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On June 28, the Nasdaq Stock Exchange facilitated the largest trading day in its history, with 2,899,191,109 shares representing $95.257 billion traded over a period of just 0.878 seconds. This took place during the Russell Reconstitution, the annual reorganization of companies in FTSE Russell’s indexes.
The Role of The Nasdaq Closing Cross
The rebalancing of Russell indexes was handled by the Nasdaq Closing Cross, a process through which Nasdaq collects buy and sell information ahead of the market close to determine a closing price for the day. This is especially complicated during the Russell Reconstitution, given the sheer volume of transactions taking place as the market closes.
For the past two decades, the Nasdaq Closing Cross has provided accurate and transparent price data and sets final prices on reconstitution day, providing market participants with rapid and complete information.
On the 40th anniversary of the Russell 3000 Index and the 21st year of the Nasdaq Closing Cross handling the rebalance, it’s worth revisiting how Nasdaq came to be a bastion of information and stability during even the heaviest trading days.
Being so well-prepared has been possible because of the major leaps that Nasdaq has made through its continued investment in resilient technological infrastructure. Since the Nasdaq Closing Cross began recalculating the reconstitution, latency has improved by 86%, keeping pace with an increased trade volume of 450% and increased dollar volume of 950%.
Jay Heller, Vice President and Head of Capital Markets at Nasdaq, attributed this increase in volume to the massive growth of passive investment vehicles over that period. “Even with this increase in volume and passive investment,” he added, “we still have to close the markets at 4:00 pm ET.”
Nasdaq’s Technology Responds to Global Growth in Trading Volumes
To respond to the global growth in trading volumes the Nasdaq Closing Cross relies on technology that processes rapid price adjustments, offering traders access to closing information within seconds. This is crucial for market participants eagerly awaiting information on how their Market-On-Close orders were executed.
“Getting latency as close to zero as possible, and doing it in a frictionless way, is the essential role we play for clients,” said Greg Ferrari, Vice President and Head of North American Exchange trading at Nasdaq.
This speed is especially important given how much automated investing has dominated markets in recent years, a trend Ferrari sees continuing into the future especially with the adoption of machine learning and AI.
“Passive investing is here to stay,” he said, adding that the continued adoption of machine-learning, AI and cloud-enabled technology would further empower these passive investment vehicles.
This movement toward computerized trading will place ever larger demands on exchanges to process and display information quickly and accurately, especially on record-breaking liquidity days, such as the Russell Reconstitution.
Given Nasdaq’s track record of rebalancing the Russell Reconstitution over the years, it’s a natural fit to handle that job.
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