S&P and Dow Jones announced they will maintain their current rules and reject creating a "fast-track" entry for mega-cap IPOs, diverging from Nasdaq and FTSE Russell. This move effectively blocks SpaceX's path to rapid index inclusion, as the company reported massive losses last year, has only 5% of its shares publicly traded, and fails to meet any of the three eligibility criteria. At stake in this standoff is the fate of $20 trillion in passive assets: relaxing the rules could trigger hundreds of billions of dollars in passive buying, impacting the retirement accounts of hundreds of millions of U.S. investors.
S&P Dow Jones Indices has declined to create a "fast-track" entry path for mega-cap IPOs, diverging from the approaches taken by Nasdaq and FTSE Russell.
According to Bloomberg, S&P Dow Jones Indices published its consultation results on June 4, announcing that it would maintain its current rules unchanged—refusing to shorten the 12-month “seasoning period” requirement for newly listed companies and declining to exempt large firms from profitability thresholds or public float requirements based on company size.
This means SpaceX, which is preparing for an IPO with an estimated valuation of approximately $1.75 trillion, will be ineligible for inclusion in the S&P 500 for at least one year after its listing and must still meet the profitability and public float criteria.
Previously, Nasdaq had already revised its rules to allow large IPOs to join the Nasdaq-100 Index after just 15 trading days, while FTSE Russell reduced its waiting period to five trading days. S&P’s decision to go against this trend has surprised the market. James Seyffart, ETF analyst at Bloomberg Intelligence, commented: "I am genuinely surprised, but S&P is a market leader—it has the ability to move against the tide."
The Rules Debate: Three Thresholds, One Strategic Battle
At the heart of this controversy are the S&P 500’s three long-standing eligibility criteria.
First is the “seasoning period” rule, which requires newly listed companies to have at least 12 months of public trading history before being considered for inclusion. Second is the profitability requirement: a company must report positive aggregate GAAP earnings over the most recent four quarters, with profitability in the latest quarter. Third is the minimum public float threshold, mandating that at least 10% of shares be freely tradable.
On April 30, S&P Dow Jones Indices launched a public consultation on how to handle “mega-cap” companies, putting all three requirements under review. According to the consultation document, a “mega-cap” company is defined as one with a total market capitalization no less than that of the 100th-largest constituent in the S&P Total Market Index—approximately $112 billion. The proposed changes included shortening the seasoning period to six months and fully waiving both the profitability and public float requirements for mega-cap firms. The consultation closed on May 28, and if approved, the new rules were scheduled to take effect prior to the market open on June 8—just ahead of SpaceX’s planned Nasdaq listing on June 12.
S&P’s decision has further widened the divergence in approach between itself and Nasdaq and FTSE Russell.
Proponents of expedited inclusion argue that indices should incorporate these massive companies as soon as possible to accurately reflect the market structure actually held by investors—after all, trillion-dollar-valued enterprises exert significant economic influence long before they meet traditional index eligibility criteria.
S&P’s stance, on the other hand, reflects a different logic: the stability of the rules themselves holds intrinsic value. Granting exceptions too readily for individual companies would undermine the credibility of indices as objective market benchmarks.
SpaceX’s 'Triple Challenge'
SpaceX’s IPO plans happen to violate each of the three aforementioned rules.
According to Fortune, SpaceX reported billions of dollars in losses last year and does not yet meet profitability requirements. The company plans to float only around 5% of its shares, far below the minimum threshold of 10%. Moreover, under standard maturity criteria, SpaceX would be ineligible for inclusion in the S&P 500 for at least one year following its listing.
Meanwhile, OpenAI and Anthropic are also preparing to go public and are both currently unprofitable. All three companies are expected to rank among the largest U.S. firms by market capitalization upon listing, yet none meets S&P’s current standards regarding profitability or public float.
Nell Minow, a seasoned expert in corporate governance, told Fortune that SpaceX’s inclusion in the Nasdaq index itself was already the result of ‘bending the rules.’ ‘This runs counter to the very purpose an index is meant to serve,’ she said. ‘The role of an index is to tell investors: We vet companies for you and only include those meeting specific criteria. Now, they’re quietly lowering the bar.’
Passive Funds’ Hidden Risk: A Trillion-Dollar Chain Reaction
At the heart of this debate over indexing rules are trillions of dollars held in ordinary investors’ retirement accounts.
According to S&P Dow Jones Indices, as of December 2024, assets benchmarked to the S&P 500 totaled approximately $20 trillion, of which about $13 trillion were passively managed. Passive funds have no discretion—they must buy any stock added to the index, regardless of price.
Investors opposed to rapid inclusion argue that requirements related to profitability, public float, and trading history were specifically designed to prevent benchmark indices from chasing market fads. Accelerated inclusion of newly listed IPOs could expose passive funds to heightened volatility and force them to make large purchases before market pricing has fully stabilized.
This concern is not unfounded. In March this year, Nasdaq introduced a 'fast-entry' rule allowing large IPOs to be added to the Nasdaq-100 after just 15 trading days, effective May 1. According to Bloomberg, Goldman Sachs analysts estimate this rule change could trigger up to $60 billion in mandatory passive buying within the Nasdaq-100. Given that the asset base tracking the S&P 500 far exceeds that of the Nasdaq-100, the potential market impact would be even more significant.
Minow predicts that large institutional investors will ultimately not stand idly by. 'If I were in charge of the California or New York state pension funds, I’d call Vanguard and Fidelity directly and ask them to create a new index for me that excludes these companies.'