Strategy Buybacks Support More Than 20% of STRC Trading

Strategy’s $150 million-a-day STRC preferred-stock market relies heavily on the company’s own purchases. The buybacks represented more than 20% of weekly trading volume during nearly every week in September, according to a market research report.

Strategy had spent $1.45 billion of a $2 billion repurchase authorization as of Oct. 4, leaving $547.2 million available. The program is discretionary, and the company can change, suspend or end it.

STRC has recovered from the mid-$70s in June to about $99.50, close to its $100 reference price. The security averages about $152 million in daily trading volume, making it one of the most actively traded preferred securities in the market.

The report estimated that investors could trade about $28 million of STRC within a 10-basis-point, or 0.1%, price move. Comparable market depth was below $3 million for Strive’s SATA preferred stock and Strategy’s fixed-rate preferred securities.

At a trading rate equal to 20% of daily volume, a $50 million STRC position could be sold in less than two trading days, according to the report. The same transaction could take about five days for SATA and six to eight weeks for Strategy’s fixed-rate preferred securities.

The estimates include Strategy’s purchases. Excluding the company’s buying would reduce estimated trading capacity to about 80% of the reported level. The report did not determine how much liquidity would disappear if Strategy stopped buying.

A preferred-income manager cited in the report indicated that arbitrage firms and high-frequency traders may account for some trading near STRC’s $100 reference price. Those firms could reduce their activity if Strategy leaves the market.

STRC’s liquidity also falls when its price moves away from $100. On the 10% of trading days with the weakest liquidity, estimated depth within a 10-basis-point price move fell to about $6.5 million from approximately $28 million. The security was about four times less liquid when it traded 1% to 3% from its reference price and about eight times less liquid when the gap exceeded 6%.

The report found a stronger relationship between STRC’s liquidity and its distance from $100 than between liquidity and Bitcoin’s daily price movements. A typical decline from the reference price represented about seven months of dividend income. STRC’s drop toward the mid-$70s in June represented roughly two years of dividend payments.

Strategy repurchased approximately $176.3 million of STRC between Sept. 28 and Oct. 4. That included $102.6 million during the final three days of September and $73.7 million in early October. During the same period, the company bought 334 Bitcoin for about $28.7 million.

Strategy used $154.1 million of its cash reserves for preferred-stock repurchases and $13 million for Bitcoin purchases. At the recent weekly repurchase rate, the remaining authorization would last about three weeks, although the estimate does not set a fixed end date. Strategy doubled the authorization in September and could increase it again.

Shareholders are scheduled to vote Oct. 28 on amendments that would introduce daily dividends across Strategy’s U.S.-listed preferred stocks. If approved and implemented, STRC would begin making daily payments Nov. 2. Strategy has said the change could reduce price fluctuations around dividend dates and broaden institutional interest without increasing its total regular dividend obligations.

The report identified family offices, private-bank discretionary accounts and specialist credit funds as potential sources of larger independent investments. Some pension and insurance funds face restrictions on buying unrated perpetual preferred securities with dividends that can be deferred.