DID YOU KNOW?
The Nasdaq changed the Rules
In our Do or Did You Know? blogs we provide readers with useful information that generally is not realized by inexperienced investors. In Chapter 1 of our publication, When to Buy and When to Sell: Combining Easy Indicators, Charts, and Financial Astrology (available on Amazon), we discuss IPOs and Market Manipulation.
In the ever-changing world of rules and regulations, a change has quietly been made by the Nasdaq 100, along with the FTSE Russell Small-Cap 500, highly affecting Initial Public Offerings (IPOs). In a move to seemingly benefit the upcoming SpaceX (ticker symbol SPCX) on June 12, 2026, the old criteria have been thrown out the window regarding listing requirements.
Throughout the history of the major indexes, there were stringent rules in place, mainly to prevent fraud and manipulation, including “lock-down” periods (specific to the company) where early investors were not allowed to sell their shares for a designated period of time after the first public trade date. The “old” rules also included a requirement that the company was profitable for the last quarter, as well as the sum of the last 4 quarters, traded on an index for at least 3-14 months (known as “seasoning”), and possessed a minimum float (available shares) of at least 10%.
The reasoning for the change was based on the fact that indexes are designed to represent the markets they track. Recently, companies have been waiting longer to go public to allow for time to mature, build higher revenue, and improve earnings. When they do, said indexes must still wait several months (under the old rule), which they argue does not represent a true picture of their markets.
In a rather auspicious manner, the Nasdaq and Russell recently announced that these requirements would be fast-tracked, to reduce the seasoning period for mega large-caps to only 15 days after starting public trading. Depending on their value, stronger companies may also enjoy a heavier weighting in the index, though this is monitored to ensure consistency. The minimum of $5-8 million of unrestricted publicly held shares has been raised to $15 million on the Nasdaq, to also prevent excessive volatility.
The S&P 500, however, declined to change their rules, which maintains the 12-month minimum trading period, stating that changes should not be made based on a company’s market cap. This decision eliminates the forced ownership in any newly listed companies by millions of passive investors through their 401k’s/IRA’s. They also maintained the float rule that a company must be publicly offering at least 10% of their shares. Though they may be criticized if the upcoming major IPOs surge in value without retrace, they chose to maintain balance for the average investor.
Another fact to consider is that, once listed, certain largely held funds are required to incrementally invest in these companies as part of their diverse portfolios. This benefits the early investors in the listed companies as there is a built-in base elevating the price. As a result, less volatility may be experienced by these companies in the months following the IPO, than a stock that is not listed on these elite indexes. In the case of SpaceX, this could prove very beneficial.
For the average retail investor, with no avenue to invest early, it is usually better to wait for the volatility to ease, and the lock-up period to end, so the sellers can be weeded out, and price develops a more reliable range.
*** As always, this information is not intended to be financial advice, and should not be considered as any specific buy or sell recommendation, but rather a guide to assist the reader in some further understanding of the financial markets.
