How upcoming mega-cap IPOs could reshape the markets

Added: 2026-05-31

[00:00:01][music] >> As SpaceX takes steps to go public and Open AI and Anthropic likely not far behind, these newly named mega caps will have significant influence on the indices and the broader markets. Here to explain the mechanics and what investors should be watching and when is Peter Haines, head of index and market structure research at TD Securities.

[00:00:21]It's great to have you here.

[00:00:22]>> Hey Kim, thanks a lot for having me.

[00:00:23]>> Okay, so talk to me like I'm 12. Uh this is one of the largest IPOs in history.

[00:00:28]Uh when SpaceX does come to market, we're not sure when yet. What happens?

[00:00:32]Why is this important to investors, institutional, retail, like what happens?

[00:00:36]>> So obviously benchmarks have become very important. We've we all read regularly about how big passive or investing where you own the market has become as a as a form of exposure to asset classes like equities. And when you have uh a a a benchmark, the purpose of the benchmark is to be reflective of a group of securities. And in the case of SpaceX, it is as you referred to, a mega cap IPO. We've never seen anything like this. SpaceX will be two or three times bigger than any other IPO we've seen in history. So why is it important? It's important that we find a way to get mega cap IPOs included in those benchmarks as soon as possible. But the benchmark also has to be investable. And I think the best example of that is if you thought about putting a stock into an index at its IPO, not everyone in the world can necessarily achieve the IPO price. So we have to wait. Now that's the whole investability side of things. We have to wait and add it to benchmarks after it has started trading. And and the index providers other than S&P have coalesced around a period of of IPO date plus five days to IPO date plus 15 days. So that five to 15 day range seems to be where the market has arrived. And and I'm supportive of that.

[00:01:48]>> So tell me a bit about maybe the the the the the rules that are kind of I'll say morphing in terms of including these in the indexes right now because um and and maybe tell me if you think this is the right thing to do it or you you know and why you think it is.

[00:02:01]>> Yeah, again I'm going to come back to the fact that this is a a very large company that we're talking about SpaceX.

[00:02:07]You mentioned the other potential IPOs down the road. So my view is we need to find a way to get this stock into the index as soon as practical. And so what each of the index major index providers in the world have done is they have surveyed their users and ask questions. What do you think is right?

[00:02:26]And there is still a couple of those surveys that are outstanding, but generally speaking we're arriving on that window of sometime between 5 and 15 days after the IPO, which is much quicker in the United States than the various index providers previously would have added IPOs, which was typically on a quarterly cadence.

[00:02:45]S&P for their benchmark S&P 500 index actually has a rule where you can't be included in the index for at least 1 year. And when you're added, you need to be profitable.

[00:02:56]>> Yeah.

[00:02:56]>> And so when you think about a mega cap IPO like SpaceX, waiting a year to get that stock in the index when at some point down the road it'll be a trillion dollar potentially a trillion dollar company as big as JP Morgan or Berkshire. That's the kind of company that you want to get in the index so that it's the the market is the benchmark is properly reflecting the large cap universe of stocks.

[00:03:17]>> And tell me a bit about because there's when it it IPOs and then there is when the lockups >> Yeah. expire and uh >> a lot of shares can be sold into the market. Can you just give us a sense of the magnitude of what we're talking about here?

[00:03:30]>> Yes, it's again we're working off of what we read in the press.

[00:03:34]>> Yeah.

[00:03:34]>> But let's say the IPO is $75 billion.

[00:03:37]Uh the order magnitude of shares that will become freely tradeable sometime between say 45 days and 90 days after the IPO, we'll take that float of $75 billion to something like a trillion dollars. Again, that doesn't reflect where the secondary market prices the stock once it starts to trade.

[00:03:55]Obviously, that could be higher, could be lower, but the that'll affect the uh the uh size of the company when it actually uh is fully floated. And of course, the shares that are not in the free float are the ones that are held by the the founder and controlling shareholder, Elon Musk. Those shares would not be part of how indices look at representing the stock in their index.

[00:04:13]>> How does that change? I mean, maybe from your thought, like when you cuz we're not just talking about SpaceX. I mean, cuz this this happens with SpaceX and then it happens with OpenAI and I think ByteDance and Anthropic and you know, the they come out. You've got these mega caps coming into these indices. How does it change things? Like what what how do you think about this as you go ahead?

[00:04:31]>> Well, first of all, I think that it's no secret that the Mag 7 names have concentrated at the top end of the benchmark and we're seeing concentration in the US market that we haven't experienced for a long time. So, there is certainly a school of thought that the US benchmarks are too concentrated in tech names. We saw this back in 2000 and everybody criticized the model that the indices were run by, which is to use market capitalization to determine weightings because we had all of these tech names that ended up blowing up shortly after 2000 when the tech bubble exploded. So, you hear some of that talk today, but I want to come back to what is the purpose of the benchmark? The purpose of the benchmark is not to be judgmental on winners and losers. It is to try to reflect the universe of stocks that are available to be bought and sold in the market. And so, we do see these cyclical up ups and downs over time. And as you mentioned, there are several similar type companies, put them in the tech AI slight slice of the market. It just happens to be what's in favor. You could use a comparison for those from Canada watching today of the mining exposure to the Canadian market. When we have a hot mining tape like we do right now, next thing you know, the S&P TSX composite has a lot more gold names, a lot more base metal names, and a lot of mining exposure. And that's just the cycle of the Canadian market. So, I think that's a decent parallel to what we're seeing in the US right now.

[00:05:53]>> Yeah, you're right. We're used to it with gold, materials, all those things.

[00:05:55]And I think about even but you know, with with SpaceX and and even like Starlink going to the the communication sub-indices as well, too. It's going to dominate there as well.

[00:06:04]>> Yeah, that's a very controversial topic because the way that index providers determine what sector a stock is in. And again, if they put it in a certain sector, then the products that are linked to that sector will need to own it. And it will be deemed to be a communications company because the majority of revenue currently for for SpaceX comes from Starlink. And because it's a communication stock, it'll be paired with generally speaking names like different telephone companies in the New York phone companies in the US.

[00:06:32]Taking that one step further, when you determine whether a stock is a value stock or a growth stock and you don't have any trading history, the way the index providers do it is they say, "Okay, what sector is the stock in? And what are their peers?" Um which just happens that all the communications peers are all grow are value stocks. And so, strangely, and this unless the rules change, SpaceX goes comes public with its IPO and it'll be considered a value stock.

[00:06:59]>> [music] [music] [music] >> Woo!

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