Strategy Challenges MSCI's 'Non-Operating Company' Screen with SEC Argument

Strategy has challenged MSCI's proposed 'non-operating company' screen by tying it to the index provider's own words from four years ago. In a letter dated August 31, 2022, MSCI told the Securities and Exchange Commission (SEC) that index providers express no opinion on whether any market, company, strategy, or investment is good or bad.

Strategy says this position becomes harder to reconcile with the new methodology's requirement for MSCI to judge whether Bitcoin belongs inside an operating business. The Bitcoin treasury company argues that the screen classifies corporate assets as either operating or non-operating, which forces MSCI to impose its own definition of an operating business on a company.

MSCI opened the consultation on August 3 as part of a plan to expand existing exclusions for investment funds and business development companies. The proposal would use a core screen and five financial ratios to identify additional 'non-operating companies,' with four triggered flags making a company ineligible for Global Investable Market Indexes.

Strategy accounts for about 86.9% of the affected float-adjusted market value, which totals over $23.9 billion among six companies that would initially face deletion or watchlisting. The company says this concentration gives MSCI another factor to consider because a general methodology would produce a highly concentrated initial result.

Strategy's SEC argument adds a separate regulatory consideration by forcing MSCI to reconcile the proposed asset classification with the neutrality defense it presented in 2022.