Tuesday’s after-hours buzz revolves around Chinese e-commerce giant Alibaba filing for an initial public offering in the U.S. With the $1 billion placeholder, Jack Ma’s company, which is 24%-owned by Yahoo (NasdaqGS: YHOO), could be the largest U.S. IPO ever, topping the likes of Visa (NYSE: V) and Facebook (NasdaqGS: FB).
Now, Alibaba must decide on which U.S. exchange to list – Nasdaq or the New York Stock Exchange. As ETF Trends reported Tuesday morning, where Alibaba decides to list will have affect which ETFs the stock joins and when. [Nasdaq Could Have a Leg up on Alibaba IPO]
Nasdaq might have an inside track due to some overlooked, ETF-related advantages.
For example, since Alibaba is not a U.S. company, it will not be eligible for inclusion in the S&P 500. The NASDAQ-100, tracked by the PowerShares QQQ (NasdaqGM: QQQ), allows for the inclusion of foreign companies. Hence Baidu (NasdaqGS: BIDU), China’s largest Internet search provider, is a member of QQQ, but not the S&P 500 although the company easily meets the market cap criteria to be an S&P 500 constituent.
Assuming a Nasdaq listing, and to be crystal clear, that is no more than speculation at this juncture, makes it easier to predict a timeline for when Alibaba will join certain ETFs.
The stock would be eligible for inclusion in the Fidelity NASDAQ Composite Index Fund (NasdaqGM: ONEQ), the Nasdaq Composite tracking ETF, within a matter of days, perhaps just two or three days, after its first trading day.
From there, the next likely ETF destination could be, emphasis on “could be,” is the Renaissance IPO ETF (NYSEArca: IPO). IPO tracks the Renaissance IPO Index, which allows for the flexibility of adding IPOs after the fifth trading day, something IPO did with the likes of Twitter (NYSE: TWTR) and King Digital (NYSE: KING). [IPO ETF Adds King Digital]
Next up would likely be the KraneShares CSI China Internet Fund (NasdaqGM: KWEB). In an appearance on CNBC’s “Fast Money” earlier this year, KraneShares Managing Director Brendan Ahern said KWEB can fast track Alibaba into its lineup and add the stock following its eleventh day of trading. [China Internet ETF Could Add Alibaba 11 Days Post-IPO]
Regarding IPO and KWEB, it does not matter which exchange Alibaba chooses, but to gain admission to ONEQ and QQQ, Alibaba must list on the Nasdaq. It would take about three months for the stock to appear in QQQ, the NASDAQ-100 tracking ETF.
PowerShares QQQ
Tom Lydon’s clients own shares of QQQ.