What the Google share split really means

Google

Insiders say the Google stock split Wednesday will be one of the biggest changes to the S&P 500 ever.

When Google effectively splits its stock on Wednesday, S&P Dow Jones Indices will do something unprecedented: It will keep both the old Google shares and the new ones in the S&P 500. That means the S&P 500 will technically have 501 components, though it will still have only 500 companies.

"It's a good trivia question for everybody," Cowen & Co.'s head of sales trading, David Seaburg, said on last Thursday's episode of " Futures Now ." "Next Wednesday, how many stocks are going to be in the S&P 500? It's 501!"

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On Wednesday, ahead of trading on Thursday, Google will offer shareholders nonvoting Class C shares as a one-time special dividend. Because there will be twice as many shares outstanding, the price of the shares is expected to fall in half, effectively making for a standard 2-for-1 stock split.

The move will not only decrease the plus-$1,000 price of Google's shares, but will also reduce shareholders' voting power, mitigating the risk of a messy fight with an activist investor who wants the company to distribute more cash ( Carl Icahn 's Apple fight might comes to mind).

In the past, S&P Dow Jones Indices, the company that runs the S&P 500, has not kept the additional shares that more than 40 S&P 500 companies offer in the index.

In fact, in a February press release, the company announced that it would switch Google from the Class A shares (which will trade under the ticker "GOOGL") to the class C shares (which will trade under the ticker "GOOG," and are likely to be more liquid).

But in a March press release, it revised that decision, and said both the Class A and Class C shares will be included in the S&P 500 (as well as in the S&P 100).

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This is the first time that more than 500 stocks will be included in the S&P 500 for anything more than a temporary period.

"Fifteen years ago we had 501 lines for two days," said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. "But this is different. This is a big methodology change. You can compare it to when we adjusted for float" (an adjustment whereby S&P started calculating a company's market capitalization, and thus its weight in the index, by referring to the number of shares available for trading).

Silverblatt said that a number of systems, including his own, will have to undergo headache-inducing adjustments.

"This is going to make a lot of backdoor systems back up. The closest thing I remember is Y2K," Silverblatt told CNBC.com. "It will be real confusing for the first week."

What gives this change even more weight is that in September 2015, S&P Dow Jones Indices will consider including second publicly traded share classes that S&P 500 companies offer between now and September 2015. However, the index will continue to have just 500 companies.

The company says they are making the change because of a trend arising, particularly among tech companies, of offering multiple shares classes. Ignoring this trend would lead to "difficultly properly representing major market segments while providing sufficient liquidity to accommodate trading and necessary index adjustments," according to a press release.