Countdown to the mega IPO of SpaceX: A giant leap for insiders, a gigantic risk for public investors?

If successful, this launchpad will propel other decacorns—Anthropic and OpenAI—towards a collective $3 trillion public valuation.

Yet, while these rockets are high-tech, the financial engineering behind them is as old-school as a smoky backroom deal. To accommodate these behemoths, major index providers—Nasdaq, S&P Dow Jones and FTSE Russell—are falling over themselves to rewrite the rulebooks. It is a spectacle of supine Wall Street courtship that threatens the very protections that turned passive investing into a global safe haven.

Competition to host these trophy listings has led to extraordinary accommodations. Reports suggest that the SpaceX deal’s gatekeepers—investment banks, lawyers and auditors pitching for a piece of the action—have been asked to subscribe to affiliated software products such as Grok, committing tens of millions of dollars to secure their seats.

On Wall Street, mutual back-scratching is a heritage craft, but the scale here is a departure from tradition. It suggests a pay-to-play ecosystem where institutional friction is bypassed and service providers are forced to ‘dog-food’ the issuer’s ancillary products just to gain access to the prized mandate.

But if the advisors are compromised even before the prospectus is printed, the supposedly independent vetting process is effectively dead on arrival.

The most corrosive changes, however, are occurring within the indices themselves. Index providers are weighing two primary ‘reforms’ designed to usher mega-cap firms into benchmarks with maximum speed and minimum transparency. These relate to seasoning and float rules.

The death of price discovery: A ‘seasoning’ period, traditionally 3-12 months, is the market’s cooling-off chamber. It lets the early IPO euphoria evaporate, giving way to an honest price once underwriter stabilization ends, before a new stock joins an index.

Nasdaq is moving towards a fast-entry window of 15 trading days; the LSEG suggests a mere five. Data shows that firms with five-day seasoning periods raise 6% more capital at the outset, but their stock prices often crater by 10% in the months after inclusion. By slashing this window, index providers are effectively forcing passive funds to buy at the peak of the stock-hype cycle.

The ‘float’ illusion: To ensure a stock is actually tradable, indices require a minimum free float (usually of 10%). However, modern founders increasingly favour dual-class structures to maintain control while offering the public only a sliver of equity.

Nasdaq’s solution is a masterpiece of circular logic. For large-cap stocks, they may waive liquidity rules and weight the company at five times its actual free float. Imagine a $1 trillion company that floats only 5% of its stock. Under these rules, index trackers would be forced to buy as if $250 billion were tradable.

This creates a demand vacuum, the force of which would send the price spiralling up regardless of the company’s fundamentals. This is a formula for extreme volatility and a direct assault on market efficiency.

The urgency to rig rules is explained by the math. SpaceX is seeking a $1.75 trillion valuation on roughly $20 billion in revenue—while its xAI unit acts as a money furnace. To sustain such astronomical valuations, the issuer needs forced buying.

By demanding early inclusion, the issuer secures a guaranteed bid from an estimated $24 trillion tied to passive funds. These funds don’t care about financial viability or revenue multiples; they buy because the spreadsheet dictates it. This isn’t a public offering; it’s an exit strategy for insiders to dump shares onto the retirement accounts of unsuspecting retail investors at a manufactured premium.

Passive investing became the world’s favourite strategy because it offered diversification, not a concentrated bet on a singular ego. Since 1980, almost every large firm that floated less than 5% of its stock has underperformed the market over the following three years.

Index providers argue that benchmarks must adapt or risk becoming irrelevant as companies stay private longer. This is a false choice. Relevancy bought at the price of liquidity is a shortcut to a systemic crisis. Market plumbing is not neutral. The rules of indices and exchanges are the invisible hands that steer trillions of dollars.

If those rules are designed to the shape of superstar firms, the plumbing ceases to be a public utility and becomes a private subsidy. If the guardians of the S&P 500 and Nasdaq-100 prioritize exchange fees over rigorous methodology, they risk turning the world’s most trusted barometers into mirrors of a bubble.

It is time for the adult supervisors of stock indices to decide whether they serve the investors who track them or the issuers who game them.

The author is a former executive director, Nomura and currently a faculty member at several B-schools.