MSCI's New Rules Could Exclude Bitcoin Treasury Firms from Indexes

Key Points

• MSCI's finalized rule will classify "non-operating companies" as ineligible for its Global Investable Market Indexes starting Nov. 30.
• This change impacts firms like Michael Saylor's Strategy and Japan's Metaplanet, which heavily invest in Bitcoin, eliminating a temporary exemption for firms with significant digital asset holdings.
• Exclusion from these indexes would compel index-tracking funds to divest shares, potentially affecting stock prices.

MSCI has announced a significant change to its index rules that could remove Bitcoin treasury firms such as Strategy, led by Michael Saylor, from its major equity indexes. This decision, made public on October 15, comes as part of MSCI's November index review and is set to take effect at the end of the month.

The new rule designates companies classified as "non-operating" as ineligible for inclusion in the MSCI Global Investable Market Indexes. It introduces a screening process that assesses companies based on their operating assets and financial ratios. If a company fails the initial core screen and subsequently meets four out of five exclusion criteria, it will be flagged as ineligible.

This regulatory change specifically targets firms that hold a substantial amount of Bitcoin, a strategy pioneered by Saylor’s firm and followed by others like Metaplanet. The adjustment ends a temporary reprieve that allowed companies with over 50% of their total assets in digital currencies to remain included in the indexes.

Removal from MSCI indexes would lead to forced selling by funds that track these indexes, which could negatively impact stock prices and reduce the premium these companies have historically enjoyed. Saylor has criticized the rule as “discriminatory,” urging MSCI to reconsider its decision.

To prepare for potential exclusion, firms like Metaplanet have already begun taking defensive actions, including recent transactions involving Bitcoin to showcase active treasury management. Meanwhile, Strategy continues to expand its Bitcoin holdings despite the looming index concerns.