The No. 2 U.S. exchange cut to four months the "seasoning"
criteria from two years and from one year for securities with
market caps in the top 25 percent of the index.
Beginning on Monday, April 23, any company that's been listed on
Nasdaq, NYSE or NYSE Amex for at least three full months is
eligible to be added to the Nasdaq 100 Index. But Nasdaq's
three-month count doesn't begin until after a company's first month
being listed is over, meaning that what really talking about is a
four-month seasoning period.
Like I said, many have speculated that this rule change was
enacted specifically to enable the addition of Facebook, whose
initial public offering is expected on May 17.
Facebook is expected to IPO at a valuation of $100 billion,
which would make it the eighth-biggest company in the Nasdaq 100
and therefore the No. 8 holding of the $32 billion PowerShares QQQ
Trust (NasdaqGM:QQQ) that tracks it.
Unfortunately for Facebook fans, the story is a bit more
complicated than that. But first some background …
Two Classes Of Stock
After the IPO, Facebook will have two classes of common stock-A
and B. Only Class A shares will be listed publicly, with most of
the rest of the shares-Class B-remaining privately held.
According to the latest Facebook prospectus, filed this
"The rights of the holders of Class A common stock and
Class B common stock are identical, except voting and
conversion rights. Each share of Class A common stock is
entitled to one vote. Each share of Class B common stock is
entitled to 10 votes and is convertible at any time into one share
of Class A common stock."
The prospectus doesn't yet indicate the percentage of voting
power that is/will be allocated to Class A and Class B shares, but
it does note that Facebook is a "'controlled company' under the
corporate governance rules for Nasdaq-listed companies."
That basically means that more than 50 percent of the voting
power for the election of directors is held by an individual, a
group or another company.
That individual, of course, would be Facebook Chief Executive
Officer Mark Zuckerberg. Kathy Kristof, in a CBS MoneyWatch
article, calculated that Zuckerberg has 57 percent of the voting
control and owns 28 percent of the stock.
Nasdaq weights index constituents based on the market
capitalization of the security, rather than the issuing company.
That means that Facebook's weight in QQQ will be determined by the
market capitalization of the A shares that will be sold to the
public next month.
Too Small A Piece In Public Hands
Considering that Facebook is supposedly planning to debut about
$10 billion of its $100 billion market cap in its IPO, it's
probably a good guess that the A shares will be worth something
close to $10 billion.
Of course, that number could grow if Facebook employees convert
B shares into A shares for sale on the open market.
Still, at a $10 billion market cap, Facebook would still be
added to the Nasdaq 100 and the Q's, but at a much more muted
weight. Rather than being the 8
-largest company with a weight of approximately 3 percent, it would
be around 60
largest, with a weight around of 0.33 percent.
As cool as it is that Nasdaq changed its rules for easier access
to Facebook, I'm not sure it makes sense to wait four months and
then rush out and buy the Q's for a 0.33 percent exposure to
If you want exposure to Facebook, just buy it outright. Or wait
for it to pass the minimum seasoning periods for the focused
technology and Internet ETFs.
Permalink | 'copy; Copyright 2009 IndexUniverse LLC. All rights
Don't forget to check IndexUniverse.com's ETF Data
2012 IndexUniverse LLC
. All Rights Reserved.