Top indices might refuse to include Snap’s shares.

The third day was not the charm. Not for Snap, the company that owns the Snapchat app. An investor revolt, spearheaded by the Council of Institutional Investors, against Snap’s non-voting class A shares is now deflating a big part of the hype around its IPO.

The hype worked like this: The market capitalization of Snap would be pushed so high that major indices, including the S&P 500 index and the MSCI USA Index, would include the stock, and that index and pension funds that track these indices would all have to buy the shares, and thus drive up the share price even further.

That was the bet. And now news of the revolt is spreading.

Snap’s class A Shares plunged 12.3% to $23.77 at the close on Monday. Down 16% from their high in the morning. Shares now trade below the price at which they opened on March 2 during their first moments in the public market.

This is what Snap’s first three days in the public market look like, and it made a big dent in the glory of what had been the hottest technology IPO in three years:

Investors that made money so far on these Class A shares are the institutions that had bought them the day before at the IPO price of $17. But for the public, these class A shares haven’t been a picnic.

Much of the hype had been focused on the stock being included in the S&P 500 Index and the MSCI USA Index, given its IPO valuation of $24 billion, and its market capitalization on Friday of about $30 billion. By comparison, Ford’s market cap is $50 billion.

The bet was that once the shares are in the index, the real buying would commence by funds that track those indices and would therefore have to buy the shares. Given the relatively small number of shares traded, this buying pressure across the globe would push up the price even further. It was simply a matter of creating a lot of artificial demand. And investors were front-running that propitious moment.

But suddenly, there is doubt. Reuters reported:

A group representing large institutional investors has approached stock index providers S&P Dow Jones Indices and MSCI Inc., looking to bar Snap Inc. and any other company that sells investors non-voting shares from their stock benchmarks.

While other large companies, most famously Facebook and Alphabet, have issued some non-voting shares, in addition to voting shares, shareholders can still vote, though only in watered-down form. Snap pioneered a new thing: selling only non-voting shares in the IPO, and public shareholders cannot vote at all.

These are the three classes of Snap shares, but only Class A shares were sold to the public:

Owners of Class A common stock have zilch votes per share.

Owners of Class B common stock (certain early investors) have one vote per share.

Owners of Class C common stock (co-founders Evan Spiegel and Robert Murphy) have 10 votes per share.

The structure leaves the two co-founders in total control. Class A shareholders have no say whatsoever on the company’s strategy, the pay of its executives, the board of directors, and whatever else the owners of a company would want to have a say over.

What Class A shareholders got for their money, in addition to the financial toxicity of the deal, was the hope and hype of the stock’s inclusion in the indexes.

But now both index providers, the S&P Dow Jones Indices and the MSCI USA Index, said that they’re reviewing Snap’s inclusion.

“What we would like to see at the least is for the indexes to exclude new no-vote companies,” Amy Borrus, deputy director of the Council of Institutional Investors, told Reuters. The Council represents pension funds and other large asset managers. Meetings with both index providers are scheduled this week, she said.

Reuters added:

David Blitzer, managing director of S&P Dow Jones Indices and chair of a committee overseeing its indexes, said they would not add a new stock like Snap for 6 to 12 months after its IPO in any case, and will use the time to study Snap’s structure. While the index provider does not have a hard requirement about a company’s voting structure, the committee needs to think through how much influence investors should have, Blitzer said in an interview on Monday. “‘Who Votes?’ is the issue right now,” he said.

To be included in the S&P 500, Blitzer said, the company normally needs a market capitalization of around $5.5 billion and four profitable quarters in a row. That latter condition pretty eliminates Snap’s chances of making it into the S&P 500 index in the foreseeable future.

On March 2, MSCI said that Snap would qualify for inclusion in its MSCI USA Index. But on Friday after the markets had closed, and when no one was supposed to pay attention, MSCI changed its mind and announced:

Following additional analysis, the IPO of SNAP (US) did not meet all of the relevant market capitalization requirements required for early inclusion into the MSCI USA Index. Therefore, and in accordance with the MSCI Global Investable Market Indexes methodology, SNAP (US)’s inclusion into the MSCI USA Index will be re-assessed as part of the next Semi-Annual Index Review, which occurs in May 2017.

MSCI “seeks feedback from the investment community” on whether or not companies without voting rights should be included in its indices.

What’s left for Snap after the index-hype has deflated? Plenty of other hype. And it might still blow over. Because hype is still in plentiful supply in this wondrous stock market.

Update: Noon-ish Tuesday, March 7: Snap now down an additional 11.5% to $21.00.

So how long before the stock market hits the wall? Read… This is Worse than Before the Last Three Crashes

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