Investment leaders from four states have formally asked Nasdaq and FTSE Russell to explain and, where appropriate, pause recent rule modifications that make it easier for very large initial public offerings to be added to major indexes. The officials contend the changes could expose investors to heightened risks once trading begins for companies such as SpaceX, whose market debut is expected to set a record-valued opening of $75 billion.
In letters seen by the officials and sent to both index providers, the state investment officers outlined several concerns tied to the size of SpaceX's valuation and the company's governance structure. They warned such features can translate into elevated market volatility and potential conflicts of interest between index administrators and the institutional investors that rely on their benchmarks.
Passive funds, the letters note, stand to buy billions of dollars in shares depending on the timing of any index inclusion, creating concentrated flows into an individual company whose shares may not yet have experienced the full market vetting that comes with longer trading histories. The index moves by Nasdaq and FTSE Russell included easing certain entry rules, among them shortening requirements for prior trading history. By contrast, S&P Dow Jones maintained its existing standards.
One of the letters addressed to FTSE Russell and its parent, London Stock Exchange Group, asked the index governance board to rethink its methodological changes. The letter states: "We respectfully urge the FTSE Russell Index Governance Board to reconsider its methodology changes and not place the interests of listing companies and their underwriters ahead of the interests of the passive fund assets that will bear the cost of any resulting mispricing" that may occur with SpaceX or other IPOs such as OpenAI and Anthropic.
The correspondence to FTSE Russell was signed by New York State Comptroller Thomas DiNapoli, New York City Comptroller Mark Levine, Illinois State Treasurer Michael Frerichs, and Maryland Comptroller Brooke Lierman. All four officials oversee state retirement assets, which include passive funds likely to be compelled buyers if those funds track indexes that add newly listed megacap companies.
An LSEG representative declined to comment on the letter.
A separate, similar letter was sent to Nasdaq by Illinois State Treasurer Michael Frerichs, Maryland Comptroller Brooke Lierman, and Oregon Treasurer Elizabeth Steiner. The Nasdaq letter requested that Nasdaq pause implementation of the rule unless it had completed a formal investor impact analysis. "If so, we request that this analysis be disclosed publicly. If not, we ask that you explain why a rule change affecting over $1.4 trillion in investor assets was adopted without such an analysis," the letter states.
The state officials also asked Nasdaq to explain how it addressed internal tensions in adopting the change and whether any companies, including SpaceX or its advisers, were involved in shaping the revised rule. The questions reflect concern about whether the procedure behind the amendments adequately weighed potential harms to index investors.
Oregon Treasurer Elizabeth Steiner, in a statement relayed by her representative, said she was "deeply troubled" by the exchanges' decisions. Steiner added that the updates could force institutions such as retirement plans "to purchase stocks (through index funds) that have not proven their value or undergone the rigors of market correction."
Nasdaq responded by email through a spokesman, saying the public markets have evolved and that companies are staying private longer, listing at larger scale, and arriving with more complex share structures. The spokesman added: "The updates to the Nasdaq-100 methodology reflect those shifts and were implemented following a formal public consultation."
On the point of specificity, the Nasdaq representative said the changes were not intended to benefit any single company and noted they align with adjustments that other major index providers have independently adopted in response to similar market dynamics.
Contextual note: The letters focus on the potential investor impact arising from index methodology changes and request public disclosure and review of any investor impact analyses. They emphasize concerns about forced passive purchases and governance-related risks tied to exceptionally large IPOs such as SpaceX.