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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
While we were sleeping, S&P Dow Jones Indices came out with their long awaited results to their Consultation on How We Jimmie SpaceX into Our Index Consultation on Treatment of MegaCap Companies.
Following consultations by Nasdaq, FTSE Russell, and Morningstar CRSP — all of whom decided to throw the previous rule book out the window and fast-track inclusion of the megacap telecom value stock — we’d thought this was going to be a formality. We were wrong.
Our emphasis:
Based on S&P DJI’s Index Committee review of the markets and after consideration of responses received from a wide range of market participants, no changes will be made to the eligibility criteria including financial viability screens, seasoning period, or minimum IWF, for the S&P 500, S&P MidCap 400, or S&P SmallCap 600 as a result of the S&P Dow Jones Indices consultation on the treatment of MegaCap companies. Accordingly, there will be no changes to existing methodology for this index family.
As a reminder, existing S&P DJI seasoning rules require 12 months of trading before being considered for inclusion. The investable weight factor — aka minimum free-float — must be at least 10 per cent of total shares outstanding. And the financial viability screen requires four consecutive quarters of positive net income from continuing operations.
As a result, it looks like SpaceX won’t be sucked up into the largest of the increasingly humungous rules-based index funds for at least a year, but potentially for a lot lot longer.
We’ve now got quite a variety of approaches across index providers.
MSCI and FTSE Global already had fast-tracking for mega-IPOs using free-float weights after 10 and five trading days respectively. FTSE Russell switched methodology on their Russell indices to bring them into line with the FTSE Global rule book a couple of weeks ago. Morningstar CRSP has dropped their minimum free-float requirement to admit SpaceX and the rest of the likely floaters after only five days. And Nasdaq — they’ve cleared a path for fast-track index inclusion at a three-times weight, but only after 15 days.
To make this all easier on the eye and brain, we’ve recoloured our top index chart showing where this leaves money benchmarked and indexed to the largest individual stock indices:
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All this got us wondering: is passive the new active?
Further reading:
— Et tu too, FTSE Russell? (FTAV)
— New Nasdaq rules offer SpaceX free liquidity (FTAV)
— Et tu, S&P 500? (FTAV)
— Nasdaq wants to fast-track founders and let index trackers hold the bag (FTAV)
— RIP Wilshire Indexes. And all wannabe index disrupters? (FTAV)
— Morningstar is feeling CRSPy (FTAV)
