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Unlock the Editor\u2019s Digest for free<\/p>\n
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.<\/span><\/p>\n Everyone wants a piece of the SpaceX IPO \u2014 but first they\u2019ll need to kiss the ring. The largest US investment banks seem to \u201cGrok\u201d what it will take to get in on the biggest IPO in history. And now, the Nasdaq has made changes that will surely satisfy Musk and company.<\/p>\n Nasdaq\u2019s new methodology goes live today, with a number of new rules that are beneficial to IPOs of very large companies. Eliminating minimum float requirements, fast index inclusion, and favourable index weight calculation rules would greatly benefit SpaceX, and any other massive company looking to IPO.<\/p>\n We shouldn\u2019t be surprised by Nasdaq\u2019s latest move. Though Nasdaq floats many of the major tech companies, last year they lost out on some of the biggest tech IPOs \u2014 Figma, Klarna, and Circle \u2014 to the New York Stock Exchange.<\/p>\n Exchanges make much of their money out of trading volumes, and these look like they\u2019ll be high in the case of SpaceX. Given the competition, Nasdaq has every incentive to provide concessions to win SpaceX\u2019s business.<\/p>\n But how much do these rule changes matter, and how much are they really worth? It is impossible to know. But we might make a wavey-handed guess \u2014 with all the usual caveats.<\/p>\n SpaceX is planning to float an initial $75bn of stock against a $1.75tn valuation \u2014 a mere 4.3 per cent of the company.<\/p>\n Under the old Nasdaq rules, such a tiny free float would rule out index inclusion. But the new rules eliminate minimum free float criterion for new listings.<\/p>\n The new rules would also allow SpaceX to join the Nasdaq-100 index after only 15 days, requiring funds that seek to track the index to buy the stock at their next rebalancing regardless of price.<\/p>\n Furthermore, new \u201cmodified market capitalisation\u201d rules will value SpaceX \u2014 as long as less than a third of its stock is free floating \u2014 at three times float, meaning it will get a boost from the get-go.<\/p>\n The impact of these shifts will be significant \u2014 as it turns out, indexing really matters. According to the Thinking Ahead Institute, around $55tn of invested funds track financial benchmarks.<\/p>\n About $523bn of that $55tn resides in just two exchange-traded funds: Invesco\u2019s QQQ and QQQM. They track the $36.7tn Nasdaq-100 index, buying roughly 1.4 per cent of constituent companies\u2019 total market caps.<\/p>\n Since SpaceX will be valued at three times its initial float under the new rules, these two ETFs alone will be required to buy $3.1bn of its stock, 4.1 per cent of Spacex\u2019s total initial public offering, in order to track the index. That is $2.1bn more than they would buy if they weighted companies based on free-float adjusted market capitalisation.<\/p>\n This $2.1bn guaranteed purchase could be considered free liquidity flows gifted to SpaceX by Nasdaq\u2019s index committee\u2019s decision. Moreover, it does not cost Nasdaq themselves a penny. While Nasdaq generates trading fees and SpaceX sellers get liquidity, ETF-holders are left with disproportionate SpaceX risk relative to true float.<\/p>\n But that extra $2.1bn is before insiders sell. And, per FT reporting:<\/p>\n SpaceX was toying with the idea of allowing some existing shareholders to sell down their stakes in the company on its first day of trading, according to people close to the deal.<\/p>\n This would do away with guidelines that typically prevent insiders cashing out of their positions for 180 days after a company\u2019s market debut.<\/p>\n As insiders exit and the stock\u2019s free float grows, index flows increase. If enough insiders sell and SpaceX reaches the point where one-third of its shares are free floating, Invesco index funds will be required to purchase $23.8bn of SpaceX stock \u2014 $15.6bn of which is thanks to Nasdaq\u2019s three times rule.\u00a0<\/p>\n Of course, this doesn\u2019t account for any stock price appreciation which could make this total even larger. Knowledge that index funds will buy at almost any price directs market participants to price in more liquidity, putting an upward pressure on the stock price.<\/p>\n And that is just Invesco ETF buying. There will be a host of passive funds and closet-trackers following the index. And both BlackRock and State Street are both reportedly planning Nasdaq 100-tracking ETFs. If they are successful, index fund buying will be even larger.<\/p>\n Alphaville approached Nasdaq for comment and they pointed us to this document on the new rules.<\/p>\n But it\u2019s not just Nasdaq who are changing the rules. The S&P 500 is considering changes that would allow SpaceX to enter the index before the standard 12 month seasoning period. Contemporary reports estimated that Tesla\u2019s inclusion to that benchmark led index funds to buy $51bn of Tesla stock. We\u2019re not going to even hazard a guess as to how big the flows will be for SpaceX.<\/p>\n Some would argue that these effects are marginal \u2014 indeed, recent research shows that the price-level effects of joining an index are near zero or even negative in the long run. After all, indexing does nothing to a stock\u2019s fundamentals, and indexing decisions should be priced in by arbitrageurs.<\/p>\n This is true in the long run. But index flows can have major short-term effects. When Tesla announced its listing in the S&P 500 index in 2020, its stock rallied 70 per cent from announcement to inclusion date. Palantir saw a 14 per cent increase in one day upon joining the S&P in 2024; Coinbase stock leapt 24 per cent in a day when it joined in 2025. A McKinsey report studying this phenomenon found that inclusion in the S&P 500 has an average positive effect on a company\u2019s share price that peaks after announcement then fades after a few weeks.<\/p>\n But a few weeks is all SpaceX insiders need if there are no lockups. Fast sellers will benefit from early liquidity and price support. Nasdaq\u2019s rule change primarily grants short-term liquidity flows that cushion those looking for an early exit.<\/p>\n To many, stock exchanges and index funds are thought of as neutral arbiters in free markets. If rewritten rules benefit their biggest clients, this illusion is shattered.<\/p>\n Further reading:<\/strong> Unlock the Editor\u2019s Digest for free Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter. Everyone wants a piece of the SpaceX IPO \u2014 but first they\u2019ll need to kiss the ring. The largest US investment banks seem to \u201cGrok\u201d what it will take to get in on the biggest<\/p>\n","protected":false},"author":1,"featured_media":48998,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[49],"tags":[533,20365,24397,1990,666,73],"class_list":{"0":"post-48997","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-business","8":"tag-free","9":"tag-liquidity","10":"tag-nasdaq","11":"tag-offer","12":"tag-rules","13":"tag-spacex"},"_links":{"self":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/posts\/48997","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=48997"}],"version-history":[{"count":0,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/posts\/48997\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/media\/48998"}],"wp:attachment":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=48997"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=48997"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=48997"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
\u2014 SpaceX bankers bend over backwards to bag IPO role (FTAV)
\u2014 Et tu, S&P 500? (FTAV)
\u2014 SpaceX: the final frontier of IPOs (FTAV)
\u2014 Nasdaq wants to fast-track founders and let index trackers hold the bag (FTAV)<\/p>\n","protected":false},"excerpt":{"rendered":"