The University of Chicago Business Law Review

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The S&P 500 is widely used to (i) direct capital through “passive” investing, (ii) benchmark investment portfolios, and (iii) evaluate firm performance. The securities regulatory regime’s approach to each of these uses is fundamentally flawed. I show that the index is neither neutral nor constant: it represents substantial amounts of discretionary decision-making and is simply one particular large-cap portfolio. I then argue that an “S&P 500 fund” is not meaningfully passive, the mutual fund prospectus benchmark requirement is flawed, and the requirement that index constituents compare their performance to that of the index is nonsensical. I propose regulatory changes to correct these misuses.

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