Strategy Opposes MSCI Index Exclusion Proposal

Key Points of This Article

• Strategy submits a letter to MSCI
• Argues "over 1,500 employees"

Opposition to MSCI

On August 31, Strategy, a major holder of Bitcoin in the U.S., sent a letter to the index operating committee of MSCI, expressing opposition to the proposal to exclude "non-operating companies" from the index based on asset composition. The company criticized the proposal as discriminatory and arbitrary, demanding its withdrawal.

In a consultation document published in August, MSCI proposed a two-step new standard that newly defines non-operating companies and excludes them from the eligibility criteria for the global stock index group GIMI. According to the document, if applied based on data as of May this year, Strategy and Metaplanet would be immediately excluded, and three companies, including SharpLink, a major holder of Ethereum, would be placed on a newly established watch list.

Mechanism of the New Standards

The new standards will first conduct a preliminary examination to determine whether the ratio of operating assets to total assets exceeds 50%. Companies falling below this threshold will undergo an additional exclusion examination based on five financial ratios, such as business asset concentration and cost concentration, and will be excluded if they meet four or more criteria.

Strategy's Counterarguments

In the letter, Strategy claimed that it has approximately 1,500 employees worldwide and provides a new type of digital credit product backed by Bitcoin (BTC), asserting that it qualifies as an operating company. It also explained that after discussions with representatives from the U.S. Securities and Exchange Commission (SEC), it accounts for its Bitcoin business as an independent business segment in accordance with U.S. Generally Accepted Accounting Principles (GAAP).

Furthermore, it argued that it does not meet four of the five criteria used in the exclusion examination, particularly providing specific evidence regarding two items related to operating expenses and fair value fluctuations of Bitcoin. It stated that impairment and valuation losses of Bitcoin are recorded as operating expenses, and those fair value fluctuations are processed within the scope of those expenses.

The company argued that a uniform exclusion standard for non-operating companies undermines the neutrality of the MSCI index and contradicts the U.S. policy of promoting cryptocurrency-related initiatives. It demanded that MSCI publish objective criteria and consultation records if it does not withdraw the proposal.

MSCI is collecting opinions from market participants until September 30 and plans to announce the results of the consultation by October 16. If changes are implemented, they are expected to be reflected in the November index review.

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