The S&P 500, a benchmark index for American businesses, is considering major rule changes that could allow unprofitable mega-cap companies like SpaceX, OpenAI, and Anthropic to join its ranks. These changes, set to take effect as early as June 8, would waive longstanding requirements designed to protect investors, including profitability thresholds and seasoning periods.
Current Rules Under Review
Historically, companies seeking inclusion in the S&P 500 must demonstrate profitability over four consecutive quarters, wait 12 months after going public, and maintain a minimum float of 10% of shares available for trading. These rules are now being reevaluated specifically for "MegaCap" companies—those with market capitalizations exceeding $112 billion.
"It’s the opposite of what an index is supposed to be. An index is supposed to say, we will do the work for you, we will only put into the index companies that meet these specific qualifications," said Nell Minow, a corporate governance expert.
Why This Matters
If adopted, these changes could immediately benefit SpaceX, which is set to begin trading on the Nasdaq on June 12. Despite losing billions in 2023, SpaceX is rumored to have a valuation nearing $1.75 trillion. Its IPO is expected to float only 5% of its shares, far below the current 10% minimum requirement.
Retirement savings across America could be impacted, as over $20 trillion in assets are indexed or benchmarked to the S&P 500. Passive funds, which replicate the index, would be forced to include these unprofitable giants, potentially exposing everyday investors to undue risk.
A Departure from Investor Protections
The proposed rule changes raise questions about the integrity of the S&P 500. The index was designed to represent stable, profitable companies, but waiving these requirements could undermine that purpose. As tech giants prepare to go public, the S&P’s potential rule changes highlight a growing trend toward prioritizing market dominance over financial fundamentals.