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Is the algorithm "select * from companies order by market_cap desc limit 500"? At the risk of oversimplifying, there should be quite little to debate, and when

• mandevil 4y ago
  The algorithm is a little more complicated than that, as various judgements have been added in, but always with specific rules. When there was a trend of tech companies going public with dual classes of shares leaving founders in control forever (e.g. Zuck with Facebook) they announced that any company which went public after date X with dual classes to prevent the economic owners from exercising control would not be allowed onto the index. Similarly, there are rules about profitability that, IIRC, were added after the first dotcom bubble to try and keep extreme bubbles from mucking up the index (I think it's that you need to have two consecutive quarters of profitability, but I don't remember the details). Also, the market cap of company 450 and company 550 are close enough that recent market performance can flop ]back and forth fairly regularly, which the S&P has further rules to try and limit, though again I don't remember the details. Again, they try to be fairly rules based, but do exercise some discretion in creating the rules.
• anonu 4y ago
  You have to adjust for free float market cap. Companies need to be US incorporated. You have to be aware of share classes. For example both GOOG share classes are in the S&P. When it comes to tiebreak decisions, there may be 5 or so potential adds when there is 1 delete. There may be a focus on evening out sector exposures, preferencing underweight sector adds. (Just my guess)