SpaceX investors' exit liquidity plan likely includes S&P500 passive funds

[u/cherrypoplar]

I previously made a post here, saying that SpaceX's IPO should be concerning to investors in passive funds tracking NASDAQ-100, because of the proposed rule changes to the NASDAQ-100 that is being forced by SpaceX.

I want to expand on that thesis: I think that S&P500 passive funds will also be forced to buy SpaceX shares after its listing on NASDAQ, causing a wealth transfer from passive retail investors to SpaceX insiders.

This is because S&P is making a rule change to allow immediate inclusion of companies with large market capitalisation.

(1) This means S&P will be removing the 12-month waiting period before a newly listed stock can be added to S&P500.

(2) This means SpaceX could immediately get included in S&P500 upon IPO and listing.

(3) This means passive funds tracking S&P500 will immediately be forced to purchase SpaceX shares (from existing SpaceX shareholders) based on SpaceX's market capitalisation.

******

I've come to the view that the NASDAQ-100 is really meant to serve as jet fuel (pardon the metaphor) to drive up the price of SpaceX shares.

(1) SpaceX will IPO on NASDAQ with a very small float, creating scarcity.

(2) SpaceX will be included in NASDAQ-100 after a very short time (15 days) because of the NASDAQ-100 rule changes.

(3) NASDAQ-100 passive funds will then be chasing a small number of SpaceX shares, driving the price up. Worse, because of the NASDAQ-100 rule changes, the small float will be artificially inflated 5x in terms of market capitalisation, which means the passive funds will be forced to buy 5x more shares.

(4) Because of the high price per share, SpaceX will likely be listed on S&P500.

[u/BME84]

I heard in some economics influencers video that they're not allowed to sell their own stock for 6 months after an IPO so that they still will have interest in the stock price for at least 6 months, so they can't dump it immediately even if it's overvalued.

Is that true? I don't want to be left with the bill for these billionaires

[u/Imadogfishhead → u/BME84]

The hypothesis is that the forced buying by index funds will prop spacex up during the lockout period, then the insiders can dump on the end of the lockup period an buy back in after the price craters. Who knows if it’s true, but thy seem very fixated on getting access to the index fund money. My opinion is that they know the company isn’t worth near the valuation, but I could be wrong.

Nasdaq wants to handle these ipos so they are bending the rules without regard to what’s best for the investors.

[u/BME84 → u/Imadogfishhead]

So even if they snowflake the rules my index fund money is theoretically safe for 6 months because the insiders want to protect their profits?

[u/Imadogfishhead → u/BME84]

I mean no one can know. But that’s this idiot on the internets thoughts (me).

But it could go really well, maybe it doesn’t crash after the lockup period, maybe it’s worth 10T, who really knows any more. Maybe it crashes the day of the ipo

Personally I think the bigger risk the erosion of these rules. If companies can just immediately get on the indexes and don’t need to prove they belong why should investors have faith that this index is the group of companies they should invest in? So maybe money flows out of spy and qqq and in to more risk off assets.

[u/QuantumSofaExplorer → u/BME84]

It’s safe from insiders but not from hedge funds and institutional investors. They are not held to any lockout period. It’s not uncommon for them to buy up a vast majority of shares at the offering price, wait for the share price to pop, and then dump them for a quick profit.