4 ms·

> sensible thing to do is to create a new index with the new rules It depends. Indices aren’t funds. They aren’t meant to balance investor interests. They’re m

> sensible thing to do is to create a new index with the new rules It depends. Indices aren’t funds. They aren’t meant to balance investor interests. They’re meant to communicate some metric about the market. The S&P tells you how big companies are doing in an index optimized to balance representation against trading cost. So in 2005, float was taken into account for weighting (versus just market cap). This made sense. Also, since the start, the S&P 500 has been a committee-based index. Not rule based. This has made it successful; if you want stable and unchanging, you never went for the S&P 500.

jmyeet 5mo ago
The market cap of the S&P 500 according to Google is ~$65T. Anthropic, OpenAI and SpaceX could well amount to $4T+ in market cap. That's ~6% of the entire index. It's like adding another NVidia. That's a big deal. The rules around index inclusion exist for a reason. Too much control in one person's hands (which SpaceX has), too small a float (so you don't get price discovery), lack of a history of financial performance and minimal trading days just don't give investors confidence and, like it or not, investment decisions are made based on the index. If you want to argue against passive investment, well, good luck with that. I think a lot of people have this weird idea that what we need is some theoretically unfettered market for "true" price discovery when it's actually regulations like this that create markets. It's like a libertarian brain worm. I don't think anybody wants these mega-companies out of the index, specifically. They just don't see why rules that exist for a reason should be suspended when the net effect of that is that investors have less information and there is a lot of forced purchasing. If you have confidence in your IPO, let the market decide what it's worth without trying to fix the price because what they seem to want is for insider lock-ups to end about the time we'd otherwise be getting normal price discovery. Kinda weird. Investor confidence needfs to be managed by creating a stable, regulated market.
- bdangubic 5mo ago
  except $4T is a made up number, a complete fantasy not rooted in any reality. it us more like $750bn (this is also made up number) :)
  - lotsofpulp 5mo ago
    All valuations are “made up” numbers.
    - tasuki 5mo ago
      Some are more made up than others though!
    - Retric 5mo ago
      Price discovery isn’t “making up” a number it’s discovering a number that meets a specific criteria. Critically it’s not simply averaging a bunch of made up numbers. I may think gold is worth 1,000$/kg but if nobody is willing to sell me gold at that price then my “made up” number has zero effect on the market price.
  - fragmede 5mo ago
    The 409a has a lot of words and numbers to justify a particular valuation. It's not made up from the ether based on nothing. You can disagree with their reasoning and come to a different number, but you need to show your work if you want anyone to give a shit about your made up number. How many satellites have you launched this year? What's the going rate for a kilogram to LEO? Who are the competitors and what do they charge? Things like that which aren't magic made up numbers.
    - nixon_why69 5mo ago
      Oh come on. They absolutely have to target a valuation that's profitable for previous rounds, any reasoning is subservient to that imperative.
    - jkestner 5mo ago
      The valuation is actually mostly about AI. Satellites, like electric cars, don’t have quite the growth story (and I do mean “story”). https://bsky.app/profile/patigallardo.bsky.social/post/3mnhc2hkvus2l https://bsky.app/profile/patigallardo.bsky.social/post/3mnhc...
- tristanj 5mo ago
  > Anthropic, OpenAI and SpaceX could well amount to $4T+ in market cap. That's ~6% of the entire index. It's like adding another NVidia. This is a common misconception. The S&P 500 weights allocation by float-adjusted market cap, not by total market cap. In the case of SpaceX, they are planning to float ~4% of shares at IPO. Even if SpaceX was added to the index, its index weight would be based on that tiny float, and at a $1.75T valuation it would be treated as roughly a $70 billion company. SpaceX weight would be ~0.125% of the index, not ~2.5% as you imply.
  - Xixi 5mo ago
    Nasdaq "solved" that problem by including a 5x float multiplier for stocks with less than 20% of shares available to the public...
    - tristanj 5mo ago
      That's misleading. Before the changes, the Nasdaq-100 index was total market cap-weighted not float-weighted. Once a company crossed 10% floated shares, the company was added to the index at full weight. Nasdaq's new system is a hybrid of float-weighted and cap-weighted. If a company has below 33.3% float, its weighting is 3x float. Above that, it's cap weighted. This allows a gradual fade-in of the company into the index. It's a better system than the previous one, and in Nasdaq's own words, more conservative. For the Nasdaq-100, SpaceX at 4% float gets 3 x 4% = 12% of its market cap counted, which is $210B not $1.75T. Still <1% of the index. Also, the multiplier is 3x, not 5x. Nasdaq proposed 5x, but after feedback, this was reduced to 3x. The new thresholds are 3x and 33%, not 5x and 20%. https://www.nasdaq.com/newsroom/nasdaq100-index-methodology-update-why-now https://www.nasdaq.com/newsroom/nasdaq100-index-methodology-...
      - Xixi 5mo ago
        I stand corrected, I was not aware of the full mechanism, and I was still stuck at the proposed multiplier and not the actual one.
  - HWR_14 5mo ago
btown 5mo ago
The S&P 500 may not be a fund itself, but Standard & Poor's is a business whose ability to sell services is correlated with the continued relevance of the S&P 500. It absolutely does balance interests - namely, its own - beyond simply being an academic vehicle for communication of a stable thesis. It seems entirely reasonable to say: "if we make a certain decision, we correlate both our reputation and a nontrivial portion of the U.S. economy with the whims of one of the most volatile personalities in industry, and we should likely pay attention to this trial balloon that shows such anticipatory fear of the decision that we might lose our reputation as an index altogether."
- JumpCrisscross 5mo ago
  > absolutely does balance interests - namely, its own - beyond simply being an academic vehicle for communication of a stable thesis As a business, sure. As a committee, it’s still a deeply technical process. I can say with a lot of confidence that optics weren’t considered in any of this, possibly to a fault. > and a nontrivial portion of the U.S. economy This vastly overstates the amount of assets tied to the S&P 500. It’s a lot. But it’s a strong minority of equity exposures.
  - snypher 5mo ago
    There's overlap between strong minority and nontrivial, so not sure how it can be vastly overstated. Do you have numbers you can add to this, or any explanation of equity exposure etc?
  - lmm 5mo ago
    > I can say with a lot of confidence that optics weren’t considered in any of this, possibly to a fault. How can you possibly know that? Do the people on that committee have a cast-iron tenure guarantee?
    - JumpCrisscross 5mo ago
      > How can you possibly know that? I know folks who have been on these. They don’t have tenure. But they’re basically emeritus. If S&P wanted to do something that would cause chaos, it would be fucking with those folks because they made a decision that looks bad.
wiwiw1 5mo ago
an etf that tracks the S&P 500 is what then? This is a big win for many S&P 500 etf holders
- stvltvs 5mo ago
  Exactly. The S&P 500 isn't a fund, but let's not pretend that inclusion in the index doesn't mean real money is at stake.
  - JumpCrisscross 5mo ago
    > let's not pretend that inclusion in the index doesn't mean real money is at stake Straw man. Nobody claims this. The point is (a) the state of decisionmaking was misrepresented for clicks and (b) the effects of a decision one way or the other way way overblown. Hating on Musk sells subs. That's fair and, frankly, deserved. It doesn't mean we need to get misled chasing that high.
themafia 5mo ago
> They’re meant to communicate some metric about the market. Is that why people spend time, money and effort creating and maintaining them? They're just broadcasters? That seems dubious.
- JumpCrisscross 5mo ago
  > Is that why people spend time, money and effort creating and maintaining them? They're just broadcasters? Yes. There are more indices than there are stocks. Publishing an index is, business wise, a game of getting funds to license them.
- fragmede 5mo ago
  I mean, they get paid for it, sometimes quite a lot, for this "broadcasting". $100mm of AUM gets you like $200k profit/yr. (Like $500k minus fees)
- mamonster 5mo ago
  Once you have an index, you can offer all sorts of products around it. -You can offer a return swap to an investor so he can "invest" in the index. You can alternatively build a whole list of derivatives and products around it and offer them to investors instead (think Itraxx,Vix,etc) -A fund manager can use it as his benchmark and you get to see if he is good or not. -If its a factor index you can now use it for risk management and return attribution. The key thing today is that creating a new index that isn't a fad is very hard. There has also been a lot of consolidation of indices into few players (SP, MSCI, Bloomberg) as it's obviously an economies of scale business.
forlorn_mammoth 5mo ago
Indexes are not funds, correct. However, the SP500 index is one of the few indices that is strongly represented in 401K plan options. That changes its role from "communicate some metric about the market" to forced buying of the metric. which makes changing the metric, especially in such a drastic way, consequential.

jmyeet 5mo ago

The market cap of the S&P 500 according to Google is ~$65T. Anthropic, OpenAI and SpaceX could well amount to $4T+ in market cap. That's ~6% of the entire index. It's like adding another NVidia. That's a big deal. The rules around index inclusion exist for a reason. Too much control in one person's hands (which SpaceX has), too small a float (so you don't get price discovery), lack of a history of financial performance and minimal trading days just don't give investors confidence and, like it or not, investment decisions are made based on the index. If you want to argue against passive investment, well, good luck with that. I think a lot of people have this weird idea that what we need is some theoretically unfettered market for "true" price discovery when it's actually regulations like this that create markets. It's like a libertarian brain worm. I don't think anybody wants these mega-companies out of the index, specifically. They just don't see why rules that exist for a reason should be suspended when the net effect of that is that investors have less information and there is a lot of forced purchasing. If you have confidence in your IPO, let the market decide what it's worth without trying to fix the price because what they seem to want is for insider lock-ups to end about the time we'd otherwise be getting normal price discovery. Kinda weird. Investor confidence needfs to be managed by creating a stable, regulated market.

bdangubic 5mo ago
except $4T is a made up number, a complete fantasy not rooted in any reality. it us more like $750bn (this is also made up number) :)
- lotsofpulp 5mo ago
  All valuations are “made up” numbers.
  - tasuki 5mo ago
    Some are more made up than others though!
  - Retric 5mo ago
    Price discovery isn’t “making up” a number it’s discovering a number that meets a specific criteria. Critically it’s not simply averaging a bunch of made up numbers. I may think gold is worth 1,000$/kg but if nobody is willing to sell me gold at that price then my “made up” number has zero effect on the market price.
- fragmede 5mo ago
  The 409a has a lot of words and numbers to justify a particular valuation. It's not made up from the ether based on nothing. You can disagree with their reasoning and come to a different number, but you need to show your work if you want anyone to give a shit about your made up number. How many satellites have you launched this year? What's the going rate for a kilogram to LEO? Who are the competitors and what do they charge? Things like that which aren't magic made up numbers.
  - nixon_why69 5mo ago
    Oh come on. They absolutely have to target a valuation that's profitable for previous rounds, any reasoning is subservient to that imperative.
  - jkestner 5mo ago
    The valuation is actually mostly about AI. Satellites, like electric cars, don’t have quite the growth story (and I do mean “story”). https://bsky.app/profile/patigallardo.bsky.social/post/3mnhc2hkvus2l https://bsky.app/profile/patigallardo.bsky.social/post/3mnhc...
tristanj 5mo ago
> Anthropic, OpenAI and SpaceX could well amount to $4T+ in market cap. That's ~6% of the entire index. It's like adding another NVidia. This is a common misconception. The S&P 500 weights allocation by float-adjusted market cap, not by total market cap. In the case of SpaceX, they are planning to float ~4% of shares at IPO. Even if SpaceX was added to the index, its index weight would be based on that tiny float, and at a $1.75T valuation it would be treated as roughly a $70 billion company. SpaceX weight would be ~0.125% of the index, not ~2.5% as you imply.
- Xixi 5mo ago
  Nasdaq "solved" that problem by including a 5x float multiplier for stocks with less than 20% of shares available to the public...
  - tristanj 5mo ago
    That's misleading. Before the changes, the Nasdaq-100 index was total market cap-weighted not float-weighted. Once a company crossed 10% floated shares, the company was added to the index at full weight. Nasdaq's new system is a hybrid of float-weighted and cap-weighted. If a company has below 33.3% float, its weighting is 3x float. Above that, it's cap weighted. This allows a gradual fade-in of the company into the index. It's a better system than the previous one, and in Nasdaq's own words, more conservative. For the Nasdaq-100, SpaceX at 4% float gets 3 x 4% = 12% of its market cap counted, which is $210B not $1.75T. Still <1% of the index. Also, the multiplier is 3x, not 5x. Nasdaq proposed 5x, but after feedback, this was reduced to 3x. The new thresholds are 3x and 33%, not 5x and 20%. https://www.nasdaq.com/newsroom/nasdaq100-index-methodology-update-why-now https://www.nasdaq.com/newsroom/nasdaq100-index-methodology-...
    - Xixi 5mo ago
      I stand corrected, I was not aware of the full mechanism, and I was still stuck at the proposed multiplier and not the actual one.
- HWR_14 5mo ago

btown 5mo ago

The S&P 500 may not be a fund itself, but Standard & Poor's is a business whose ability to sell services is correlated with the continued relevance of the S&P 500. It absolutely does balance interests - namely, its own - beyond simply being an academic vehicle for communication of a stable thesis. It seems entirely reasonable to say: "if we make a certain decision, we correlate both our reputation and a nontrivial portion of the U.S. economy with the whims of one of the most volatile personalities in industry, and we should likely pay attention to this trial balloon that shows such anticipatory fear of the decision that we might lose our reputation as an index altogether."

JumpCrisscross 5mo ago
> absolutely does balance interests - namely, its own - beyond simply being an academic vehicle for communication of a stable thesis As a business, sure. As a committee, it’s still a deeply technical process. I can say with a lot of confidence that optics weren’t considered in any of this, possibly to a fault. > and a nontrivial portion of the U.S. economy This vastly overstates the amount of assets tied to the S&P 500. It’s a lot. But it’s a strong minority of equity exposures.
- snypher 5mo ago
  There's overlap between strong minority and nontrivial, so not sure how it can be vastly overstated. Do you have numbers you can add to this, or any explanation of equity exposure etc?
- lmm 5mo ago
  > I can say with a lot of confidence that optics weren’t considered in any of this, possibly to a fault. How can you possibly know that? Do the people on that committee have a cast-iron tenure guarantee?
  - JumpCrisscross 5mo ago
    > How can you possibly know that? I know folks who have been on these. They don’t have tenure. But they’re basically emeritus. If S&P wanted to do something that would cause chaos, it would be fucking with those folks because they made a decision that looks bad.

wiwiw1 5mo ago

an etf that tracks the S&P 500 is what then? This is a big win for many S&P 500 etf holders

stvltvs 5mo ago
Exactly. The S&P 500 isn't a fund, but let's not pretend that inclusion in the index doesn't mean real money is at stake.
- JumpCrisscross 5mo ago
  > let's not pretend that inclusion in the index doesn't mean real money is at stake Straw man. Nobody claims this. The point is (a) the state of decisionmaking was misrepresented for clicks and (b) the effects of a decision one way or the other way way overblown. Hating on Musk sells subs. That's fair and, frankly, deserved. It doesn't mean we need to get misled chasing that high.

themafia 5mo ago

> They’re meant to communicate some metric about the market. Is that why people spend time, money and effort creating and maintaining them? They're just broadcasters? That seems dubious.

JumpCrisscross 5mo ago
> Is that why people spend time, money and effort creating and maintaining them? They're just broadcasters? Yes. There are more indices than there are stocks. Publishing an index is, business wise, a game of getting funds to license them.
fragmede 5mo ago
I mean, they get paid for it, sometimes quite a lot, for this "broadcasting". $100mm of AUM gets you like $200k profit/yr. (Like $500k minus fees)
mamonster 5mo ago
Once you have an index, you can offer all sorts of products around it. -You can offer a return swap to an investor so he can "invest" in the index. You can alternatively build a whole list of derivatives and products around it and offer them to investors instead (think Itraxx,Vix,etc) -A fund manager can use it as his benchmark and you get to see if he is good or not. -If its a factor index you can now use it for risk management and return attribution. The key thing today is that creating a new index that isn't a fad is very hard. There has also been a lot of consolidation of indices into few players (SP, MSCI, Bloomberg) as it's obviously an economies of scale business.

forlorn_mammoth 5mo ago

Indexes are not funds, correct. However, the SP500 index is one of the few indices that is strongly represented in 401K plan options. That changes its role from "communicate some metric about the market" to forced buying of the metric. which makes changing the metric, especially in such a drastic way, consequential.