{"id":3278,"date":"2020-09-21T14:24:24","date_gmt":"2020-09-21T19:24:24","guid":{"rendered":"http:\/\/blogs.luc.edu\/compliance\/?p=3278"},"modified":"2020-09-21T14:24:24","modified_gmt":"2020-09-21T19:24:24","slug":"the-sp-500-index-committee-does-not-extend-an-invitation-to-tesla","status":"publish","type":"post","link":"https:\/\/blogs.luc.edu\/compliance\/?p=3278","title":{"rendered":"The S&P 500 Index Committee Does Not Extend an Invitation to Tesla"},"content":{"rendered":"

Paul Schneider <\/em><\/span><\/p>\n

Associate Editor<\/em><\/span><\/p>\n

Loyola University Chicago School of Law, JD 2022<\/em><\/span><\/p>\n

Tesla satisfied the final requirement to join the S&P 500 when it announced its fourth consecutive quarter of profitability<\/a> on July 22, 2020. As a result, investors speculated that the electric car maker would be added to the index in short order. However, on September 4, 2020, the U.S. Index Committee, the group responsible for managing the index, announced the addition of three new companies without mentioning Tesla. The news led to a 21% decline in Tesla\u2019s stock price, the largest drop in the company\u2019s history.<\/span><\/p>\n

What is the S&P 500?<\/strong><\/span><\/p>\n

In its simplest from, the S&P 500 is a stock index. A stock index<\/a> is a compilation of stocks constructed to replicate a particular market, sector, commodity, or anything else an investor might want to track.<\/span><\/p>\n

The S&P 500 Index is comprised of 500 of the largest U.S. publicly traded companies in terms of market capitalization. Market capitalization<\/a> is calculated by multiplying the number of shares issued by the stock price. In other words, market capitalization is the total value of all the shares of stock a company has issued. Thus, the index represents the stock market\u2019s performance by reporting the risks and returns of the biggest companies. Investors use the S&P 500 as the benchmark of the overall market.<\/span><\/p>\n

How is the makeup of the index determined?<\/strong><\/span><\/p>\n

The U.S. Index Committee selects<\/a> each of the index\u2019s 500 companies based on their liquidity, size, and industry. In March, June, September, and December of each year the committee rebalances the index by removing some companies and adding others.<\/span><\/p>\n

To qualify for inclusion in the S&P 500, a company must satisfy the following requirements<\/a>:<\/span><\/p>\n