Comment by twothreeone

5 days ago

> To get the remaining 15%, which they are contractually obligated to acquire, they must purchase from the founder. As they are in violation of their contract if they fail to acquire the remaining 15%, the founder now has complete control to dictate any price they want.

I can't imagine "any price they want" is quite right here. At the very least, shouldn't we expect underwriters and other stakeholders (in this case Nasdaq, Inc.) to negotiate option-contracts as part of the IPO deal to cover their future obligations?

Yes, it might be a "worse" deal than those initial 5% - though we don't even know that - but then institutional investors time horizons are typically much longer than 6 months. Unless you think SpaceX goes straight down to 0, it seems like a risky but calculated, long-term investment.

I agree they could be more transparent about it, but maybe they will send out a notice in the prospectus update?

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twothreeone

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riffraff  5 days ago

Index funds have a variety of ways to replicate the index beyond physical replication, including options, buying "similar things", sampling etc..

So yeah, they don't really need to stick to 100% of the presented issue.

  • Galanwe  5 days ago

    Index funds and ETFs also have strict replication rules limiting the amount of non-physical replication in their legally binding prospectus...

    The more physical a tracker is, the lower the tracking error, but also the more fees you have to pay. "Good" ETFs/IFs are often 98% physical. This makes for higher fees, but more safety for subscribers in case of large swings.

    So it's not like they are _free_ to replicate however they see fit, the replication mechanism is part of the product.