MicroStrategy faces potential MSCI index removal under new rules

MSCI has finalized new eligibility rules for its Global Investable Market Indexes that could lead to the removal of companies classified as ‘non-operating businesses’. This classification applies to firms whose assets are primarily held for investment rather than used for core operations. MicroStrategy (officially Strategy Inc.) has been placed on a provisional review watchlist because more than 90% of its balance sheet consists of Bitcoin, failing the ‘50% Asset Test’ which requires operating commercial assets to exceed half of total assets.

Under the new framework, companies that fail the initial asset test are further evaluated on five financial metrics, including operating asset intensity, expense ratios, and cash flow. A company is flagged for removal if it fails the asset test and at least four of these five metrics. However, existing constituents are protected by a two-year grace period, meaning removal only occurs if the criteria are breached across two consecutive annual reviews.

Analysts at JPMorgan estimated that an MSCI exclusion could trigger approximately $2.8 billion in outflows from MicroStrategy stock. MicroStrategy has contested the methodology, arguing that the rules would have no meaningful impact on its business operations but could harm MSCI’s reputation. The company noted that index-tracking funds hold roughly 3.1% of its basic shares outstanding.