A proposal by Nasdaq to convince Elon Musk to take SpaceX public is generating fears that it could cause a huge distortion in the market, with negative effects for ETF investors.
Looking to attract what promises to be one of the largest initial public offerings in history, with the company seeking a valuation of US$1.75 trillion, the stock exchange operator is proposing to change the rules governing the inclusion of companies in the Nasdaq 100 index, which is followed by a number of index funds.
Instead of having to go through a three- to twelve-month "maturation period" after the IPO, Nasdaq is considering allowing large companies to be listed in less than a month. These companies would be exempt from maturity and liquidity requirements.
The inclusion of these companies will not require the immediate removal of another name from the index – the number of members would remain above what the rules stipulate until the next rebalancing.
The proposal aims to meet a demand from Musk, who understands SpaceX's entry into the Nasdaq 100 as a way to increase demand for the company's shares.
But the new rules are also seen as a way for Nasdaq to be attractive to names like OpenAI and Anthropic , whose IPOs are also expected to reach historic levels when they happen.
These changes, however, pave the way for an undue weighting of companies with very high market caps in the indices, according to an analysis by The Wall Street Journal (WSJ) .
Under the rules proposed by Nasdaq, a company could have its inclusion in the index accelerated if its market value is among the top 40 in the Nasdaq 100.
According to the WSJ , under this rule, if a company conducts an IPO with less than 10% of its shares outstanding, the company would enter the index with a weighting of five times the market value of its freely traded shares.
If a company with a total market capitalization of $1 trillion were to offer just 5% of its shares in an initial public offering, that would represent $50 billion in freely tradable stock. Under the Nasdaq proposal, the basis for the company's weighting in the Nasdaq 100 index would be five times greater, or $250 billion.
According to the newspaper, the result would be to force index funds and managers to buy more shares, giving the stock an artificial boost, creating demand that is not necessarily organic, and stimulating volatility.
"The proposal exacerbates the concentration of the index and could be a trigger for forced cuts in the 'Big Six'. Furthermore, the five-fold multiplier applied to a low float raises doubts about the replicability of the Nasdaq 100," Daniel Popovich, portfolio manager at Franklin Templeton in Brazil, told NeoFeed .
Nasdaq isn't the only one considering changes to attract large companies. FTSE Russell, an index provider owned by the London Stock Exchange Group (LSEG), is proposing to include major IPOs after five business days, but in a format that won't multiply their weight in the indices.
The incentive for these changes is worth millions. Creating and managing indices has become big business – in 2025, Nasdaq raised US$827 million in revenue from its indices, an increase from US$706 million the previous year.
By securing the next major IPOs, Nasdaq aims to boost the popularity of its indices and the funds that replicate them.
