In a speech at the Economic Club of Washington this March, Nasdaq CEO Adena Friedman openly detailed how the exchange uses its stock index business to attract new listings.
During an interview with Carlyle Group Chairman David Rubenstein, Friedman highlighted Nasdaq's core competitive advantage over rival exchanges: it also operates the influential Nasdaq 100 index. The rules governing this index direct the allocation of roughly $800 billion in tracking funds, enabling Nasdaq to steer massive investor capital towards companies listed on its own exchange.
Key Analysis
Friedman stated, "The Nasdaq 100 is the only index in the U.S. that is directly tied to a listing venue." By leveraging this ability to guide tracking capital, Nasdaq effectively holds a 3% to 4% stake in the free-floating shares of companies within the Nasdaq 100.
Since Friedman took the helm over a decade ago, the company's stock price has roughly tripled, giving it a current market capitalization of $49.5 billion. With SpaceX expected to list on Nasdaq this Friday in what could be the largest IPO ever, the event stands as the most powerful test yet of this business strategy.
In recent years, Nasdaq has consistently pursued major IPO projects, with SpaceX being the latest example. This strategy, combined with sustained client relationships and a tech market recovery, is showing results. The exchange recently revised the rules for its Nasdaq 100 index, significantly shortening the waiting period for large new listings to be included.
Exchange-traded funds and other index funds tracking the benchmark are forced to quickly purchase the corresponding new stock. Nasdaq also has index licensing agreements with several major asset managers. Invesco, a long-term partner, could see its popular QQQ and QQQM ETFs forced to buy around $6 billion in SpaceX stock, while all funds linked to Nasdaq indices combined are expected to purchase approximately $8.5 billion worth.
This buying activity would represent about 11% of SpaceX's free-floating shares, with all trades concentrated within the first 15 trading days post-listing. Other major index providers like FTSE Russell and Morningstar have implemented similar relaxed rules, while MSCI already had a fast-track inclusion mechanism for large IPOs and did not make changes this time.
However, Nasdaq's adjustments are the most aggressive, and it is the only index provider applying a differentiated weighting methodology for SpaceX that departs from the standard free-float proportion.
Marco Sammon, a Harvard Business School finance professor who studies the market impact of stock inclusion, noted, "I can't find a precedent where so many index providers add a company to their indices just weeks after its IPO."
Nasdaq officials explained that this weighting mechanism essentially sets a cap to limit SpaceX's weight in the index and prevent its total market cap from having an outsized influence.
A spokesperson for Nasdaq stated the rule changes stem from a decade of market shifts, including longer periods of private ownership, larger IPO sizes, and more complex capital structures. The spokesperson added, "This adjustment was not tailored for a single company; other major index providers have also independently updated their rules based on the same market evolution."
The contrast with S&P Global, which last week decided to tighten, not loosen, the inclusion criteria for its broad-market S&P 500 benchmark, makes Nasdaq's move particularly notable. The S&P 500 has strict profitability requirements, which SpaceX's loss-making AI operations would likely prevent it from meeting in the near term.
These high-profile rule changes, coupled with SpaceX's imminent listing, have brought the typically obscure world of index construction into the spotlight. Index providers wield significant power over capital flows, but unlike exchanges—whose listing fees face regulatory caps—they operate with far less direct oversight in the U.S., essentially setting and enforcing their own rules.
While the public often views indices as passive reflections of the market, the Nasdaq 100 is neither as broad as the S&P 500 nor a pure sector index. It selects the 100 largest non-financial companies by market cap listed on Nasdaq, with tech stocks dominating, though it also includes consumer names like Costco and Starbucks, and will add Walmart starting in late 2025.
Criticism is mounting from within the industry: exchanges are seen as using relaxed index rules to secure lucrative listing and licensing revenue, with the cost borne by investors. Furthermore, the rapid inclusion rules pose significant technical challenges. Concurrently, social media sentiment analysis shows the rule change has sparked significant retail investor dissatisfaction, a group SpaceX had hoped to attract en masse.
Michael Green, Chief Market Strategist at ETF firm Simplify, commented that Nasdaq is commercializing the flow benefits from its index and QQQ fund to create a competitive edge for winning listing mandates. "The people at Nasdaq are great and want the company to do well, but intense competition is forcing them into actions that harm investors," he said.
Nasdaq's Full-Suite Value Proposition
While SpaceX benefits from the new index rules, Nasdaq itself also gains. The trading frenzy following SpaceX's listing will generate order routing revenue for the exchange, even though a significant portion of stock trading now occurs on other venues.
This is just one part of the benefit. Firms like Invesco pay Nasdaq hundreds of millions annually for index licenses to issue ETFs and other funds, with fees typically based on assets under management. Regulatory filings show the index licensing business has become a core revenue segment for Nasdaq, growing 80% since 2021, far outpacing the 18% growth in listing revenue.
The explosive growth of passive investing over recent decades has deeply intertwined the interests of index providers and fund companies. Invesco has tracked the Nasdaq 100 since launching the QQQ fund in 1999, and its long-term outperformance has made it one of the world's largest ETFs.
This is not the first time Nasdaq has altered its core index rules for a mega-IPO. In 2012, to welcome Facebook's (now Meta) listing, Nasdaq significantly shortened the waiting period, allowing its inclusion in the Nasdaq 100 after just 90 days.
Patrick Healy, CEO of listing advisory firm Issuer Network, revealed that the 2012 rule change was driven by Facebook's request, a client of his at the time.
That Facebook IPO raised $16 billion, setting a then-record for a tech company and becoming the largest listing in Nasdaq's history. However, the process was marred by technical glitches on the first day of trading, and the stock traded below its IPO price for over a year. The SEC later fined Nasdaq $10 million over the listing debacle, finding it was not technically prepared for such a large IPO.
When Friedman became CEO in 2017, total assets in funds tracking the Nasdaq 100 were only about $100 billion, far below current levels. It was also during that period that Nasdaq lost major tech listing mandates to the NYSE, including Snap (early 2017) and Uber (2019).
Former Nasdaq CFO Ann Dennison told an investor conference in 2022 that the company began packaging and marketing the "full Nasdaq value proposition" to prospective listings. "The core logic of competing for listings hasn't changed, but our approach has been completely upgraded," she said.
After losing listing battles to the NYSE, Nasdaq refined its pitch, emphasizing the advantage of potential rapid inclusion in the Nasdaq 100 post-listing. This strategy saw success with winning the Airbnb listing in 2020, followed by Rivian (2021), Arm (2023), and Medtronic (2025).
Data from Dealogic shows that in recent years, Nasdaq has hosted three times as many tech IPOs as the NYSE, with total proceeds roughly double. Large companies like Walmart have also recently switched their listings from the NYSE to Nasdaq.
Karen Snow, who led Nasdaq's global listings business from 2019 to 2024, said, "The potential for inclusion in the Nasdaq 100 is one of the top five reasons companies choose to list on Nasdaq. The index genuinely drives buying activity and the stock price."
However, the overall supply of tech IPOs has shrunk, with high interest rates suppressing valuations and more companies opting to stay private longer. Even with a market recovery last year, Dealogic data shows the number of tech listings on Nasdaq only recovered to half of 2021 levels.
In this context, SpaceX and other potential mega-IPOs have become scarce, highly sought-after targets for exchanges, providing Nasdaq with a powerful selling point: leveraging index rules to unlock incremental market capital. Goldman Sachs' investment banking division noted in a private meeting last November that future large tech IPOs will heavily depend on retail investors and passive index funds, which together account for about 70% of the investor base in companies like Nvidia, Microsoft, and Alphabet.
Around the same time, Nasdaq initiated its latest round of index rule revisions, going further than the changes made for Facebook: further shortening the inclusion timeline and increasing the index weight for companies like SpaceX that have a low post-IPO free float. The latter is a particularly attractive competitive lever, forcing tracking funds to buy more shares than under standard rules.
Nasdaq also secured new licensing agreements with two other global index fund giants, BlackRock and State Street, allowing them to launch ETFs tracking the Nasdaq 100, adding major capital sources beyond its long-term partner Invesco. Both firms filed for product launches in April, though specific timelines are not yet set.
Beyond SpaceX, cash-intensive AI firms like OpenAI and Anthropic are also preparing for listings. Friedman declined to comment on these companies in her March interview but stated that tech firms seeking public market funding is a healthy trend for the industry.
"We fight for every single listing, and we never let up," she said.
Aggressive Rules Conceal Risks
Currently, the interests of all index providers and fund companies are tied to the controversial SpaceX listing. The company is in a state of significant ongoing losses, and shareholder governance rights are heavily constrained. If SpaceX follows the path of most new listings and sees its stock price fall below the IPO price within months, the losses will ripple through a basket of index-tracking products.
Furthermore, some market participants worry that SpaceX's massive IPO itself carries various complex risks. Healy, who worked on the Facebook and Arm listings, warned that if SpaceX or another rapidly included stock declines sharply post-listing, the rules compressing the buffer period could negatively impact other stocks within the index.
"Pushing the rules to this extreme is asking for trouble; it's extremely high risk," Healy commented.
Simultaneously, SpaceX's IPO is allocating a large portion of shares to retail investors, whose trading behavior is far more volatile than institutional investors. There is concern that the new index rules could ultimately trigger negative market sentiment, harming the company's stock price.
At the request of The Information, market sentiment analysis firm PeakMetrics monitored online discussions about the SpaceX IPO from May 18 to June 2, finding significant criticism of the rapid inclusion rules on platforms like X and Reddit. From May 29 to June 1, the volume of negative posts surged fourfold, with negative sentiment overwhelmingly dominant.
Friedman has defended the index changes, stating that Nasdaq's index business operates independently from its exchange listings business. In an April interview with CNBC's Andrew Ross Sorkin, she said the decision to adjust the rules was made independently by the index business team. She added that investors holding funds tracking the index are free to redeem their shares.
"Ultimately, investors have full choice; they can switch to products tracking different indices," she said.
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