NYSE Trading Surges to Record on Expiration, S&P 500 Changes

New York Stock Exchange trading surged to a record 3.15 billion shares as derivatives expiration and changes to the Standard & Poor’s 500 Index lifted volume to more than double this year’s average.

Yesterday was the last day of trading for December futures and options on U.S. indexes and stocks. The expiration, a quarterly event known as “quadruple witching,” boosts volume because investors and dealers must buy and sell stocks and derivatives to move positions into future months and make corresponding trades to hedge, or cancel out, their risk of loss. Visa Inc. was among five companies that joined the S&P 500 yesterday, forcing funds that track the index to buy shares.

U.S. trading has slowed as the S&P 500 rebounded from a 12- year low in March, with average monthly volume falling 36 percent. Fewer than 7.87 billion shares changed hands each day on U.S. exchanges during November, the lowest month average since August 2008, Bloomberg data show. Analysts including Mary Ann Bartels at Bank of America Corp. say the slowdown in volume was a bearish sign following the S&P 500’s 63 percent surge.

“There’s been a lot of inactivity on the part of the mutual fund investor and that’s translated into low volume,” said David Goerz, who oversees $17.5 billion as chief investment officer at Highmark Capital Management in San Francisco. “What they’re waiting for is some evidence that the economy is recovering, and that evidence is clear at this point.”

Lehman’s Collapse

Trading at the NYSE, the world’s biggest stock exchange, beat the previous record of almost 3 billion shares on Sept. 19, 2008, a quadruple witching day at the end of the week when New York-based Lehman Brothers Holdings Inc. filed for the biggest- ever bankruptcy. NYSE volume this year has averaged 1.39 billion shares a day.

Visa, Mead Johnson Nutrition Co., Ross Stores Inc., Cliffs Natural Resources Inc. and SAIC Inc. joined the S&P 500 yesterday. MBIA Corp., Ciena Corp., Dynegy Inc., KB Home Inc. and Convergys Corp. were removed.

The S&P 500 changes require investors that mimic the index to trade 1.02 percent of the value of their portfolios, compared with 0.3 percent to 0.4 percent in a normal rebalancing, said Charles Behette, a director in portfolio trading at New York- based Investment Technology Group Inc.

The value of shares being added to the index exceeds the value of shares being removed by about $6 billion, Behette said. The discrepancy may prompt selling of companies whose index weights aren’t changing and limit gains in those whose weights are increasing, he said.

Futures are agreements to buy or sell a specific amount of a commodity or security at a specific price and time. Options give the right though not the obligation to buy or sell a security at a set price and date. Investors use options to guard against fluctuations in the price of securities they own, speculate on share-price moves or bet that volatility, or stock swings, will increase or decrease.