Firmus Technologies, set to debut on the Australian sharemarket this month, faces scepticism from exchange-traded fund (ETF) providers regarding immediate inclusion in their products. Despite brokers predicting significant passive buying due to its high valuation, ETF managers caution that entry into major indices is far from guaranteed. Firmus Technologies rents out its specialised processing chips to large technology companies, providing crucial infrastructure for high-demand computational tasks. The company is expected to begin trading on October 23 with a valuation of at least $US50 billion ($72 billion), potentially making it one of Australia’s largest listed companies.
While its size is significant, ETF providers stress each index has distinct rules for new entrants. VanEck, for instance, considers variables beyond market capitalisation, including average daily trading values and volumes, meaning large companies might not meet liquidity thresholds. Arian Neiron, VanEck’s head of Asia-Pacific, highlighted that assumptions of automatic index inclusion underplay complex methodologies, citing how anticipated passive flows for Guzman y Gomez never fully materialised. S&P Dow Jones typically adds IPOs to its indices at quarterly rebalances or after eight weeks of trading, requiring a minimum 15 per cent free float.
The timing and scale of passive buying for Firmus remain uncertain, dependent on its free-float, liquidity, and index weight. Global X noted its Australia 300 ETF has a fast-entry rule for large IPOs meeting specific criteria, including market capitalisation exceeding 1 per cent of the Australian sharemarket. BetaShares advised that broad Australian equity ETFs would likely have modest exposure to Firmus, even with a large valuation, due to a potentially low available float. This uncertainty contrasts with varying broker valuation estimates, ranging from $US58 billion to $US90 billion.
