SpaceX will go public on the NASDAQ Friday, likely to set a record as the most valuable IPO in history. NASDAQ is making a big play for IPOs, with new rules aimed at drawing in companies like SpaceX.

LEILA FADEL, HOST:

SpaceX begins selling its shares to the public today. It's the largest IPO ever. The Indicator's Darian Woods and Ricky Mulvey look at the NASDAQ rule changes that got it there.

RICKY MULVEY, BYLINE: SpaceX stock is hitting public markets, or really, a sliver of the company is hitting public markets. SpaceX is offering about 4% of its shares in its IPO.

DARIAN WOODS, BYLINE: An IPO has always been a way to cash out earlier investors, but companies used to issue public stock to build factories and expand their businesses.

MULVEY: Now companies like SpaceX can grow into trillion-dollar behemoths with private dollars. Alex Maturi is the former CEO of S&P Dow Jones Indices.

ALEX MATURI: So for them coming public isn't necessarily to raise new capital. It's a way to, you know, monetize your shares and putting a true price on the value of their company.

WOODS: Now, the NASDAQ just changed its rules on how it adds companies to its index, the NASDAQ 100.

MULVEY: These rules came into being just a month before the SpaceX IPO, and it's no secret these rule changes will increase the demand for SpaceX stock.

WOODS: The first rule change is that the NASDAQ dramatically reduced the time it takes for a big company to enter the index of its 100 largest companies.

MULVEY: Previously, the NASDAQ added and deleted companies from its index once per year. If a new company wanted to join the club, it had to trade for at least a few months.

WOODS: Former CEO Alex Maturi says there's a reason for a waiting period. Stocks bounce up and down a lot just after they go public. He thinks that the NASDAQ isn't giving SpaceX enough time to settle down.

MATURI: If you look at most IPOs, the price runs up, it collapses. You want to get to a point where there's a little more steady state.

MULVEY: So the first concern is that SpaceX, then other big IPOs, will be rushed into the NASDAQ 100 club before they settle down.

CAMPBELL HARVEY: But that's not the most important real change.

WOODS: That's Campbell Harvey, a finance professor at Duke University. His beef is with how the NASDAQ now counts the size of the companies in its index.

HARVEY: The most important real change was the so-called free float.

MULVEY: Free float just means how much of this company is available for sale to the general public.

WOODS: The float for SpaceX is 4% of the company. This means that investors can only trade 4% of SpaceX on public markets. But the NASDAQ is saying that percentage doesn't really represent the size of the company for its index.

MULVEY: Instead, when SpaceX is added to the NASDAQ 100, it will weigh the company as if three times the number of shares are available for sale.

WOODS: So what does this mean? Think of an index fund like a mutual fund where you have lots of stocks all together. So these funds that just track the index will have to buy SpaceX stock as if the company offered triple the number of shares than they actually did.

MULVEY: Is this index methodology? Is it gaslighting?

WOODS: Do numbers mean anything?

MULVEY: (Laughter).

WOODS: But still, these rules can create a mechanical imbalance.

HARVEY: By the time the retail investor gets into the market, the price will be inflated by this demand.

WOODS: By the way, we did reach out to NASDAQ multiple times. We also asked them if these new rules will help or harm retail investors and we did not get an answer.

MULVEY: Ricky Mulvey.

WOODS: Darian Woods, NPR News.

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