MSCI Deletes Strategy and Metaplanet From Its Indexes

MSCI said after the US market close on Wednesday that it will remove Strategy from its USA Index at the close on November 30, which also takes the company out of the MSCI World and ACWI indexes, according to its November index review list. Japan's Metaplanet will leave the MSCI Japan Small Cap Index, while uranium holder Yellow Cake will leave the UK Small Cap Index. Iceland's Skel abd and micro-cap Upexi will also leave the Iceland Frontier Markets Small Cap Index and the USA Micro Cap Index respectively. It is the first review under MSCI's new rule for non-operating companies.

We covered the rule when MSCI finalized it and in the run-up earlier this week in a Strategy piece.

Strategy shares had closed up 1.06% at $122.35 on Wednesday and fell 2.58% after-hours to around $119.16 at time of reporting. The deletion was widely expected. Strategy disclosed in its third-quarter report that it expected its Class A stock to be excluded, and the stock had already fallen 21.6% in the month to November 6.

Funds that track an MSCI index must hold its constituents, so they will have to sell the deleted stocks by the November 30 close. Strategy put the amount at about 13 million shares (~$1.3 billion) in an August 31 letter to MSCI, representing 3.1% of its basic shares outstanding and less than one day's trading volume.

That does not match JPMorgan's estimate, which analysts gave last November, that an exclusion could drive about $2.8 billion of outflows from Strategy's shares and as much as $8.8 billion more if other index providers followed, Bitcoin Magazine reported. The two figures were made at different times and may cover different funds.

Strategy remains listed on Nasdaq, and the rule does not compel it to sell bitcoin. It held 850,364 BTC as of November 8. In an August letter, Strategy said deletion would have no meaningful impact on its business, and it argues that it reports its bitcoin holdings as an operating segment under US accounting rules.

The rule works in two steps. A company must first show that more than 50% of its assets are operating assets. If it does not, it faces five financial tests and is ineligible if it fails at least four, Bitbase reported. Existing constituents are removed only after failing in both of the two most recent annual filing periods.

Yellow Cake's deletion shows the rule is not specific to digital assets. The company buys physical uranium and stores it unprocessed. Metaplanet's chief executive, Simon Gerovich, said the change will not disrupt its operations or its bitcoin strategy, according to ME News. Blockhead covered the governance pressures on the company when its stock slid 17% over its ballooning option pool.

Ether treasury company SharpLink was placed on a watchlist rather than deleted. TON Strategy and Solana Company were on the preliminary watchlist but do not appear among the published deletions.

The effect lands on the equity side of Strategy's model. It sells common stock and preferred shares to buy bitcoin and pay dividends, as Blockhead covered in Strategy's dividend machine eating its own bitcoin. Last week it sold 2.05 million MSTR shares for $283.8 million of which $188.3 million was used for buying back its STRC preferred, in the weekly filing covered in the November 10 piece. Passive selling of about one day's volume should not break that machine, but index deletion removes a pool of structural demand for the stock, and it comes with the stock about 75% below its record.

The first date to watch is the November 30 close, when funds must finish selling and volume should spike. The second is whether other index providers follow MSCI, which JPMorgan's higher estimate assumed. The third is Strategy's next weekly filing, which will show whether it keeps selling stock to buy bitcoin or shifts more toward preferred buybacks. MSCI's next review in February will test the watchlist names.