MSCI proposes a test that flags Strategy

MSCI has put out for consultation a method for identifying companies that hold assets rather than operate a business, with index deletion as the consequence. Under the proposal a company is first assessed on asset structure; those that fail are then tested against five financial ratios.

Failing the core screen is not by itself disqualifying. A company must also trigger at least four of five criteria: operating assets below 20% of total assets, operating expenses below 5% of total assets, negative operating cash flow, non-operating fair value changes above 5% of total assets, and capital dependence above 20%.

Strategy, with a market capitalisation of $23.9B, is flagged for deletion alongside Metaplanet and Yellow Cake. SharpLink, Center Laboratories and Lydia Holding are on a watchlist. Existing constituents get more protection than newcomers: deletion requires failure across two consecutive annual filings.

The mechanical part

JPMorgan analysts estimate that removing Strategy would force roughly $2.8B of passive selling. That flow is indifferent to any view on the company: index funds sell because the constituent list changed, and the size is set by how much tracking capital sits against the index.

MSCI's stated position is that only a sustained change in business structure triggers reclassification, and that a one-off miss against a threshold does not. Feedback runs to 30 September, with results expected by 16 October.

For allocators the interesting question is not whether these particular companies are operating businesses, but that a definition written for index construction now determines who holds them. A treasury vehicle whose equity trades at a premium to its holdings depends on that equity being buyable by index money.