Morgan Stanley, PNC Financial Services Group Inc. and Northern Trust Corp. saw big price and volume swings after the financial data and index provider released mistaken preliminary information about constituents of an index on Friday. 

The banks — along with a slew of other financial firms — were included in the list of constituents in an index tracking high dividend-yielding stocks, according to people familiar with the matter. The Dow Jones U.S. Dividend 100 Index comprises firms with a “record of consistently paying dividends,” S&P says.

But the firms weren’t supposed to be there. A processing mistake meant that S&P had included the ten financial firms in error. The slip up was flagged to S&P which sent out an updated notice on Tuesday removing those companies. 

“S&P Dow Jones indices identified and corrected an error in the preliminary reconstitution data for the Dow Jones U.S. Dividend 100 Index and sent updated pro-forma data to customers on March 5,” a spokesperson for S&P said. The index itself was not impacted, according to the spokesperson.

A representative for Morgan Stanley declined to comment. A representative for Northern Trust didn’t have an immediate comment and representatives for PNC didn’t respond to requests for comment. 

Morgan Stanley and PNC saw their stocks swing on both Monday and Wednesday while trading volumes for both soared to more than double their daily average over the last five years on both those days. By mid-day trading on Thursday, Northern Trust was the top KBW Bank Index gainer. Morgan Stanley was up slightly. 

The banks’ inclusion in the index would likely prompt some funds that use it as a benchmark to add those shares, so the buying on Monday may have been traders trying to get ahead of that move. Similarly, that could have prompted selling days later as the error became known. 

Indexes are subject to regular rebalancing exercises to make sure their members remain representative of market trends and meet certain criteria. Inclusion in equity indexes tracking market themes like income investing can boost a company’s profile and add trading liquidity.

With this particular Dow Jones U.S. Dividend 100 index, S&P rejigs its constituents annually in March. The preliminary results of that reconstitution process are circulated around market participants for about two weeks. During that time, they can provide feedback and prepare for the changes to go into effect — which this year is March 18.

The index returned 2.04% this year through Feb. 29, according to its website. It comprises 100 companies with industrial firms accounting for the largest portion, followed by health care and financial companies. 

–With assistance from Bre Bradham, Matt Turner, Felice Maranz, Sridhar Natarajan, Isabelle Lee and Emily Graffeo.

More stories like this are available on bloomberg.com

©2024 Bloomberg L.P.

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Published: 08 Mar 2024, 03:21 AM IST