NASDAQ plans to introduce "Fast Track Inclusion" new rules to address large IPOs like SpaceX

NASDAQ is planning to adjust the inclusion rules for its flagship index, the NASDAQ-100 Index, proposing to establish a "fast entry" mechanism to significantly shorten the waiting time for large new stocks to be included in the index. This move aims to ensure that the benchmark index can more timely reflect market conditions and adapt to the new normal of technology giants going public at high valuations.

According to a recent statement released by NASDAQ, the proposed revision, referred to as "fast entry," will allow newly listed companies to join the NASDAQ-100 Index after the first 15 trading days following their listing. This time window is significantly shorter than the current requirement of at least a three-month waiting period.

This proposal comes at a time when a number of technology giants are expected to go public this year, including SpaceX, which may have a valuation as high as $1.3 trillion. If the rules are approved, it will alleviate the pressure faced by index providers, enabling them to more quickly include these newly listed companies with substantial market capitalizations in their tracking scope, thereby reducing the risk of passive funds missing out on early gains from new stocks.

Shortening the Inclusion Cycle to Adapt to High Valuation Listings

The core of this rule revision is to address the issue of large technology companies being "overlooked" by the index in the early stages of their public listing. According to NASDAQ's current statement, the proposed changes aim to ensure that the largest non-financial companies listed on NASDAQ can be timely included in the index.

The current rules require new stocks to undergo a waiting period of at least three months after listing before they are eligible for inclusion in the NASDAQ-100 Index. The new "fast entry" mechanism will significantly compress this threshold to 15 trading days. This means that once the market capitalization and other criteria are met, large new stocks will be able to enter global investors' passive investment portfolios at an extremely fast pace.

This initiative highlights that index providers are adapting to changes in the structure of capital markets. Nowadays, many companies choose to stay in private markets for longer periods, resulting in them often having substantial market value by the time they go public (IPO).

SpaceX is a typical representative of this trend. As one of the companies expected to go public this year, SpaceX has a potential valuation of up to $1.3 trillion. If it were to wait three months under the current rules, the index would be unable to cover this potential market giant for a long time; once included, it would immediately become one of the largest components of the NASDAQ-100 Index. The new rules will allow the index to more sensitively capture the market performance of such "behemoth" companies.

Reducing Tracking Error and Competitive Advantage

Kaasha Saini, head of index strategy at Jefferies, pointed out that if new stocks experience significant price increases in their early trading days, and passive funds are unable to allocate in a timely manner due to rule restrictions, they will face higher turnover costs when buying at elevated prices later, which may lead to passive funds missing out on important market gains.

Saini stated, "The proposed changes will enable the index to more timely represent market conditions."

Additionally, this adjustment also has clear commercial strategic intentions. The NASDAQ-100 Index is associated with a large pool of ETF funds globally, which is highly attractive to companies seeking to go public. In the context of NASDAQ competing with rivals like the New York Stock Exchange for IPO resources, being able to quickly allocate passive funds to newly listed companies through the "fast entry" mechanism will help enhance NASDAQ's appeal in attracting new stocks