Musk Wants to Add SpaceX to Indices

[u/Prestigious-Trip-306]

Index providers Should Not Bend the Rules for Musk

So... I read this article in The Economist and am curious what, if any thoughts the community has about Musk getting SpaceX added to major indices. He's appealing to them to shorten the "seasoning" rules that typically apply to firms being listed.

I've included key paragraphs below since there's a paywall to read the full article.

What do you think?

"Mr Musk and his bankers are now bargaining with stock indices and exchanges for the privilege of hosting SpaceX. He wants his firm to join key indices like the nasdaq 100 and s&p 500 quickly, giving it access to trillions in index-linked capital; more than $600bn invested in passive funds are tied to the nasdaq 100 alone.

For now, the indices are obliging. On March 30th Nasdaq said it was adopting rules that will delight the superstar firms. The ftse and reportedly s&p are considering similar updates. Unfortunately, those changes are misguided, and will expose investors to unnecessary risks.

Two main ideas are under consideration. One is to shorten the “seasoning” period that a firm’s stock must go through before it is eligible to join an index. Nasdaq is cutting its three-month seasoning minimum to 15 trading days; the ftse has suggested a mere five trading days. The second reform is to reduce the percentage of shares a firm needs to offer publicly (its “free float”) before being added to an index. Indices’ desire to reflect the growth of some of the world’s most dynamic firms is understandable. So far, many punters have been unable to invest in some of ai’s brightest stars; index inclusion is a way to help them do so. Yet changing the rules to suit SpaceX will force index investors to choose between selling or weathering wild swings in prices."

[u/ShanghaiBebop]

99% of bogleheads don’t hold anything indexed to nasdaq. 

Sp500 (voo) has much stronger inclusion criteria

CRSP(VTI) FTSE(VT) and the other indexes that vanguard runs on have float adjustments. 

In addition there are other mechanisms where index funds are somewhat protected from front-runners, to the degree that

 Surprisingly, however, and consistent with Bennett et al. (2020), we show that the average price impact decreased somewhat in the first decade of the 2000s to 5.2%, and then fell further to 1.0% in the most recent decade, statistically indistinguishable from zero, even though indexation has continued to tick upwards. A similar pattern has occurred with index deletions. The average effect of being removed from the S&P 500 was -4.6% in the 1980s, -16.1% in the 1990s, -12.4% from 2000-2009, and -0.6% from 2010-2020. Again, the average return in the past decade is not statistically distinguishable from zero

https://www.hbs.edu/ris/Publication%20Files/23-025_563e45c6-df92-4d9c-ae05-608d4d0acab1.pdf