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Nasdaq's Shame

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Re: Nasdaq's Shame

#111

Post by booleandilemma »

jongjong wrote: post #43

It's so bad. I could write a series of books about all the problems with the current system. There are so many. These index funds are a mechanism for monopolization of 'the market' and it affects real people and it suppresses other markets through the perverse incentive structures it creates. For example, I launched a crypto project back in 2019 which had its own decentralized exchange but ran into all sorts of hurdl…

Do you think we're going to see the end of America as we know it within our lifetimes? Surely the system can't keep going on like this?

Re: Nasdaq's Shame

#112

Post by names_are_hard »

hhh wrote: post #109
Galanwe wrote: post #105

Earlier quoted context omitted.

Index funds and ETFs also have strict replication rules limiting the amount of non-physical replication in their legally binding prospectus... The more physical a tracker is, the lower the tracking error, but also the more fees you have to pay. "Good" ETFs/IFs are often 98% physical. This makes for higher fees, but more safety for subscribers in case of large swings. So it's not like they are _free_ to replicate howe…

What does physical mean in this context?

It means holding the actual stocks in the underlying index, as opposed to synthetic replication, which aims to achieve returns matching the index via derivatives or other techniques.

It's physical in the sense that literal means not literal nowadays.

Re: Nasdaq's Shame

#113

Post by paganel »

nighthawk454 wrote: post #97
exmadscientist wrote: post #89

Earlier quoted context omitted.

Yeah, it's wrong. Nasdaq, Inc. is a company with a stock market ("the NASDAQ") and an index "Nasdaq 100"). They want SpaceX to be listed on their market, because they like having more things on their market for all the usual reasons. They are, apparently, offering to manipulate their index to win the listing. Accordingly, anything that uses or tracks this particular index (Nasdaq 100), such as the QQQ fund, will pote…

What?! This absolutely affects more than Nasdaq 100 / QQQ. The index is just a function of the stocks. It only moves if the underlying stocks move. Rebalancing Nasdaq will cause selling in the 100 companies that aren’t SpaceX. And those stocks are held elsewhere too… The Nasdaq 100 shares 79/100 stocks with the S&P. So if those stocks move (probably down because they’re being sold so SpaceX can get bought) pretty sur…

What you're saying is 100% correct, I fail to see how people are not aware of it.

We're talking about a $1.75 trillion (as per the article) company that is about to enter (a part) of the most important capital market in the world at a distorted price, of course that the market as a whole is going to become distorted, money and capital (and the accompanying money and capital signals) are one of the most "liquid" things in a modern economy (if not the most liquid), once you start putting a wrong price tag on them then those accompanying money and capital signals will for sure start doing their thing, imo that was one of the main lessons we should have taken from what happened back in 2008-2009.

Re: Nasdaq's Shame

#114

Post by rob74 »

riffraff wrote: post #95

Does the author realize the ai slop image does not make any sense? I get the allure of AI images for blogging, but for Pete's sake review what you're publishing or don't do it.

Yeah, the funnel should go into the duck's bill of course - is it still so hard to get AI image generators to respect such small but decisive details in your prompt?

TIL that foie gras is made out of duck livers as well, not only geese. Not that I'm more likely to eat any now that I know that, but anyway...

Re: Nasdaq's Shame

#115

Post by iSnow »

markisus wrote: post #38

I’m trying to understand the mechanics here. I get that SpaceX and Nasdaq are in cahoots to get SpaceX bundled with a bunch of other stocks (and that bundle is called QQQ?) But why must retail investors hold this bundle? If I’m holding now, I can sell it and buy a different bundle right? And if I’m not holding it now, I can just continue not to buy it after SpaceX gets included.

Yes, you can sell and buy a different index. However, those who buy ETFs want broad market exposure without picking stocks (or ETFs). Also selling and re-buying means you have to pay taxes now - depending on jurisdiction, that is way worse than holding till you are retired and then selling.

SpaceX/Nasdaq want to distort the rules to make more money off the backs of those passive investors.

Re: Nasdaq's Shame

#116

Post by super256 »

Veserv wrote: post #41

To explain the mechanism simply. Suppose you had a index of 100 companys each with a market cap of 1 G$ for a total of 100 G$. You have passive investors owning 20 G$ of that index, amounting to 20% of the total, 20% of each company, and 200 M$ per company. You then rotate out a company for a new one also worth 1 G$. The index is still 100 G$, but to match the index you are contractually required to sell your 20% own…

This is wrong in multiple ways.

First: 5x5 is 25, not 20. So it's 25% rather than 20%

Second: they only have to buy the 25% of the listed shares.

To take your 1 Trillion example: if SpaceX has a total market cap of 1T, but only 500b get listed on NASDAQ, and the free float is 5%, the index will weigh SpaceX at 25% of the listed shares, which means it will be weighted at 500 * 0.25 = 125b.

And also note that index ETFs have tracking errors all the time (that's why arbitrage traders still have business!), and the ETFs themselves could also track the performance of SpaceX via derivatives instead of buying the stock. And I think, there are many investors of SpaceX who would like to sell some shares. Fund managers won't have an issue finding their phone numbers.

Re: Nasdaq's Shame

#117

Post by fweimer »

Veserv wrote: post #41

To explain the mechanism simply. Suppose you had a index of 100 companys each with a market cap of 1 G$ for a total of 100 G$. You have passive investors owning 20 G$ of that index, amounting to 20% of the total, 20% of each company, and 200 M$ per company. You then rotate out a company for a new one also worth 1 G$. The index is still 100 G$, but to match the index you are contractually required to sell your 20% own…

But the real scenario is going to be different in two ways: Market capitalization of the new company will only be a small fraction of the index total, even after it's been inflated as indicated. And not all investors in companies on the index are index funds, which brings down the number shares needed to align a fund.

Maybe they propose the rule change because it adjusts for some other problematic effect of the existing index rules? The discontinuity might seem acceptable because it is unlikely to be reached according to their simulations.

Re: Nasdaq's Shame

#118

Post by mlrtime »

maest wrote: post #104

Lmao inclusion after 15 days is going to throw off the waiting curve on index arb desks. The market usually prepositions a lot of volume pre-add, so much that the add day is usually a non-event. But they usually have a quarter or more to preposition. 15 days is going to cause so much volatility and chaos. And the funny thing is, the index arb desks can't really opt out of this - you can't arb all names except one in…

Very few here know what a index arb desk is and they won't care.

And those desks [should] have quants that are paid a lot of money to figure this out. If they don't, they will get eaten, as they should.

source: Worked on a ETF trade desk.

Re: Nasdaq's Shame

#119

Post by mlrtime »

igor47 wrote: post #70
vmbm wrote: post #28

Earlier quoted context omitted.

If you are an index investor, it is probably not worth your time and energy to make any drastic changes because of this particular incident. Space X will comprise a small percentage of the indexes in question, and any impact on your portfolio will likely be imperceptible. And if your holdings are in a taxable account, the tax hit from selling are probably not worth it. Longer term, folks should be aware that Wall Str…

Do you have specific recommendations for particularly well-governed indexes? Is something like ESGV insulated from such manipulation? Or is it time for investors to start building their own direct/custom indexing with something like Frec

My recommendation is do not take investing advise from any post on HN. They are notoriously bad about understanding capital markets. There are a few good posters here but they are boring [factual] with 0 replies.

Re: Nasdaq's Shame

#120

Post by mlrtime »

bagacrap wrote: post #71
dweez wrote: post #69

Earlier quoted context omitted.

This is a slightly tongue-in-cheek way of saying that if you believe a security is severely mispriced then there is a straightforward way to express that opinion.

Shorting is really not that straightforward. It is a avery advanced topic because it mandates the use of leverage. Many (most) investors are long-only, especially the ones being taken advantage of here.

https://www.proshares.com/our-etfs/leveraged-and-inverse/psq

This is not financial advise.

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