Nasdaq Rules Greatly Revised! Proposal for Large Companies to "Fast-Track Entry" Approved, New Rules Effective May 1

Nasdaq announced a comprehensive revision to the entry rules for its flagship Nasdaq 100 Index, with the core initiative being the introduction of a "fast-entry" mechanism to significantly reduce the waiting time for large newly listed companies to be included in the index. The new rules will take effect on May 1, but the actual impact on the index's constituent stocks is not expected to be visible until June.

According to Reuters, under the new rules, Nasdaq will assess the market capitalization ranking of new stocks on the seventh trading day after their listing. If they meet the criteria, they can be included in the Nasdaq 100 Index as early as the 15th trading day. Previously, newly listed companies often had to undergo a waiting period of up to a year or even longer before their inclusion could be considered.

This change has significant implications for the market. Inclusion in the Nasdaq 100 Index means direct access to a large pool of institutional investor funds that track the index, which helps broaden a company's shareholder base and enhance stock liquidity.

With high-market-cap unicorns like SpaceX preparing for their IPOs, this rule revision is seen as a proactive move by the exchange to welcome a potential wave of IPOs.

"Fast-Entry": Evaluation in 15 Days

The specific process of the new fast-entry mechanism is as follows: Nasdaq will rank new stocks by market capitalization on the seventh trading day after their listing and assess if they qualify to be among the top 40 largest constituent stocks in the index. If the company meets all entry criteria, it will be officially included in the Nasdaq 100 Index after the 15th trading day.

In contrast, the current rules conduct constituent stock reviews only once a year, and new listed companies must demonstrate the stability to absorb large institutional investor orders, a process that can take over a year.

Reuters reported earlier this month that SpaceX is actively seeking to be included in major benchmark indexes like the Nasdaq 100 as soon as possible after its listing.

Furthermore, other index operators, including FTSE Russell and NYSE 100, are also racing to introduce similar entry rule reforms to address the challenges posed by the upcoming capital market debuts of high-profile companies such as SpaceX, Anthropic, and OpenAI.

Rule Revisions Include Several Supporting Adjustments

In addition to the fast-entry clause, the new rules also include several systematic revisions:

Updated Market Capitalization Calculation Method. The new method will combine listed and unlisted shares across different share classes for a more comprehensive assessment of a company's market capitalization to determine its eligibility for inclusion.

Removal of Minimum Float Requirement. The current requirement for companies to have at least 10% of their shares in public float will be abolished. However, companies with a lower float percentage will have their weight in the index adjusted downward accordingly to balance the impact.

Establishment of a Minimum Weight Exit Mechanism. If a constituent stock's weight in the index falls below 10 basis points for two consecutive months, it will be removed from the index and replaced by the next qualifying company with the largest market capitalization.

Quarterly Update of Total Shares Outstanding Data. The update frequency for a company's total circulating shares will change from irregular updates to quarterly disclosures.

The current members of the Nasdaq 100 Index include top global technology companies such as Nvidia, Apple, and Amazon. Last year, Walmart relocated its listing to Nasdaq, marking the largest exchange transfer in history.

Continuous Decline in the Number of Listed Companies

The background for this reform is the long-term decline in the attractiveness of public markets in the U.S. According to a white paper released by Nasdaq last year, the number of listed companies on U.S. exchanges has decreased by more than one-third since 2000.

Stringent disclosure requirements and high compliance costs for listing have led an increasing number of large startups to delay their IPOs or remain private for extended periods. High-valuation companies like Stripe and Databricks have yet to go public.

Cameron Lilja, Head of Global Index Solutions at Nasdaq, stated that allowing a company that is already large enough to hold a significant weight in the index to remain outside for an extended period "does not accurately reflect the actual composition of the market."

He also pointed out that as corporate equity structures become more diversified, more companies have grown into truly mega-cap enterprises before their IPOs.

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