New Nasdaq rules to include ‘fast entry’ for new listings on benchmark index

Signage is displayed outside the Nasdaq Market Site in the Times Square area of New York, U.S.

Nasdaq will roll out a set of rules including steps to speed up the entry of newly listed large-cap companies to its Nasdaq-100 index, as the exchange operator seeks to reduce delays in joining the flagship equity benchmark.

As richly valued technology companies such as SpaceX and OpenAI prepare to go public, exchange operators are seeking to turbocharge the pipeline of initial public offerings amid concerns over a rapidly shrinking number of publicly listed companies in the U.S.

Onerous disclosure requirements and the costs of being publicly listed have also made it less attractive for companies to seek public markets, with several large startups like Stripe and Databricks choosing to remain private for longer than startups typically do.

Dwindling number of publicly traded firms

Nasdaq is looking to revamp its rules to ensure that newly public large-cap companies and exchange transfers do not face a long waiting period - potentially up to a year or longer - before joining the Nasdaq-100, Cameron Lilja, Nasdaq’s global head of index solutions, told Reuters.

“It is not necessarily representative to have a company that’s big and could have a sizable representation in the index to keep them out for that long,” Lilja said in an interview. “We’re seeing share and corporate structures change - and companies that are staying private considerably longer are thus growing to be truly mega-cap companies before they even come to the public markets.”

The new rules for Nasdaq-100, including the “fast entry” provision, will take effect on May 1, though most updates are not expected to affect the benchmark’s composition until June, Nasdaq said.

The number of public companies listed on U.S. exchanges has shrunk by more than a third since 2000, according to a white paper from Nasdaq last year.

The Nasdaq-100 is home to some of the world’s largest publicly traded names, including mega-cap tech stocks Nvidia, Apple and Amazon.com. Last year, Walmart switched its listing to Nasdaq, marking the biggest exchange transfer ever.

Under the fast-entry rule, Nasdaq will evaluate newly listed stocks for potential entry by ranking their market capitalization on the seventh trading day and assessing whether they would rank within the top 40 index members. If a company meets all the eligibility criteria, it will be fast-tracked into the Nasdaq-100 after the 15th day of trading.

Under existing rules, Nasdaq reviews the rankings of index components only once a year. In a process that can take up to a year, or even longer, newly public companies must demonstrate they are stable enough to handle the volume of buy orders from institutional investors.

Admission to a blue-chip index like the Nasdaq-100 or the S&P 500 is highly attractive to large-cap companies, as it ​increases their access to the deep-pocketed ​institutional investors who typically buy sizable positions for their index funds, broadening the companies’ shareholder base and improving liquidity over time.

Other indexes, including the FTSE Russell and the NYSE 100, are also racing to introduce major changes to rules governing the entry of companies into benchmark indexes, as high-profile names including billionaire Elon Musk’s rocket-and-satellite maker SpaceX, and AI market leaders Anthropic and OpenAI, prepare for their stock market debuts.

SpaceX is seeking early inclusion to top benchmark indices including the Nasdaq-100, Reuters reported this month.

New rules

Here are the other rule changes for the Nasdaq-100:

• A new method to calculate the market capitalization of companies to determine their eligibility for inclusion in the index. It involves adding listed stock and unlisted shares that are part of different share classes.
• Scrapping a rule that requires companies to float a minimum 10 per cent of their shares.
• Companies with a low float will receive a lower weighting on the index.
• If a company finishes two consecutive months below 10 basis points in weight within the index, it will be removed and replaced by the next-largest eligible company.
• Updates on total outstanding shares of companies to come quarterly, replacing the current ad-hoc rule.

(Reporting by Anirban Sen in New York and Arasu Kannagi Basil in Bengaluru; Editing by William Mallard)