(In first paragraph, corrects number of states challenging indexes to four from five)
By Ross Kerber
June 11 (Reuters) - Investment leaders from four large states pressed Nasdaq and FTSE Russell for details about recent rule changes favoring SpaceX and other megacap IPOs, and suggested the index providers put the moves on pause unless they have reviewed risks to investors.
Letters to both companies seen by Reuters on Thursday raise concerns about the impact Elon Musk's rocket and satellite communications
company could have on other investors through its record-breaking $75 billion debut.
Once trading begins, SpaceX's huge valuation and tight governance structure creates risks such as high volatility and conflicts of interest between the index firms and users, the officials said.
Passive funds are poised to buy billions of dollars of SpaceX shares, depending on when it joins high-profile indexes. Both Nasdaq and FTSE relaxed their entry criteria such as by shortening trading-history requirements, while S&P Dow Jones stuck to tradition.
"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 soon to follow like OpenAI and Anthropic, reads one of the letters, sent to FTSE Russell and its parent, London Stock Exchange Group, or LSEG.
It 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 oversee state retirement assets, including passive funds that would become forced buyers of SpaceX based on the index actions.
An LSEG representative declined to comment.
A similar letter was sent to Nasdaq by Frerichs, Lierman, and Oregon Treasurer Elizabeth Steiner. Like the letter to FTSE, the one to Nasdaq asked its recipient to pause implementation of its rule unless it had conducted a formal investor impact analysis of its change.
"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 officials also asked for an explanation of how Nasdaq balanced internal tensions and whether any companies, including SpaceX or its advisers, played any role in the development of the new rule.
In a statement sent by a representative, Oregon's Steiner said she was "deeply troubled" by the exchanges' actions. They may be forcing institutions like retirement plans "to purchase stocks (through index funds) that have not proven their value or undergone the rigors of market correction," she said.
Asked about the letter, a Nasdaq spokesman said via email: "Public markets look fundamentally different than they did a decade ago — companies are staying private longer, listing at larger scale, and arriving with more complex share structures. The updates to the Nasdaq-100 methodology reflect those shifts and were implemented following a formal public consultation.
"The changes were not designed for any single company, and are consistent with updates other major index providers have independently made in response to the same market dynamics," the Nasdaq spokesman said.
(Reporting by Ross Kerber)
