SpaceX IPO – a Glimpse Into the Future of Indexing?
By Rich Lee, Head of Program Trading & Execution Strategy, Baird
We are living in a brave new world. The shift has been happening for years but somewhere around 2020, it felt as though someone slammed a foot on the accelerator to the future.
The world we’re living in is rapidly evolving from the one we’ve known. I am not referring to societal or geopolitical change -though those topics alone could warrant countless written pages- but I’m referring to the changes, both structural and behavioral, we’ve seen reshaping the equity marketplace.
In the six years since the start of the pandemic, we have witnessed a series of developments that have become part of the market’s new normal. Headlines that once would have qualified as three standard deviation events barely cause the VIX to flinch.
The number of publicly traded ETFs has surpassed the number of listed equity stocks. Artificial Intelligence, once the stuff of science fiction, has become a strategic imperative, with nearly every company weaving AI into its earnings calls and long-term plans. Take all this, add prediction markets, tokenization, and the march towards extended trading hours into today’s evolving equity landscape.
Market volumes have also seemingly shifted gears. Before 2020, volumes averaged around six billion shares a day. In 2026, we steadily settled into a new liquidity regime that has been averaging roughly nineteen billion shares a day. At approximately 35 percent of the S&P 500, the weight of the tech sector further highlights the shifts in our economy.
Next up on the wheel of change: Space as a business.
More specifically, the monetization of space exploration through companies such as Elon Musk’s SpaceX. Beyond Starlink’s low-Earth orbit satellite network delivering high-speed internet, the company designs reusable rockets, provides launch services, and is developing Starship-a spacecraft intended to transport people to the Moon and Mars. We truly are living in the future, even if I’m still waiting on my flying car.
SpaceX is also expected to be one of the most hotly anticipated IPOs of the year. The company is expected to list on Nasdaq. At the same time, Nasdaq recently adopted a “fast entry” rule for inclusions into the Nasdaq 100 index.
This rule bypasses the criteria index providers typically use to determine suitability into index membership. Under the rule, companies with market caps that rank within the top forty of the Nasdaq 100 will be eligible for inclusion in the index within fifteen days, bypassing much of the traditional seasoning period index providers typically rely upon when evaluating suitability for membership. Historically, before a company is considered for inclusion in an index, it must meet certain eligibility requirements.
This is done to ensure the viability, tradability, and investability of a company. For instance, S&P, stewards of the S&P500 -which despite its name contains 503 members, evaluates factors such as:
· Domicile
· Security filing type
· Exchange listing
· Organization share structure and type
· Market capitalization
· Investible Weight Factors
· Liquidity
· Financial viability
(It’s important to highlight that S&P also has IPO fast track eligibility criteria like Nasdaq.)
From the perspective of Index providers, fast tracking makes sense as providers want their indices to remain relevant-and thus continually tracked. Additionally, it allows the index to more quickly reflect the true “market” and more fully represent investor sentiment.
Yet, these evaluation criteria make a lot of sense especially when you consider the sheer amount of capital tied to these index tracking products. Between VOO, IVV, and SPY alone, -three of the largest ETFs tracking the S&P 500, there is $2.5 trillion AUM. For the QQQ, that number is roughly $456 billion.
These numbers don’t even include traditional mutual funds that track these indices, derivative products, secondary, and tertiary products that have assets tracking these indices. When you consider the magnitude of money in investor’s retirement accounts, 401(k)’s, and other investment vehicles tied to tracking these products, suddenly, a vetting period to evaluate index inclusion suitability factors such as liquidity, and financial viability become more meaningful.
Perhaps that is why SOC Investment group, an advisor to union-affiliated pension funds, penned a letter this week asking the SEC to review the accuracy of SpaceX’s financial statements.
Citing an article from Bloomberg: “We are specifically concerned that SpaceX’s IPO will expose numerous investors -many unwillingly – to a company whose value may decline once its financial disclosures can be independently assessed and verified”. Investors could ultimately gain exposure—either directly or indirectly through index products—to a company whose valuation may look very different once subjected to traditional Index eligibility criteria and scrutiny.
At its core, the debate raises an important question: if a highly anticipated IPO is rapidly added to a major index before undergoing sufficient vetting, are the interests of everyday investors truly being served?
As we speed through this brave new world, it’s important to pause and consider: are we headed towards a future that’s dystopian or utopian?
