In a move that sets it apart from its peers, S&P Dow Jones Indices has decided not to create a fast-track entry for exceptionally large initial public offerings, maintaining its existing rules.

According to a report, S&P Dow Jones Indices announced the results of a consultation on June 4, confirming it will not shorten the 12-month seasoning period for newly public companies. It also will not waive profitability or public float requirements based on company size.

This decision means that SpaceX, which is preparing for an IPO with an estimated valuation around $1.75 trillion, would be ineligible for inclusion in the S&P 500 for at least a year after listing. It would also still need to meet the index's profitability and public float criteria.

This stance contrasts with recent actions by other index providers. The Nasdaq had already amended its rules to allow large IPOs to join the Nasdaq 100 index after just 15 trading days, while FTSE Russell has compressed the waiting period to five trading days. S&P's decision to go against this trend has surprised some market observers. A Bloomberg Intelligence ETF analyst stated, "I was indeed surprised, but S&P is the market leader, and it has the ability to go against the tide."

The Core of the Debate: Three Key Hurdles

The controversy centers on three long-standing eligibility requirements for the S&P 500 index.

The first is the seasoning rule, which mandates that a company must have at least 12 months of public trading history to be considered. The second is a profitability requirement, stipulating that the sum of a company's GAAP earnings over the last four quarters must be positive, with the most recent quarter also profitable. The third is a minimum public float, requiring at least 10% of shares to be available for trading.

On April 30 of this year, S&P Dow Jones Indices launched a public consultation on "handling of ultra-large market capitalization companies," putting all three requirements up for discussion. The consultation defined "ultra-large" as a total market capitalization at least equal to that of the 100th largest constituent in the S&P Total Market Index, approximately $112 billion. The proposal suggested reducing the seasoning period to six months and fully exempting ultra-large companies from the profitability and float requirements. The consultation period ended on May 28, and if approved, the new rules were to take effect before the market opened on June 8—timed with SpaceX's then-planned Nasdaq listing on June 12.

S&P's final decision to maintain the status quo has widened the divergence in approach between it, Nasdaq, and FTSE Russell.

Proponents of faster inclusion argue that indices should quickly incorporate these massive companies to accurately reflect the market structure that investors actually hold, as these trillion-dollar entities are economically significant long before they meet traditional index criteria.

S&P's position represents a different logic: the stability of the rules themselves holds value, and making exceptions for individual companies could undermine the credibility of an index as an objective market benchmark.

SpaceX's Triple Hurdle

SpaceX's IPO plans happen to run afoul of all three of these rules.

Reports indicate SpaceX recorded billions in losses last year, failing the profitability test. The company is also expected to float only about 5% of its shares, well below the 10% minimum threshold. Furthermore, under the standard seasoning rule, it would be ineligible for the S&P 500 for at least a year post-listing.

Other companies like OpenAI and Anthropic are also preparing for listings while being unprofitable. All three companies are expected to rank among the largest U.S. firms by market value upon going public, yet none currently meet S&P's standards for profitability or public float.

A corporate governance expert commented on the situation, noting that SpaceX's potential inclusion in the Nasdaq index was already a result of bending the rules. "This is contrary to what an index is supposed to do. The point of an index is to tell investors: we've done the work for you, we only include companies that meet certain criteria. And now, they are quietly watering that down."

Concerns for Passive Funds: A Trillion-Dollar Chain Reaction

Ultimately, this rules debate impacts the retirement accounts of ordinary investors, representing trillions of dollars.

S&P Dow Jones Indices estimates that as of December 2024, assets benchmarked to the S&P 500 total approximately $20 trillion, with about $13 trillion of that in passively managed funds. Passive funds have no discretion—they must buy whatever stock an index adds, regardless of price.

Investors opposing fast-track inclusion argue that requirements like profitability, public float, and trading history exist precisely to prevent benchmark indices from chasing market hype. Including IPOs too quickly could expose passive funds to higher volatility and force them to make large purchases before the market has had sufficient time to establish a stable price.

This concern is not unfounded. Nasdaq introduced its fast-track rule in March, allowing large IPOs into the Nasdaq 100 after 15 trading days, effective May 1. Analysis cited by Bloomberg estimated this rule change could trigger up to $60 billion in forced buying by passive funds tracking the Nasdaq 100. The potential impact for the S&P 500, which has a much larger pool of tracking assets, is even more significant.

The governance expert predicted that large institutional investors may ultimately push back. "If I were in charge of the California retirement fund or the New York retirement fund, I would just call up Vanguard and Fidelity and ask them to create a new index for me that doesn't include these companies."