Strategy turns MSCI’s own SEC words against its $24 billion MSTR threat

by

Strategy has challenged MSCI’s proposed “non-operating company” screen by tying it to a regulatory argument MSCI made four years ago in a letter shared on Aug. 31.

The Bitcoin treasury company says the new methodology requires MSCI to judge whether Bitcoin belongs inside an operating business. That puts MSCI’s 2022 defense to the Securities and Exchange Commission (SEC) at the center of the dispute.

MSCI told the agency that index providers “express no opinion or view as to whether any market, company, strategy or investment is good or bad,” a position Strategy says becomes harder to reconcile with a test that classifies corporate assets as operating or non-operating.

MSCI’s latest 10-K says adviser-style obligations could increase the costs and complexity of its operations, giving Strategy a financial consequence to attach to its regulatory argument.

The index provider opened the consultation on Aug. 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 argues that GAAP and IFRS provide no definitions for the operating and non-operating asset categories MSCI wants to use.

Under Strategy’s reading, MSCI would therefore create its own standard for determining whether Bitcoin belongs inside an operating company, then use that classification to decide which securities qualify for its indexes.

It stated:

“The proposal, like the 2025 proposal that MSCI withdrew, is discriminatory, arbitrary, and misguided. If adopted, the proposal would have no meaningful impact on Strategy’s business, but it would profoundly harm MSCI’s reputation as a reliable and neutral index provider.”

Piece of the dispute MSCI’s position / disclosure Strategy’s counterargument Why it matters
Index neutrality MSCI says index providers do not judge whether a company, market, strategy, or investment is good or bad Strategy says the new screen requires MSCI to judge whether Bitcoin is an operating asset Turns index methodology into a neutrality problem
Adviser regulation MSCI says index providers do not recommend investments or allocations Strategy says subjective asset classification makes that harder to defend Links the rule to the SEC’s 2022 index-provider inquiry
Business risk MSCI says adviser-style obligations could raise costs and complexity Strategy says MSCI is moving closer to a risk it already discloses Gives the dispute a financial consequence

Strategy is using MSCI’s SEC defense against the new screen

The SEC opened a request for comment in 2022 examining circumstances that could bring information providers, including index providers, within the Investment Advisers Act. Then-SEC Chair Gary Gensler focused on the economic power of index construction because inclusion and exclusion decisions can cause investors to buy or sell securities.

MSCI answered by presenting index providers as neutral market measurers. Its comment letter said it expresses no view on whether a company, market, strategy, or investment is good or bad and makes no recommendations about investments or asset allocations.

Strategy says the proposed screen conflicts with that position because MSCI would decide whether Bitcoin qualifies as an operating corporate asset.

The Bitcoin treasury’s latest 10-Q strengthens its argument by reporting two operating segments, Software and Bitcoin, with the Bitcoin segment covering treasury operations, acquisitions, capital markets, and capital management.

MSCI could still classify the asset base behind that segment differently for index purposes. Strategy argues that doing so would require the index provider to impose its own definition of an operating business on a company whose SEC filings already treat Bitcoin activity as an operating segment.

That distinction gives Strategy a route into the regulatory debate surrounding index providers.

The SEC’s 2022 inquiry remains general, and the agency has issued no determination on MSCI’s current proposal. Strategy is using an existing regulatory issue to make MSCI defend the degree of discretion embedded in its methodology.

MSCI told shareholders that investment-adviser obligations could raise costs and complexity across its business and could create conflicts with other regulatory duties.

Strategy is pointing MSCI toward a risk the index provider already recognizes in its public disclosures.

Strategy says 87% of the affected value points back to MSTR

Citing MSCI figures, Strategy says its float-adjusted market capitalization totals over $23.9 billion among six companies that would initially face deletion or watchlisting, compared with nearly $3.6 billion for the other five combined.