Investor Michael Burry, famous for his 2008 financial crisis trade, has spoken out against Nasdaq’s proposed rule changes ahead of SpaceX’s anticipated initial public offering (IPO). Burry claims that these changes are the most Shameless structural manipulation of a major index he has ever seen.
The Proposed Rule Changes
Nasdaq has quietly floated two specific rule proposals in February, which critics argue were designed around a single company: SpaceX. These proposals have sparked concern among investors, including Burry, who believe they could lead to market manipulation and unfairly benefit insiders.
SpaceX’s Anticipated IPO
SpaceX, led by Elon Musk, is reportedly targeting a $1.75 trillion valuation for its IPO, which could be the largest in history. The company is leaning towards a Nasdaq listing, potentially as early as June. Musk has appeared to confirm the $1.75 trillion figure on social media.
The ‘Fast Entry’ Rule
Currently, new public companies typically wait up to 12 months before qualifying for major index inclusion. However, Nasdaq’s proposed “Fast Entry” rule would scrap this waiting period, allowing newly listed companies with a market cap ranking in the top 40 of Nasdaq-100 members to enter the index after just 15 trading days. This means that companies like SpaceX could enter the index without a seasoning period, potentially putting passive investors at risk.
The 5x Float Multiplier
Burry has called the 5x float multiplier proposal the “real scandal”. This proposal would weigh any stock with under 20% free float at five times its actual float, capped at 100%. For example, if SpaceX has a 5% float, its $1.75 trillion valuation would yield roughly $87.5 billion in publicly tradable stock. However, the multiplier would force passive funds to buy as if SpaceX were worth $437.5 billion.
Who Profits from These Changes?
Passive buying would inflate the price of SpaceX’s stock, allowing insiders to sell their shares when lock-ups expire. As Burry put it, “Your 401(k) is the exit liquidity”. This means that ordinary investors could end up footing the bill for the gains made by insiders.
Conclusion
The proposed rule changes have sparked concern among investors, who believe they could lead to market manipulation and unfairly benefit insiders. As the IPO market continues to evolve, it is essential to ensure that rules are in place to protect all investors, not just those with the most influence.