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Governance

MSCI to temporarily block new companies with unequal voting structures from 2 indexes

MSCI announced Thursday that it will temporarily block new companies with unequal voting structures from two of its indexes and expand an earlier consultation on non-voting shares to "a discussion on the treatment of all types of unequal voting structures," a news release said.

A security will temporarily be ineligible for inclusion in the MSCI ACWI Investible Market index and the MSCI U.S. Investible Market 2500 index "if it belongs to a company that has multiple classes of equity securities and that exhibits any of the following characteristics: shareholder voting rights are not proportionate to their economic interest, any share class has restrictions on voting on agenda items, and voting rights for any share class are conditional upon certain events," according to documents accompanying the new release.

The temporary ban does not apply to current index constituents.

In June, the index provider launched a consultation on a proposal to exclude securities with non-voting shares from its global investible market indexes and U.S. equity indexes when the company-level voting power of those shares is less than 25%.

MSCI found in those discussions that the majority of market participants supported the exclusion of companies with such non-voting shares, while a minority did not support the exclusion and argued that it would lead to benchmarks that did not represent the overall opportunity set and was an issue that should be decided by regulators or stocks exchanges rather than index providers, according to the news release. Moving forward, the consultation will explore "all types of unequal voting structures."

"In particular, the consultation will focus on the theoretical and practical issues of the application of a "one share, one vote" principle to the investment opportunity set of international institutional investors," MSCI said in the release.

MSCI's announcement comes a little more than three months after S&P Dow Jones Indices said companies with multiple share class structures will no longer be eligible for inclusion in the S&P Composite 1500 and its component indexes, and FTSE Russell said companies coming to market will need more than 5% of their voting rights in the hands of "unrestricted (free-float) shareholders" to be included in its benchmark indexes.

Among the companies that will be barred under the changes by S&P DJI and FTSE Russell is Snap Inc., which issued non-voting shares in its March initial public offering.

AN MSCI spokesman could not immediately be reached for additional information.