Table of Contents

• You might want to know


• Main Topic


• Key Insights Table


• Afterwards...

You might want to know

Is it appropriate for an index provider to set asset-ownership standards that can exclude operating companies from broad market benchmarks?

How do new methodology rules affect companies that hold digital assets as part of operating balance sheets rather than as passive investment vehicles?

Main Topic

The recent proposal by MSCI to identify and exclude so-called "non-operating companies" from its global equity indexes has sparked a debate about the proper role of index providers and the boundaries they should respect when defining market benchmarks. Under the proposed methodology — which expands from an earlier, narrowly digital-asset-focused rule to a broader financial-ratio screen — companies with unusually large holdings of particular assets relative to their balance sheets could be classified as non-operating and removed from major indices. This change would have practical consequences: applying the new screen to May 2026 data would have led to the exclusion of several publicly traded firms that hold sizable digital-asset treasuries, including one of the largest bitcoin-holding public companies.

Critics argue that index providers should measure markets rather than prescribe which assets companies are permitted to own. From this perspective, corporate treasury choices — whether they favor cash, commodities, cryptocurrencies, or other instruments — are legitimate economic decisions by operating firms. Treating certain asset classes as disqualifying risks blurring the line between objective index construction and active asset-class judgments. Indexes traditionally aim to represent investable slices of the market, not to enforce normative views about sound corporate finance.

Proponents of the change point to risks that large, non-core asset holdings can create distortions in index representation and investor exposures. For example, a company whose balance sheet is dominated by an asset whose price is highly volatile or uncorrelated with the company’s operating performance could produce index behavior that masks the underlying economic realities investors expect from an equity allocation. Removing or reclassifying such firms could reduce unintended concentration or volatility in broad-market benchmarks. That said, the threshold and criteria for such treatment are crucial: a rigid cutoff, especially one derived from a single asset class or an arbitrary percentage, invites controversy and potential unfairness.

One company directly affected has publicly pushed back against MSCI’s approach, asserting that it is an operating enterprise with active software development, treasury management, and credit instruments that utilize its digital holdings. The company contends that labeling it as "non-operating" because of treasury composition overlooks its operating revenues and business model. It also has emphasized that digital assets are, by definition, assets: therefore, they should be measured in market indexes rather than being grounds for exclusion. The company framed the proposal as out of step with regulators, market participants, and customers — and suggested that neither it nor the asset class depends on MSCI’s validation.

The history of this debate is relevant. Earlier proposals focused narrowly on companies with material digital asset holdings, proposing exclusions when those assets exceeded a defined share of total assets. Responding to feedback and objections from affected firms and market participants, MSCI broadened the consultation to a more general financial-ratio screen intended to capture a wider set of potential cases. Nevertheless, the heart of the dispute remains: where should the line be drawn between representing market realities and imposing normative filters on what constitutes an operating company?

There are several practical implications for index users, market participants, and regulators. For passive investors and funds tracking broad benchmarks, a change in index composition can force rebalancings, trading activity, and shifts in exposure to specific sectors or risk factors. For the firms themselves, being excluded from a major index can reduce passive demand for their shares and, in some cases, affect liquidity and valuation. For index providers, controversy over methodology risks reputational costs and heightened scrutiny from customers and regulators alike.

Beyond the immediate mechanics, the debate raises normative questions about institutional role and governance. Index providers play a significant role in capital markets: their methodologies influence billions of dollars of passive investment, which in turn affects corporate access to capital and investor outcomes. With that influence comes a responsibility to craft rules that are transparent, evidence-based, and aligned with clients' diverse needs. When methodologies have the potential to redefine what counts as an "operating" public company, stakeholders reasonably demand robust consultation, clear rationale for thresholds, and pathways for challenge and appeal.

Market context matters too. Cryptocurrency valuations and market structure continue to evolve, so any permanent methodological decision based on current market relationships may become outdated as the underlying ecosystem matures. Similarly, firms innovate in how they integrate new asset classes into business models — blending treasury management, product development, and financial engineering in ways that defy older categorical frameworks. A rigid, one-size-fits-all rule risks becoming quickly obsolete or unfairly punitive to legitimate business models.

Finally, the optics of applying a financial-ratio screen that disproportionately affects a small number of firms or a single asset class can provoke concerns about fairness and consistency. If the objective is to prevent index distortions caused by large non-operational holdings, then a transparent, asset-agnostic framework with clearly articulated thresholds and transition rules would be preferable to ad hoc or seemingly targeted measures. Empirical analysis showing how different thresholds affect index composition and investor outcomes should be central to any methodology change, and affected companies should have a clear mechanism to present evidence about their operating activities and business models.

In sum, the controversy underscores a broader tension in modern markets: the balance between accurate market representation and the desire to manage index composition to reflect certain risk profiles. Index providers must navigate this tension with care, engaging with market participants and grounding changes in transparent, defensible analysis to preserve the integrity and utility of the benchmarks they maintain.

Key Insights Table

Afterwards...

Looking forward, the debate over how indexes treat companies with substantial holdings of emerging asset classes will likely continue as markets evolve. Index providers should prioritize transparency, evidence and engagement when proposing methodology changes. Regulators and market participants will watch closely for precedents that reshape index construction norms. Firms affected by such rules will need clear channels to demonstrate the operational nature of their businesses and the rationale for their balance-sheet choices. Ultimately, a collaborative process that balances accurate market measurement with prudent index design will best serve investors and companies alike.