Well, should we just change the rules? It’s an interesting question, and one that, if you can think back to when you were a kid, came up a lot. You’re playing a game with your friends, and invariably, the kid who is “losing” wants to change something. I see it with my own kids. And if you’re around children (or grandchildren) like I am, you’ve probably even seen it in “Bluey,” the hit cartoon about the adventures (or, more accurately, the normal family life) of an Australian dog family.
In one episode, Bluey is playing a game with her friends at the park. The game is “Shadowlands,” where every shaded patch on the ground is “land,” and every sunny patch is “sea,” filled with crocodiles. The goal is to cross the park without touching the sea. Simple enough. But one of her friends decides the game is too hard and begs Bluey to change the rules. In the end, they don’t. They have fun anyway, and they arrive at a profound conclusion. The rules don’t limit the fun; the rules are what make the game fun.
So why on earth are we opening with a kids’ cartoon story (beyond the fact that Bluey is genuinely funny, even for adults)? Because right now, the people who run the world’s most important stock market indices are looking at the board, deciding it’s gotten too hard, and asking the very same question Bluey’s friend did. Except the stakes aren’t crocodiles in the grass; they are trillions of dollars in invested assets.
The Rules of the Game
An index like the S&P 500 or the Nasdaq-100 is kind of like a thermometer. You glance at it, get a reading on the market’s temperature, and understand what is going on. But it’s really a rulebook with a scoreboard attached. The rulebook specifies exactly which companies get to count, how much each counts, and how long a newcomer has to wait in line before it’s allowed in.
Those rules used to seem boring, which was the whole point. To join the S&P 500, a company traditionally had to be profitable, post a year of trading history, and float enough shares to the public that index funds could actually buy them. That waiting period (called “seasoning,” in the trade) existed for a reason. A newly public stock is a volatile thing, lurching around while the market figures out what it’s worth. Making it sit in “timeout” for twelve months protected the millions of people who own index funds without ever reading the rulebook.
This matters more than it sounds, because passive investing now dictates over half of the market. Roughly $13 trillion tracks the S&P 500, and more than $800 billion tracks the Nasdaq-100. When a company joins one of these clubs, index funds aren’t choosing to buy it. They’re contractually obligated to. They are the most price-insensitive buyers on earth, which is a fancy way of saying they’ll pay whatever the scoreboard tells them to.
Why the “Kids” Want New Rules
Here’s the wrinkle. The most exciting companies of this decade have refused to play the game at all. SpaceX, Anthropic, and OpenAI aren’t scrappy startups anymore. They’re giants, valued collectively at a few trillion dollars, and they’ve stayed private far longer than their predecessors did.
When one of these behemoths finally goes public (SpaceX will be first), the indexes have a problem. Under the old rules, a $2 trillion company would have to wait a year before joining the S&P 500. For 12 months, the headline barometer of the U.S. stock market would ignore one of its largest companies, and the index would start to look less like a reflection of the market.
So the index providers, much like Bluey’s friend, have looked at the board and decided the game needs new rules. The exchanges (Nasdaq and the NYSE) are in a genuine arms race to land these blockbuster listings, and fast index inclusion is a juicy carrot to dangle. Join us, and we’ll fast-track you into the club, where billions in automatic buying await.
The Proposed Rewrite
The changes are technical, but the spirit is simple: “let ‘em in!” And Nasdaq has already moved. Its “Fast Entry” rule lets a giant new listing (anyone ranking among the top 40 names) into the Nasdaq-100 after just 15 trading days (down from 3 months).
S&P Dow Jones Indices, historically the strict parent in the family, has floated its own loosening for what it calls “Mega Caps.” The headline proposals are to cut the seasoning period from 12 months to 6, waive the requirement that a company be profitable, and scrap the rule that it must float at least 10% of its shares to the public. And don’t just gloss over the middle one. A company burning billions a year with no profit in sight could soon qualify for the index that’s always represented corporate America’s profitable winners.
Then there’s the final bit of engineering, Nasdaq’s “3x float cap.” Picture SpaceX going public at a $2 trillion valuation but only selling 3% of itself, leaving roughly $60 billion in tradable stock. Weighting it at the full $2 trillion would unleash a tidal wave of index buying against a puddle of available shares. So Nasdaq caps the weight at three times the actual float. SpaceX gets represented as if it were a $180 billion company, big enough to matter, small enough that the index funds don’t drain the pool trying to buy in. It’s a workaround for a math problem that didn’t exist before companies got this large while staying private.
So, Should They Do It?
There’s a perfectly reasonable argument that the old rules deserve a rewrite. A benchmark’s entire job is to represent the market. If the market’s most consequential companies are missing for a year, the benchmark is failing to do its job. And the original logic for seasoning (give a fresh stock time to find its footing) arguably doesn’t apply here. These aren’t brand new companies. They’ve been priced and re-priced for years in sophisticated private markets. By the time they ring the opening bell, the world already has a strong opinion on what they’re worth. Why should we pretend otherwise for twelve months?
And yet, the reason the old rules felt boring is the reason they worked. Fast-tracking a company into the index before the dust settles means index funds start buying during the single most volatile, least understood stretch of a stock’s life. Remember, the first few weeks are a period before the early backers’ lock-up periods expire and before anyone really knows where the price wants to live.
There’s a sharper critique lurking underneath, too. Forced index buying creates a guaranteed wall of demand. Skeptics argue that it conveniently hands early insiders and venture investors a built-in floor to sell into, with passive investors as the buyers on the other side. When the rules get rewritten specifically to accommodate specific companies, at the request of exchanges competing for their business, the line between a neutral, rules-based index and an actively managed one starts to blur.
Back at the Park
So, should they have changed the rules?* Bluey’s friends decided not to, and discovered the rules were never the obstacle. They were the thing that made the whole game worth playing. Wall Street is making the opposite bet: that the rules were holding the game back, and bending them lets everyone have more “fun”.
They might be right. Faster inclusion means you get exposure to the next generation of giants sooner rather than waiting a year on the sidelines. But it also means you’ll be buying earlier, at prices nobody has fully tested. The honest answer is that we won’t know who was right until we see how the price behaves once the forced buying meets the open market.
For now, the practical takeaway is the same one those kids stumbled into at the park. Know the rules of the game you’re playing. If you own an index fund (and most of us do, somewhere), it’s worth understanding that “passive” is becoming a bit more active, and the rulebook has started changing mid-match. It’s absolutely not something to panic about. You just need to know it’s happening, because the one thing worse than playing a game with changing rules is not realizing the rules changed at all.
*Nasdaq has already made the changes and the S&P will likely decide next week
Markets / Economy
- Markets finished lower for the first time in over nine weeks as a strong jobs report spooked investors amid concerns over possible interest rate hikes. The S&P finished the week down -2.6%, the Nasdaq down -4.7%, and the small-cap Russell 2000 down -2.9%.
- JOLTS job openings increased by 731K to 7.618 million in April, the highest since November 2024 and well above market expectations of 6.88 million, highlighting labor market resilience despite rising energy costs from the Iran conflict.
- ISM Services PMI increased to 54.5 in May from 53.6 in April, above forecasts of 53.8. The reading pointed to the strongest gain in the services sector in three months.
- U.S. Nonfarm payrolls added 172K jobs in May, well above forecasts of 85K, and following an upwardly revised 179K gain in the previous month, continuing to point to a resilient labor market.
Stocks
- U.S. equities were in negative territory. Technology and Consumer Discretionary led the decline, while Energy and Healthcare outperformed. Value stocks led growth stocks, and small caps beat large caps.
- International equities closed lower for the week. Developed markets fared better than emerging markets.
Bonds
- The 10-year Treasury bond yield increased 10 basis points to 4.55% during the week.
- Global bond markets were in negative territory this week.
- Government bonds led for the week, followed by corporate bonds and high-yield bonds.
