Earlier this year, the leaders of the world’s largest stock indexes found themselves in a pickle.
SpaceX, Elon Musk’s rocket maker, had told them that it planned an initial public offering in the summer. The company said it wanted to be included in the top indexes — which are composed of a variety of public companies and act as a barometer of the broader stock market — shortly after going public, two people familiar with the process said.
It was a big ask. Most indexes, like the Nasdaq-100, do not add companies until at least a year after they go public to protect index funds — the widely used investment vehicles that track the indexes — from trading volatility. If SpaceX was included faster than normal, it would compel large index funds run by giants like Fidelity and Vanguard to buy millions of SpaceX shares practically overnight. While that could boost SpaceX’s share price, it could expose index fund investors to more risk.
But missing out on what could be the biggest I.P.O. in history, in a year when other sizable offerings are also expected, was too much for Wall Street to bear, the two people said. Nasdaq, the exchange where SpaceX plans to list its stock, announced a rule change in May to allow “fast entry” into the Nasdaq-100 index by large private companies like SpaceX that go public.
Others followed. FTSE Russell recently altered its methodology, which will result in listing SpaceX in its indexes within a week of its going public.
The changes mean a large swath of index funds — which millions of Americans own in their retirement funds, pension plans and personal portfolios — are poised to hold SpaceX shares soon after the company goes public. Anthropic and OpenAI, the artificial intelligence start-ups that are planning to go public this year, would also land in index funds quickly, potentially exposing everyday investors to more financial risk whether they like it or not.
“It’s historically unprecedented,” said John Polonis, a former Wall Street lawyer who worked at J.P. Morgan and now offers financial analysis on social media. “You can try to reorient your retirement accounts to avoid funds invested in A.I. companies, but most people aren’t going to be doing that. They’re kind of left out in the dust here.”