a solution in the works. Starting in March, ten minutes before the close it will begin publishing order imbalances, thus giving traders an opportunity to buy or sell stocks, as necessary, in the stock that would otherwise close with too many (or not enough) orders of one sort or another.

Much of this, of course, is competitive posturing. Amex will benefit if S&P moves closing prices from Nasdaq to the Amex, and they are making the most of the opportunity to slag the way that Nasdaq closes its market. For more on Amex’s spin, check this wonderfully snide letter to the SEC from Amex’s Michael Ryan.