[The View] The Evolution of Indices: Reflecting the New Reality of the IPO Market

The "Fast-Track" in the U.S. Raises Key Questions
When the Market Changes, Indices Must Adapt
Stock Prices Serve as a "Map" of Economic Movements
Delayed Index Inclusion Means Missed Investment Opportunities

Investors often regard stock market indices as representative of the market itself. If the KOSPI or the S&P 500 rises, they believe the market has risen; if it falls, the market has fallen. However, recent changes in the U.S. capital markets challenge this conventional wisdom. Do today's stock indices truly reflect the reality of the market?

Just 20 to 30 years ago, innovative companies went public relatively early. An initial public offering (IPO) was considered the starting line for a company's growth. Today, the situation has changed completely. With the rapid growth of the venture capital and private equity markets, companies no longer have a reason to rush to go public. Backed by massive private funding, they expand their businesses while remaining unlisted and only enter the public markets once they have reached sufficient scale.

As a result, companies entering the IPO market today are fundamentally different from the “rookie companies” of the past. Many of them are already valued at billions or even tens of billions of dollars and have established solid positions in the global market. For these companies, going public is no longer the beginning of growth but the final stage in the growth process.

The problem is that stock indices, which should be the first to reflect changes in the market, have not kept pace with these realities. Due to existing rules that require a certain waiting period after listing or the fulfillment of strict inclusion criteria, it can take several months or even years for super-large newly listed companies to be included in the index. This has led to the odd situation where key companies—already drawing significant market attention and being actively traded—are absent from the representative market indices.

This is why, in 2026, major U.S. index providers such as Nasdaq and Russell introduced the so-called “fast-track” system, allowing super-large IPO companies to be included in the indices quickly after listing. S&P is also pursuing similar rule changes. If a company meets certain criteria, such as size and liquidity, it can be included in a major index just days after going public.

At first glance, this may seem like a simple regulatory change. However, its significance is substantial. It signals that index providers have officially acknowledged the structural changes in the market. In the past, most listed companies started at a relatively small scale. Now, companies capable of representing the economy and industry are entering the market later but at much larger scales. The evolution of indices reflects the need to adapt to this new reality.

The necessity of this change is clear from an investor's perspective as well. In the U.S. market, companies that were first included in the Russell index and then waited to be added to the S&P index often delivered returns far above the market average during that period. Some companies waited over a decade to be included in major indices. During this time, investors in index-linked funds and ETFs were essentially unable to benefit from these companies' growth.

Tesla is a prime example. Now one of the most representative companies in the U.S. stock market, it took a long time to be included in major indices. Workday and Veeva Systems went through similar processes. While such cases were considered exceptions in the past, going forward, they are likely to become more common. Even companies currently only considered as IPO candidates are already valued higher than many large public companies while still unlisted.

Of course, the fast-track system is not a cure-all. The volatility of newly listed companies can be rapidly reflected in the index, and temporary market overheating may be exacerbated. Nevertheless, the direction of the change is clear in terms of enhancing the representativeness of the market. After all, the purpose of an index is to show the market as it truly is.

This trend offers significant implications for the Korean market as well. Korea's representative indices, KOSPI200 and KOSDAQ150, are also managed based on regular rebalancing cycles. While this has not been an issue so far, the situation could change if more large platform and technology companies go public in the future. If new market leaders emerge and the indices fail to reflect them in a timely manner, both investors and the market could miss important opportunities.

Furthermore, this is a matter of capital market competitiveness. Global investors evaluate not only individual companies but also the entire market infrastructure, including index inclusion systems. Exchanges and indices that quickly incorporate market changes will inevitably be more attractive to investors.

Stock indices are not mere tables summarizing the past. They are more like maps showing where the economy is headed. In an era when the way companies grow and the meaning of going public have changed, indices cannot remain stuck in the standards of the past. The recent decisions by U.S. index providers ultimately deliver the same message: when the market changes, the indices must change as well. And the pace of that change is accelerating much faster than previously imagined.

Professor Park Sungkyu, Willamette University (U.S.)

This content was produced with the assistance of AI translation services.