Mar. 16, 2026
I am writing to oppose the proposed Fast Entry rule for the Nasdaq 100. I understand the motivation behind the proposal. Nasdaq wants the index to reflect the market more quickly when a very large company lists on the exchange. At first glance that sounds reasonable. But once you think through the mechanics, the rule starts to look much less benign. Under the proposal a newly listed company could enter the Nasdaq 100 after only fifteen trading days if its total market capitalization ranks within the top forty constituents. At the same time the company would be exempt from the seasoning and liquidity requirements that normally apply to index inclusion. Those requirements exist for a reason. Markets need time to discover prices. They need time to develop trading depth. And they need time for investors to form independent judgments about what a company is actually worth. Removing those safeguards means that a company can become embedded in a major benchmark before the market has had time to do that work. This matters because index inclusion is not a neutral event. Once a company is added to a widely followed index, passive funds are effectively required to buy it. That buying pressure has nothing to do with the company’s fundamentals. It is simply the mechanical consequence of index tracking. Now consider how this interacts with the structure of modern IPOs. In many cases a very large portion of shares remains in the hands of founders, insiders, and early investors. The company may have a massive headline valuation, but the actual public float can be relatively small. Put those two facts together and the problem becomes obvious. A newly listed company with limited float could qualify for rapid index inclusion based on its total market capitalization. Passive funds would then be required to buy shares even if the available supply of tradable shares is constrained. At that point the price can easily be driven by mechanical index demand rather than genuine price discovery. That is not just a valuation issue. It is a market structure issue. The purpose of an index is supposed to be to reflect the market, not to move it. There is also a broader lesson here that regulators have encountered before. Financial crises rarely begin with one dramatic mistake. More often they develop through a series of smaller decisions that gradually weaken safeguards. Waiting periods are shortened. Standards are relaxed. Rules that once existed to slow things down are treated as unnecessary friction. By the time the system becomes fragile, it is usually because those changes accumulated over many years. That pattern should be familiar to anyone who has studied the run up to the financial crisis of 2008. The crisis was not caused by a single catastrophic decision. It was preceded by a long period during which safeguards were slowly eroded in the name of efficiency, innovation, and market flexibility. The Fast Entry proposal is obviously much smaller in scope than those earlier policy choices. But it reflects the same basic logic. Standards that were originally designed to ensure orderly price formation are being relaxed in order to make the index more responsive. The Nasdaq 100 is not a niche benchmark. It is tracked by very large exchange traded funds and retirement portfolios. When the methodology of such an index is changed, the effects ripple through the entire market. For that reason the Commission should be cautious about weakening safeguards that help ensure the index remains investable and reflective of genuine market prices. If the Commission believes an expedited pathway is necessary, it should require stronger protections than those proposed here. A longer seasoning period and more meaningful liquidity thresholds tied to actual public float would be far more prudent than relying primarily on headline market capitalization. In my view the proposal prioritizes speed over resilience. History suggests that this tradeoff rarely looks problematic at first. The consequences usually become visible only later. For these reasons I urge the Commission not to approve SR NASDAQ 2026 009 in its current form. Thank you for considering my comment.