Tesla (NASDAQ:TSLA) will officially join the S&P 500 index on December 21. Friday’s market activity may set the stage for TSLA’s grand entrance into the S&P 500 index.
The following are some factors to keep in mind as Tesla enters its final trading day before its formal inclusion into the S&P 500.
Quadruple Witching occurs on the third Friday of the month every quarter in March, June, September and December. During quadruple witching, single-stock options, stock-index options, single-stock futures, and stock-index futures expire.
The last trading day before Tesla enters the S&P 500 index will be a quadruple witching day. Traders told the Wall Street Journal (WSJ) that heavy volumes from expired options and futures could boost liquidity, resulting in a smooth entry for TSLA into the S&P 500 index. RBC Capital Markets estimates that 3% of about $4.7 trillion assets passively tracking the S&P will trade on Friday.
Dark Pools aka Alternative Trading Systems (ATS)
Dark Pools are private exchanges, usually between entities like big banks or institutional clients. Dark Pools give investors the opportunity to place large orders without disrupting the public exchange price while they were looking for a buyer or seller.
Some Tesla investors have wondered if Dark Pool orders were reflected in TSLA’s recent stock activity, especially in terms of volume. According to Rob Maurer of Tesla Daily, the identities of ATS clients are not disclosed but their orders are reported through consolidated tapes, which are also called tape reports.
Dark Pool orders are immediately recorded on tape reports no later than 10 seconds after execution to the Trade Reporting Facilities (TRFs) run by Nasdaq and NYSE in conjunction with FINRA. FINRA considers Dark Pool orders as Over-the-Counter (OTC) equity transactions. OTC equity transactions executed outside normal market hours must be reported by 8:15 a.m. (EST) by the next market open.
Closing Cross Expectations
According to Nasdaq, Closing Cross orders make up almost 10% of its average daily volume. On-close orders allow investors to specifically request an execution at the closing price.
Closing Cross orders could set the weight and price of TSLA as it enters the S&P 500 on Monday, December 21. Tesla investors believe Tesla’s market activity will significantly increase a few minutes before and after the closing bell. Maurer explained that index tracking funds would probably try to buy shares at the closing price to match the S&P 500’s performance as close as possible.
Tracking Errors usually occur when an ETF or hedge fund does not effectively match the performance of its benchmark. Given Tesla’s dedicated retail investors, some traders question whether enough sellers will be available during Friday’s trading to fill the large orders index funds are expected to buy at the market close.
If there aren’t enough sellers to fill buyer orders, it could result in big swings for Tesla shares, reported the WSJ.
TSLA stock closed at $655.90 per share at the closing bell on Thursday. As of this writing, Tesla stocks are up 2.91% at $674.74 per share.
Watch Tesla Daily‘s video below to learn more about Dark Pools and On-Close orders.