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Comment by lambda_lover | Hacker News Reader

Their share structure prevents them from ending up in ETFs, so one of the largest segments of investors literally won't be able to invest in them. Seems more like VC wanting to cash out and leave employees who can't sell their shares yet holding the bag.

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> Their share structure prevents them from ending up in ETFs

I've seen several people say this but I don't understand why, can you explain a bit further?

There has been a lot of discussion about this issue in the last years. Dual-class setups (at least for new IPOs) are penalized now by some index providers.

https://citywireusa.com/professional-buyer/news/crown-duals-...

Ahh, thank you. That makes much more sense. So it's not that ETFs are specifically prohibited from purchasing them. Rather, if index providers exclude issuers who have a dual-share structure from their indices then any funds that track to an index wouldn't be purchasing stock in those issuers.

I think it's important to note that many ETFs aren't index-tracking so even though index providers may exclude the issuers with several share classes that doesn't mean the stock will be shunned by all ETFs.

Dual-class share setups are typically prohibited by most ETFs. That's why companies that do want to have more than one share class will trade them under different tickers ($GOOG vs $GOOGL).

Edit: Prohibited was the wrong word, looked down upon was probably better.

Thanks, can you explain a bit further? (Nerdy curiosity here, I've done a lot of legal work with mutual funds & hedge funds but have no experience with ETFs so I'm both clueless and curious.) Prohibited by what? The prospectus? And what exactly is prohibited that assigning a different ticker gets around the prohibition? SNAP has a similar structure but I don't remember hearing the same buzz about that being an issue for ETFs when they went public.

A lot of it seems to come down to voting power. I linked a few articles that dive into it in this comment: https://news.ycombinator.com/item?id=19341955

Do you knwo why that is? It seems like having the two tickers would have all the same issues.

Agreed, and now that I think about it a bit more the ticker symbol is largely meaningless. Institutional investors trade by CUSIP, not Ticker, and a unique CUSIP is assigned to each security (and each share class of a company's stock is a unique security) regardless of whether they share an issuer.

Different classes always trade with different tickers. When they trade, of course: Google has also a non-traded B class. (By the way, I don’t think the first statement is correct.)

Prohibited was the wrong word, you're right. Institutional investors that run ETFs have become averse to dual class stocks ($SNAP, $LYFT) because they don't have the same voting power per share that they do with other share class setups. Indexes like S&P 500 have also stopped including listings that are dual-class -- this is changing though, see the articles I've linked below.

- https://www.cii.org/dualclass_stock - https://citywireusa.com/professional-buyer/news/crown-duals-... - https://www.washingtonpost.com/business/dual-class-shares/20...

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