Analysis: Strategy could lose place in major global stock indexes

Strategy, formerly MicroStrategy, could lose its place in major global stock indexes. MSCI approved new rules on Thursday to remove companies that behave more like investment vehicles than operating businesses. MSCI's earlier simulation identified Strategy and Japan's Bitcoin buyer Metaplanet as potential exclusions. The simulation also flagged UK uranium holder Yellow Cake. Ethereum treasury firm SharpLink could enter a watchlist.

MSCI creates indexes including MSCI World and MSCI Emerging Markets. Fund managers use these benchmarks to decide which shares to hold. Index-tracking ETFs automatically follow changes. MSCI questions whether companies whose value comes mainly from holding assets such as Bitcoin should be treated like conventional operating businesses.

Michael Saylor's company Strategy still sells software, but Bitcoin holdings dominate Strategy's balance sheet. MSCI's new test examines operating assets, business cash flow and reliance on external financing. Strategy disputes the distinction between investment vehicles and operating businesses. Strategy called the proposal misguided in Strategy's response to MSCI.

If Strategy is excluded, ETFs tracking the affected indexes would generally have to sell MSTR shares when the ETFs rebalance. Those sales would create selling pressure regardless of Bitcoin's price or investors' opinions about Strategy. Strategy estimates that MSCI-linked funds hold roughly 13 million shares, around 3.1% of Strategy's basic shares outstanding. Strategy argues that those holdings represent less than a typical day's trading volume. Other investors could absorb the sales, so a price decline is far from guaranteed.

MSTR rose 5.62% on Thursday, closing at $151.29. The rally occurred before MSCI's announcement after the US market closed. Weaker longer-term demand for MSTR shares could make raising money for further Bitcoin purchases harder. Exclusion would not delist MSTR from Nasdaq or require Strategy to sell Bitcoin.

MSCI will publish the affected-company list on November 11. The rules take effect after November 30, with existing constituents protected by a two-annual-filing test before removal.