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Nasdaq's Shame

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Re: Nasdaq's Shame

#121

Post by iSnow »

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…

>Also, does Nasdaq think it's worth killing the reputation of their index for the spacex listing?

If I had to guess, they are banking on the meme-factor. Tesla is already seriously overvalued IMO b/c it's the first real meme-stock. Now, they are learning lessons from the FTX-invented low-float meme-tokens in crypto and replicate the model in stocks. The story around SpaceX with it's valid successes makes for a very good meme-stock.

So, they hope that people actually want SpaceX exposure no matter what and do not understand how cancerous those low-flow/high-FDIV launches are.

Re: Nasdaq's Shame

#122

Post by rokobobo »

super256 wrote: post #116
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 ETF…

I don’t think Nasdaq is free float based.

Also, I would be a lot more pessimistic of the index tracking fund managers’ ability or willingness to find extra shares: their goal is to match the index, not beat it. If the index includes the new firm at a blown-up price because everyone sent their buy orders at the same closing auction, then all the index-tracking funds still track their underlying index. They do not care that after that closing auction, the price of the new firm—and likely the index itself—is going to drop.

Re: Nasdaq's Shame

#123

Post by [deleted] »

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…

[deleted]

Re: Nasdaq's Shame

#124

Post by alecco »

tartoran wrote: post #6

Obligatory video from Patrick Boyle https://www.youtube.com/watch?v=8rS3fTbC7TE Edit: someone posted it on HN, there's already a thread for it : https://news.ycombinator.com/item?id=47388640

I don't see him even bothering to link to the original research (AFAIK Reuters and expanded by this thread's substack post who links to Reuters). His video description is all about self-promotion. And from the bits I've seen he posts it like he made the finding. That's not neighborly.

I mean, it seems he is a decent content producer and presenter, but if we incentivize ripping off original research things will go bad.

https://www.reuters.com/business/finance/elon-musks-spacex-w...

Re: Nasdaq's Shame

#125

Post by gpderetta »

igor47 wrote: post #61
michtzik wrote: post #51

Earlier quoted context omitted.

Who is contractually obligated to buy?

I have an index fund for NASDAQ with my broker. When I bought into the fund, the broker promised me that with my money, they will buy shares in companies traded on that exchange according to the specific formula that SpaceX is manipulating here. My broker is obligated to buy. They could open a new fund that has a contact like "we'll keep doing what we had been doing except for the whole SpaceX thing" but they would n…

If the rules used to compute the index change (as opposed to the index composition of course), are index funds obliged to follow them no matter what? I assume this is very fund dependent, but would be interesting to know what most guarantee.

Re: Nasdaq's Shame

#126

Post by super256 »

rokobobo wrote: post #122
super256 wrote: post #116

Earlier quoted context omitted.

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 ETF…

I don’t think Nasdaq is free float based. Also, I would be a lot more pessimistic of the index tracking fund managers’ ability or willingness to find extra shares: their goal is to match the index, not beat it. If the index includes the new firm at a blown-up price because everyone sent their buy orders at the same closing auction, then all the index-tracking funds still track their underlying index. They do not care…

>I don’t think Nasdaq is free float based.

I recommend the NDX proposal from February which the whole discussion is based upon:

"To balance index integrity and investability, Nasdaq proposes a new approach for including and weighting low-float securities (those below 20% free float). Each low-float security’s weight will be adjusted to five times its free float percentage, capped at 100%. Securities with more than 20% free float will continue to be weighted at full, eligible listed market capitalization, while those below 20% free float will be weighted proportionally to preserve investability."

The document includes a scenario with the rules applied to SpaceX. "Company C" in the table is SpaceX (with some estimated numbers).

https://indexes.nasdaqomx.com/docs/NDX_Consultation-February...

Re: Nasdaq's Shame

#127

Post by [deleted] »

kmeisthax wrote: post #82

Any Canadians in the room should remember this as the exact mechanism by which Nortel Networks became astronomically huge. Any time Nortel got more valuable, index funds tracking the Toronto Stock Exchange (TSE) loaded up on Nortel, amplifying the price increase. This gave the company massive amounts of capital to buy other companies with, which generated more headlines, which brought in more investor capital, which…

[deleted]

Re: Nasdaq's Shame

#128

Post by lotsofpulp »

bagacrap wrote: post #66
drgo wrote: post #36

Let them eat foie gras! It was only a matter of time before they started manipulating index funds too.

To be fair, QQQ is not really an index fund. Unless you think that I can make up whatever arbitrary list of stocks I feel like, and call it an index, and create an ETF that tracks it, and still call that an index fund. Vanguard is probably the most principled when it comes to passive index tracking, and they do not have an ETF that tracks the NASDAQ 100 (or any fund that focuses on a single stock exchange for some in…

>Unless you think that I can make up whatever arbitrary list of stocks I feel like, and call it an index, and create an ETF that tracks it, and still call that an index fund.

Yes, you can. Whether or not the index makes sense for whatever one's investing goals may be is irrelevant.

Re: Nasdaq's Shame

#129

Post by stockresearcher »

gruez wrote: post #49
cholmon wrote: post #42

Earlier quoted context omitted.

VTI just tracks the CRSP US total stock index, see https://investor.vanguard.com/investment-products/etfs/profi... The CRSP index itself adds new companies within 5 days of their IPO, see https://www.crsp.org/what-owning-the-market-really-means/ > The CRSP US Total Market Index, by contrast, adds all IPOs ranging from mega caps to small caps—accounting for 98% of the market—within the first five trading days of the s…

The actual scheme described in the OP requires the multiplier to work, though. Otherwise it's just like any other company that's tightly held, in which case only the free float counts and the scheme unravels.

Yes. As long as the free float is at least 10%, it will get the fast track into VTI. According to their methodology guide, they use free float for weights and total shares for ranking. So this IPO would be a mega cap with a tiny weight. Totally the opposite of what a manipulator would want!

https://www.crsp.org/wp-content/uploads/guides/CRSP_Market_I...

I know that a lot of Vanguard funds track CRSP indexes. Right about now is when I wish they had and ETF that tracks this one:

https://www.crsp.org/indexes/crsp-us-total-market-ex-mega-ca...

Re: Nasdaq's Shame

#130

Post by bryanlarsen »

wredcoll wrote: post #65
bryanlarsen wrote: post #46

Earlier quoted context omitted.

Yes, when SpaceX gets added to the index, it's going to skyrocket for just that reason. The other reason why SpaceX stock is going to skyrocket is because of the "infinite potential". After all, Elon is going to be God-Emperor of Mars, and how much is a piece of that worth? The OP knows this and wants a window to profit from this squeeze. For the general public index owners, the sooner it's added to the index the bet…

Being added to the index is literally the only thing causing "the squeeze" according to this description though so how does that benefit either the author or the index holder? If the stock was added to the index at a normal period then all the shares would be available.

The author wants to buy ahead of the indexes and benefit from the squeeze; he wants the normal rules of waiting a year before SpaceX is eligible to join the indexes to apply.
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