PLTR, DELL rally on news of replacing American Airlines, Etsy in S&P 500: Here’s how the index makes its calls

Shares of Palantir Technologies (NYSE:PLTR) and Dell Technologies (NYSE:DELL) are rallying on news they’ll be joining the S&P 500 later this month. S&P Global, which runs the index, says the tech giants, along with insurance provider Erie Indemnity (NASD:ERIE), will be added before the start of trading on September 23. The move is part of a quarterly rebalancing of the S&P indexes.

Palantir stock was up 13% in midday trading, and Dell was up 4%.

So how does the index choose companies, anyway? Can anyone join?

Well, to begin with, the companies are replacing three other heavy hitters: American Airlines Group (NASD:AAL), Bio-Rad Laboratories (NYSE:BIO), and Etsy (NASD:ETSY). American Airlines and Bio-Rad, a life sciences manufacturer, will move to the S&P MidCap 400, and retailer Etsy will move down to the S&P SmallCap 600.

Shares of American and Etsy rose Monday, with Bio-Rad losing ground.

The Standard and Poor’s 500 measures the performance of the top 500 companies listed on a major U.S. stock exchange.

According to S&P Global, the decision is made by a committee, which chooses among eligible stocks, taking into account which sectors they represent. Among the key requirements, “a company must have a sizeable enough market capitalization to qualify as a large-cap stock. It also must have sufficient float, or percentage of shares available for public trading,” the index says.

In other words, the stock must have a large market cap (in the billions of dollars), be listed on the New York Stock Exchange, Nasdaq, or CBOE, and have a public float of at least 50% of its shares outstanding.

Replacing a stock generally requires a “significant change in a constituent company’s core business or a major corporate action,” the index says.

As changes to the S&P 500 are generally made in response to corporate actions and market developments, they can be made at any time. The committee can also delete a company from the index if the stock has been delisted or the company declares bankruptcy.