S&P Dow Jones Reverses Course on Index Eligibility for Multiple Share Class Structures
In 2017, in the wake of Snap Inc.’s IPO of a non-voting class of common stock, S&P Dow Jones Indices announced that companies with multiple share classes would no longer be eligible for inclusion in the S&P Composite 1500 Index and its component indices, including the S&P 500, the S&P MidCap 400 and the S&P SmallCap 600. While companies already included were permitted to remain, companies subsequently going public with high vote/low vote share class structures or employing an “UP-C” structure with multiple share classes (even though affording investors with equal voting rights) were excluded. The eligibility criteria employed by S&P in this respect were more restrictive than those used by other index providers.
Following a consultation with market participants that commenced in late 2022, on April 17, 2023, S&P announced that companies with multiple share classes will again be considered eligible for inclusion in the S&P Composite 1500 Index and its component indices provided they meet all other eligibility criteria. We believe this is the right outcome for investors who are looking to broad-based market indices to track the entire investable universe and permits companies seeking to go public to adopt the capital structures that best suit their circumstances without adversely impacting eligibility for future inclusion in the S&P Composite 1500 Index and its component indices.