MSCI's Non-Operating Company Proposal: Drawing the Boundaries of Public Markets

What You Need to Know:

• MSCI proposes excluding certain “non-operating companies” from its broad-market indexes.
• The methodology could remove some digital asset treasury companies and flag others.
• Critics say its thresholds are arbitrary, complex and insufficiently justified.
• Digital asset treasury companies actively raise capital, manage balance sheets and create investment products.
• We consider how broad-market indexes could reflect evolving markets rather than determine which business models qualify.

The TD Cowen Insight

We examine MSCI's proposed treatment of "non-operating companies." Passive benchmarks inevitably make judgment calls, but those judgments should be transparent, well-justified and tied to clear investability objectives. We examine whether MSCI's proposed definition of an "operating company" meets that standard.

Defining Modern Public Markets

MSCI's consultation on the eligibility of "non-operating companies" for its Global Investable Market Indexes (GIMI) raises an important question for investors: should broadmarket index providers exclude otherwise eligible public companies based on a particular definition of what constitutes an operating business?

Under the August 2026 proposal, companies that fail a series of screens designed to identify so-called non-operating companies would become ineligible for index inclusion. Applying the methodology to the MSCI All Country World Index Investable Market Index (ACWI IMI) today would result in the removal of several asset treasury companies and place others on a watchlist.

We believe this debate extends well beyond digital assets. Passive indexes already incorporate a variety of eligibility screens, qualitative determinations and methodology choices. The central question raised by MSCI's proposal is therefore not whether index providers should exercise judgment. Rather, it is whether MSCI's proposed definition of an "operating company" is appropriate for modern public markets.

Evolving Business Models

MSCI's concern is understandable. The rise of Digital Asset Treasury Companies (DATs), commodity-holding entities and other asset-centric business models has exposed gray areas within traditional index methodologies. MSCI argues that broad-market indexes are intended to represent operating businesses, not vehicles whose value is primarily driven by the performance of underlying assets. The consultation attempts to formalize that distinction through a combination of balance-sheet, cash-flow, fair-value and capital-raising screens.

Reasonable investors can debate where the line should be drawn. Broad-market indexes are not intended to include ETFs, mutual funds, trusts or business development companies, all of which are already excluded under existing MSCI methodology. The more difficult question is whether a public corporation should become ineligible simply because its business model differs from traditional corporate norms.

What exactly is an "Operating Company"?

The proposal appears to begin from the premise that accumulating and managing strategic assets is somehow less operational than producing goods or selling services. We believe that premise is difficult to reconcile with modern public markets.

Many widely accepted public companies derive significant value from capital allocation, asset ownership or investment management rather than traditional operating activities. Some companies allocate capital across a portfolio of operating businesses and investments. REITs own and manage portfolios of real assets. Certain commodity-linked entities exist principally to provide exposure to a strategic asset. Private-equity sponsors routinely create value through capital allocation rather than manufacturing products or delivering services.

Whether investors like these business models is beside the point. Public markets have already determined that they are legitimate forms of corporate organization. The burden therefore falls on MSCI to explain why digital asset treasury companies are uniquely different, how it

defines an operating company and how public companies whose primary purpose is strategic asset ownership should be treated within broad-market benchmarks.

Index Products Group View

Perhaps the most compelling criticism of the proposal comes not from digital asset advocates, but from the TD Securities Index Products Group.

In reviewing the proposal, Peter Haynes and his team concluded that the methodology appears "arbitrary, overly complex and directed at excluding certain types of issuers." More importantly, their work suggests the proposal may have been designed around a desired outcome rather than a clearly identifiable gap in existing index construction.

As Peter noted: "The calculations seem overly complex and designed as if they were to achieve a foregone decision instead of solving for a hole in the existing methodology."

His team further observed that many accepted public-company structures would fail portions of the proposed screen, though not enough to trigger exclusion. In their view, the process is costly to maintain, difficult to administer and narrowly targeted relative to the small number of companies ultimately affected. They concluded the proposal "should be DOA."

Importantly, this is not a crypto argument. It is a market structure argument.

What do Digital Asset Treasury Companies do?

The debate is particularly important because it risks a misunderstanding of Digital Asset Treasury Companies.

The most prominent DATs do not simply purchase bitcoin and wait for appreciation. Instead, they actively participate in capital formation by raising equity, issuing debt, structuring preferred securities, managing liabilities, optimizing balance sheets and creating new bitcoin-linked investment products for institutional and retail investors. In our view, these activities are neither passive nor incidental; they represent the core business of the enterprise.

Indeed, one could reasonably argue that DATs are creating an entirely new category of public security. Their primary product is not bitcoin itself, but rather differentiated forms of bitcoin-backed exposure tailored to varying investor preferences for risk, duration, leverage, yield and liquidity.

That strikes us as a corporate activity, not a passive one.

Creating Value in Modern Public Markets

Ultimately, the question is not whether investors should own any future digital asset treasury company. Investors can make those decisions for themselves.

The more consequential question is whether MSCI's proposed distinction between operating and non-operating companies accurately reflects how value is created in modern public markets. Public companies today increasingly span a spectrum between traditional operations, asset ownership, capital allocation and financial intermediation. The challenge is not whether index providers should make judgment calls. They already do. The challenge is ensuring those judgments are transparent, objectively defined, and necessary to achieve the stated goals of a broad-market benchmark.

Once broad-market indexes begin excluding lawful, publicly traded companies based upon a particular definition of what constitutes an operating business, the burden falls on the index provider to demonstrate that the distinction is both objective and necessary.

Broad-Market Indexes Should Reflect Rather than Shape Capital Markets

MSCI deserves credit for attempting to address a genuine methodological challenge. Yet we believe the proposed solution creates a larger problem than the one it seeks to solve.

The consultation begins from a questionable assumption: namely, that companies built around strategic asset ownership and capital allocation are somehow less operational than companies built around more traditional business activities. Having adopted that premise, the methodology then appears designed to reach a predetermined conclusion. Equally important, several of the framework's most critical thresholds and definitions are presented with limited justification, making it difficult for investors to evaluate whether the distinction being drawn is genuinely economic or merely methodological.

In our view, broad-market indexes should reflect evolving capital markets, not gatekeep them. The rise of Digital Asset Treasury Companies may represent a new chapter in public-market innovation. Investors will ultimately determine whether these models succeed or fail. We are less convinced that MSCI has yet demonstrated why these companies should be excluded from the market benchmarks they seek to represent.