Replies to post #21725 on Profunds index and sector trading (PRO)

[was Steve]

thanks. have you had any snow on the ground yet?

[Kaja Bear N]

I have often wondered how the QQQ correlated with the NDX. Thanks to your post and the link, I did a bit of digging at the Nasdaq site. Most know the QQQ approximates NDX/40. The QQQ is subject to market forces distinct from the NDX. What keeps the QQQ in check with the NDX? Note that the NDX is a modified cap weighted index, so the effect of bulk indexing isn't as severe as pure cap weighted, but the inefficiencies are just as real. One comment I'd make is the inefficiency applies both ways; when there is massive selling the larger cap companies will have their price depressed more than the fundamentals might suggest. Here's what I found:

Creations and Redemptions:
NASDAQ-100 Index Tracking Stock

NASDAQ-100 Index Tracking Stock is "created" by large investors and institutions in block-size "Creation Units" of 50,000 NASDAQ-100 Index Tracking Stock shares (or multiples of 50,000 shares). Creating 50,000 NASDAQ-100 Index Tracking Stock shares requires the deposit into the NASDAQ-100 Trust of a portfolio of stocks closely approximating the composition of the NASDAQ-100 Index together, sometimes, with a specified amount of cash.

Similarly, a block of 50,000 NASDAQ-100 Index Tracking Stock shares (or multiples of 50,000) can be redeemed in return for a portfolio of stocks approximating the NASDAQ-100 Index and, sometimes, a specified amount of cash.

Creation and redemption transactions require interface with a firm that is either a member of the Continuous Net Settlement system of the National Securities Clearing Corporation or a Depository Trust Company participant, and compliance with other procedures described in the Trust prospectus.