Giant IPOs From SpaceX to OpenAI Put Index Rules Under Pressure

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Moreover, index methodology has never been static. The S&P 500, for instance, shifted to float-adjusted weighting in 2005 and has periodically updated its market-cap thresholds. Proponents of faster inclusion say the rulebook has always evolved alongside the market it tracks.

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Expediting an entry for large IPOs would ensure that the indexes “are more representative of the US equity market sooner,” Russell said in a statement accompanying its consultation. The firm’s proposed changes include cutting the waiting time to five trading days. Currently, IPOs are assessed during regular quarterly reviews. 

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If the 10 largest US venture-backed companies were to list and join the S&P 500, they would collectively represent roughly 4.5% of the index, more than the entire energy sector, according to S&P’s own analysis. SpaceX alone, targeting a valuation of about $1.75 trillion, would arrive larger than all but five current members.

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At that size, the standard requirement that companies trade publicly for at least 12 months before they can be considered for S&P 500 inclusion isn’t just a procedural inconvenience. It means the benchmark would exclude one of America’s biggest companies, while trillions of dollars in index funds that track it have no choice but to sit on the sidelines.

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OpenAI and Anthropic are both laying the groundwork for potential listings. Databricks, Stripe and others are in earlier stages. Together they would represent the largest transfer of private wealth into public markets in a generation, arriving after an era in which companies stayed private longer and grew far larger before facing public scrutiny.

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Assuming SpaceX, OpenAI and Anthropic each sell 5% of its stake to the public at market values of $1.5 trillion, $850 billion and $350 billion, respectively, passive funds would need to acquire roughly $39 billion of their shares if and when they join the key indexes, according to an estimate by Bloomberg Intelligence analyst Rob Du Boff.

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The companies lobbying for faster entry understand the leverage they hold. SpaceX was reported to have made early index inclusion a condition of its choice of listing venue, effectively using its size to help shape the terms of its own entry into the market’s infrastructure. SpaceX didn’t respond to a Bloomberg email inquiry seeking comment. 

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Nasdaq completed its consultation on the proposed rule revisions last month and has yet to announce if any changes will be adopted. Russell’s consultation is set to end today. S&P was engaging with stakeholders to gauge interest in changing rules, though no formal consultation has been launched, Bloomberg News reported last week, citing people familiar with the matter.

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Both Nasdaq and Russell declined to comment on the concern about fast-tracking big IPOs. S&P said it doesn’t comment on speculation regarding potential index or methodology changes. 

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Bloomberg LP, the parent of Bloomberg News, offers index products for various asset classes through Bloomberg Index Services Ltd.

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Forced buying by index funds is a feature of every inclusion — but the sheer size of upcoming offerings suggests their influence would be without precedent. That could inflate prices, benefiting insiders and early investors at the expense of the passive investors absorbing the impact.

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“People who really make money on the IPO are not the people who buy the stock on the day it’s being issued,” said David Blitzer, who headed S&P’s index committee from 1995 until his retirement in 2019. “They’re the people who own the stock the day before it’s issued and sell it the day it’s being issued.” 

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It takes time for a new stock to establish sufficient liquidity and price stability, while investors seek to get a grasp of the company’s business. “If I were sitting at S&P,” Blitzer added, “I would be reluctant to tear up the rules that say you got to be seasoned for a while.” His idea on the proper length of seasoning: more than a quarter.