NASDAQ Closing Cross & high after hour volume...

O

Option Trader

Can anyone explain what this is all about in layman's terms? Is this merely a way for the shorts to reshuffle their positions between accounts to cover outstanding short positions (between accounts) & to prepare them for the next phase of onslaughts? This is what I found, but I don't understand the purpose:

"A significant portion of the trading activity surrounding the re-balancing will occur on Friday, June 27, during the NASDAQ Closing Cross. The NASDAQ Official Closing Price (NOCP) will be used as the closing price for NASDAQ-listed stocks in the Russell Indexes. Just after 4:00 p.m., Eastern Time, on June 27, there may be an increase in individual company volumes. This occurs because the funds that track the Russell Indexes will adjust their holdings at the closing price on Friday. Since NASDAQ's Closing Cross determines the closing price for NASDAQ-listed securities, many funds will elect to send their re-balancing trades through the NASDAQ trading system for execution. During the 2007 annual reconstitution, approximately 678.5 million shares representing a record $11.7 billion were executed in the NASDAQ Closing Cross in a record 1.9 seconds across some 3,200 NASDAQ stocks."
 
Those Russell indexes mentioned were being rebalanced as of the close this past Friday. Therefore funds which are index funds based on those Russell products must then go out and buy or sell the appropriate amount of shares in each of the stocks in the index to maintain their correct weighting as per their new weight in the actual Russell index calculation.

To insure that there is no “slippage” in the price where the index funds get in and get out of the shares they’re rebalancing they need to get the official nasdaq closing price. Lets say the new weighting for WXYZ in the Russell meant that the index would now contain more shares of WXYZ in order for the actual value of the Russell to remain unchanged by the weighting they use the official closing price and the new number of shares to figure out the new devisor of the index. Then all the indexed funds will need to make those adjustments at the closing prices too so they don’t want to have to pay higher then the close or sell below the closing price which would result in a loss on their books. So long as they trade their rebalancing shares at the same price ( the closing prices which make up the index) then their funds will remain indexed to the Russell in the correct weighting and with no risk of any loss due to slippage.
 
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