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nasdaq1I was perplexed earlier this week when NASDAQ OMX Group announced plans to remove Zillow from the NASDAQ Internet Index — noting that the publicly-traded Seattle online real estate company was no longer considered an Internet company. Now, here’s where the story took a bizarre turn. At the same time that Nasdaq dropped Zillow, it added Trulia to the Index.

Many GeekWire readers scratched their heads over the decision.

“If Zillow is a real estate company, then so is Trulia. If Trulia is an internet company, then so is Zillow. Someone is asleep at the wheel at the NASDAQ,” wrote Findwell CEO Kevin Lisota.

I couldn’t quite get my head around the decision. After all, I can think of no two companies that are more alike than Zillow and Trulia. (In fact, I’ve pointed out numerous times how Trulia has essentially followed in the direct path of its larger rival).

Perplexed by the move, I called NASDAQ for a better explanation. Wayne Lee, a spokesperson for NASDAQ, told me that they rely on third-party classification systems to determine whether companies should be included in the index.

zillowtrulianew1Both the Industry Classification Benchmark and the Global Industry Classification System classify Zillow as a real estate company. Asked why Zillow would lose its Internet classification, while Trulia would be added, Lee said “that’s a question for the industry classification systems.”

OK. Fair enough. So, I got in touch with MSCI, which oversees the Global Industry Classification Systems and here’s what marketing manager Jo Morgan told me.

“As MSCI does not calculate the NASDAQ Technology Index, or indeed any NASDAQ index, we cannot comment on why a company is included within that index. I suggest you contact NASDAQ directly with your enquiry,” Morgan said.

Hmmm… A bit of a runaround.

Interestingly, just one of the classification systems used by Nasdaq— Global Industry Classification System — found that Trulia was considered an Internet company. Asked what happens when there is a split — as is the case in this situation — Lee said that they make a decision based on the information available.

“If one classification system determines it is in one sector, and another determines that it is in another, then we  certainly review it, and make a decision based on the information that is available from the classification systems,” he said.

He said Global Industry Classification System breaks down categories “in a more detailed fashion,” and it is true that Zillow was not classified as an Internet company by either of the organizations used by Nasdaq to determine inclusion in the Index.

At the end of the day, Lee said they rely on the classification systems to determine which companies to include, though he did note that they create the methodology. “There is no guess work for the most part,” said Lee, pointing to this document which shows the eligibility criteria.

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