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Monday, April 04, 2011, 11:00 pm PT (02:00 am ET)

Nasdaq to diminish Apple's share of index in rebalance

Apple stock could see heavy trading on Tuesday after the Nasdaq stock exchange announces its plan to reduce Apple's portion of the Nasdaq-100 index from 20 percent to 12 percent during an adjustment that will increase the weighting of rivals Google and Microsoft.

The Nasdaq-100 index, which contains the 100 largest nonfinancial stocks that trade on the Nasdaq, will adjust Apple's weighting from a boosted 20.5 percent to a projected 12.3 percent, a more standard ratio based on the number of Apple shares, The Wall Street Journal reports. Nasdaq is set to announce the changes Tuesday, though they won't take effect until May 2.

According to the report, the upcoming changes to the index may cause some short-term instability in the stock market as managers adjust their holdings.

As such, shares of Apple's stock could tumble if financial products that track the Nasdaq-100, which Nasdaq says number 2,900 in 27 countries, decide to reduce their investment in Apple.

"Nasdaq estimates that for every $1 billion directly tracking the index, such as through mutual funds or ETFs, 9.5 million shares will change hands," the report noted.

"It's going to be a big trade," said Nasdaq executive vice president John Jacobs. "We wanted to make this very transparent. Everyone will see what we're doing and everyone will have a month before we do this."

Apple isn't the only company affected by the rebalance, though it will remain the largest component of the index. 81 of the companies tracked by the index will see their weighting reduce, while 19 will receive a bigger share of the index.

The companies receiving the biggest boost are Microsoft, Intel, Google and Oracle. Microsoft will jump from a 3.4 percent share of the index to 8.3 percent, while Google will move from a 4.2 percent share to 5.8 percent. Intel's share will grow from 1.6 percent to 4.2 percent and Oracle's portion of the index will more than double from 3.3 percent to 6.7 percent.

Nasdaq changes


Retooling of the Nasdaq-100 is rare, though not unheard of. In 1998, the index underwent an adjustment in order meet IRS rules for exchange-traded funds based on the index. Top stocks, such as Microsoft and Intel, were weighted in order to make the index more diverse. At the time, Apple wasn't in the top third of the index.

Shares of Apple stock are up 5 percent from the beginning of the year and nearly 200 percent over the past two years.

Apple's market capitalization passed $300 billion on the first day of trading this year. The Cupertino, Calif., company had already passed long-time rival Microsoft in terms of market cap last May to become the world's largest tech company.

Last September, Apple overtook PetroChina to become the second-largest company in the world by market value, behind just Exxon-Mobil.