(March 30): Nasdaq Inc will enact a rule change designed to slash the time it takes for newly listed, large-cap companies to enter its main index, a move that will give shares of behemoths like SpaceX a faster route into funds that are pegged to the benchmark.
Initial public offerings (IPOs) whose market capitalisations rank within the Nasdaq 100’s top members will normally be eligible to be included after 15 days of trading, Nasdaq said in a statement. The timeline is shortened from at least three months currently.
“Industry professionals, including asset managers and institutional passive portfolio managers, were mostly supportive of the fast entry proposal and proposed timing,” Nasdaq said in the statement.
The exchange also removed the minimum 10% float requirement for eligibility. The revisions, announced after an industry consultation last month, will take effect on May 1.
The move highlights the pressure on index providers to adapt to a world where companies wait much longer to list, putting enormous amounts of market value in play as soon as they enter public hands. Among companies expected to make IPOs this year is SpaceX, whose potential US$1.75 trillion ($2.26 trillion) valuation would make it one of the biggest companies in the Nasdaq 100.
S&P Dow Jones Indices, Nasdaq and FTSE Russell have all been mulling changes that would accelerate how newly listed companies enter their flagship benchmarks. More than US$30 trillion in assets is benchmarked to indices whose rules are under consideration.
See also: JD.com-backed Singapore REIT could raise $1 bil in IPO — Bloomberg
Russell, which started its own consultation in February and proposed to shorten an IPO’s seasoning period to five trading days, has extended the deadline for feedbacks to April 3.
The proposals have raised concerns that granting IPOs membership in the benchmarks too soon would expose index-tracking funds to outsized price swings and push them to buy before the market has established a reliable price. Such forced buying could drive up demand and distort the markets that those indexes are supposed to track.
Nasdaq acknowledged the pushback from some participants, though it stressed the need for the index to represent the market in a “more timely” manner. The Nasdaq 100 is directly benchmarked to more than US$600 billion of exchange-traded funds globally and has been a key stock-market gauge as the artificial intelligence boom fuels investor interest in the biggest technology companies.
See also: Robot maker Inovance said to hire banks for up to US$2 bil Hong Kong listing — Bloomberg
During the consultation, one thing that drew criticism was a proposed change that involved low-float stocks, where the amount of shares available for trading is below 20%. With the plan designed to have their corresponding market value multiplied by a factor of five, with a cap at 100%, that sparked concern that demand from passive funds would overwhelm supply.
In the final decision, Nasdaq reduced the low-float security weight adjustment to three times.
The modification “would represent a more conservative weighting approach than the one currently in place, rather than a more aggressive one”, Nasdaq said.
Uploaded by Tham Yek Lee
