The direct impact is mainly that passive index funds all reconstitute their holdings to be in line with the Russell index they follow, be it the R1000, the R3000, the RTop 250, whichever, at all times. If a company is added because of an IPO and has sufficient market cap, is not a pink sheet stock or OTC, trades for over 1.00 per share, then it will be added in the Q in which the IPO happens. This is the only exception to the annual reconstitution. To do so more often would add much more volatility and transaction costs to the passive funds. If a company gets kicked off its respective exchange at some point, it is dropped from the Russell immediately, and all the funds sell it. SONS had that happen to them last year, pps fell hard. 40%. As far as what the exact pps move will be, that is impossible to predict, this stock is subject to big moves for little or no reason. But I understand from my source that 17.87 million dollars worth or 4.86 million shares at May 31 close, will need to be purchased to supply all the passive funds currently mirroring the Russell indexes in which this will fall on the date of the reconstitution, which is June 24th after close. At the average trading volume lately, that will be significant buying pressure. Some moves I followed were TUNE, up 30% on being added last year, AIRN 20% on being added, this year they will be dropped, and the pps has declined 10% since the 31st of May. If presses, I would say a 20-25% upside is fairly predictable in this case.
AI
