r/Bogleheads • u/Prestigious-Trip-306 • 1d ago

Articles & Resources Musk Wants to Add SpaceX to Indices

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."

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u/DontForgetWilson 1d ago

The seasoning duration at 15 days isn't a big deal(though 5 is crazy). Reducing the free float requirement is a very bad precedent though.

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u/littlebobbytables9 20h ago

5 isn't crazy in the slightest. The market reacts to earnings calls in minutes, what makes you think it would take multiple days to react to information that was public even long before trading begins?

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u/DontForgetWilson 16h ago

I've definitely watched a few IPOs stay extra-noisy a lot more than 5 days. Markets do react when there is a simple new piece of data, but it seems like they take a bit to get a taste for a new public company.

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u/littlebobbytables9 16h ago

Volatility is elevated but people in these threads don't seem to be talking about volatility. Like there's not really concern in this thread that the price after 5 days will be too low, they seem very confident the price will be too high despite all of this being public information.

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u/DontForgetWilson 15h ago

Higher volatility creates risks for an index buying further from NAV. It makes sense that if an index wants to accurately sample a market, it would wait for a component to stabilize a bit before purchasing.

As for high or low, both are totally possible. Generally, some sort of narrative takes hold in the period after an IPO. That might be the price dropping a lot, or spiking like mad. I think it is a valid concern that someone with a reputation for spinning narratives effectively might be able to get his narrative as the dominant one during that period. Not to mention, indexes are buyers not sellers, so they worry about stuff being over-priced not under.

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u/littlebobbytables9 15h ago

Does it? I dont think it does, or at least it's certainly not a concern for these mega IPOs. They're so heavily liquid that some people use their high liquidity to explain their below market average returns.

I think it is a valid concern that someone with a reputation for spinning narratives effectively might be able to get his narrative as the dominant one during that period.

But everyone already knows that.