Morningstar Inc. is preparing to modify how it measures liquidity for newly listed companies in its CRSP Market Indexes, a move aimed at enabling the quicker inclusion of exceptionally large initial public offerings. The firm said it will roll out an alternative liquidity screen to help determine whether newly public, high-value companies meet the free-float requirements necessary for index eligibility.
The initiative comes as a wave of unusually large IPOs approaches the market, led by Elon Musk's SpaceX, which is expected to issue as much as $75 billion of stock and could be valued at $1.75 trillion at debut. Morningstar described the change as a response to these outsized listings and to other planned public offerings from major private companies, such as Anthropic and OpenAI, slated for later in the year.
Under existing free-float rules, a company must have a minimum portion of its shares publicly available for trading before it can be added to many broad-market benchmarks. Morningstar's proposed alternate liquidity measure is intended to address that constraint by offering a different view of near-term tradability immediately after an IPO. The firm said its CRSP Market Indexes will "undergo enhancements to introduce an alternative liquidity screen," enabling the potential addition of SpaceX and similarly large listings to those benchmarks more rapidly.
Indexes that rely on the CRSP family of benchmarks include large funds such as Vanguard's $607 billion Total Stock Market ETF. The ability to include a massive new entrant sooner rather than later could materially affect the composition and asset allocation of funds tied to those indexes.
A company spokesman said in an e-mail that "Index providers must evolve eligibility rules to keep their benchmarks relevant to new market realities." The spokesman framed the change as an adaptation to shifting characteristics of companies choosing to go public, with some very large, well-established private firms now listing after longer private lifespans and at much larger scales than historically typical U.S. IPOs.
Other index and exchange operators are grappling with the same challenge. Nasdaq has announced plans to alter the criteria for inclusion in its Nasdaq-100 Index to permit a fast-track process for qualifying companies. That change would reduce the typical multi-month wait to join the index to a period of 15 days for companies that meet Nasdaq's specified conditions.
Meanwhile, S&P Dow Jones Global Indices is reported to be considering adjustments to the rules that govern the Standard & Poor's 500-stock index and related products. Under current S&P rules, 10% of a company's stock must be freely tradable to qualify for inclusion. A spokesperson for S&P Dow Jones Global Indices declined further comment on any potential changes.
Not all market participants support easing or altering eligibility standards. "The fact that some of these indexes may be lowering their standards in order to include exposure to the explosion of big growth IPOs that nobody wants to miss out on owning, is concerning," said Mark Malek, chief investment officer at Siebert Financial. He emphasized that size alone does not guarantee suitability for benchmark inclusion and expressed worry that certain proposed rule changes could weaken the bar indexes use to qualify members.
As a practical matter, the debate centers on how index constructors balance two competing objectives: accurately representing the investable market, including the rapidly changing mix of newly listed companies, and preserving minimum standards that ensure constituents are sufficiently liquid and investable for funds and ETFs that track those benchmarks. Morningstar's alternative liquidity screen aims to strike that balance by offering an additional test of post-IPO tradability rather than abandoning existing free-float thresholds.
How broadly any new approach is adopted, and whether it becomes a template across index providers, remains to be determined. For now, firms that provide benchmark rules and the asset managers that use those benchmarks are assessing the ramifications of accommodating IPOs of unprecedented scale within established index frameworks.