Index Industry Best Practice Paper Follows IOSCO Benchmark Rules

Last Updated: 21 March 2023

The Index Industry Association (IIA) has launched a set of standards defining ‘best practices’ for global index providers. The IIA standards come hot on the heels of IOSCO’s Principles for Financial Benchmarks, which was published last week.

The IIA Best Practices look at governance, the quality and transparency of index methodologies, data collection, index calculation and validation.  Standards for dealing with conflicts of interest, business continuity, confidentiality, record keeping, handling complaints and internal controls and reviews, are also included.

Designed to ensure the quality and integrity of indices administered, maintained, or calculated by index providers, members of the IIA will be required to abide by the Best Practices, while non-members can adopt them by becoming a signatory and confirming their compliance with them, according to the note.

Rick Redding, Executive Director of the IIA, said: “One of the main aims of the IIA is to represent the interests of index users and providers worldwide. The launch of the IIA Best Practices will help to achieve this aim as they are designed to ensure the highest standards of quality and integrity, but to do so in a way that fosters improvement, innovation, and vigorous competition in all aspects of the index industry. The Best Practices also demonstrate that index providers who are members of the IIA are meeting high standards and are fully aware of their responsibilities to index users.”

The debate over the regulation of financial indices has been heating-up in recent weeks as market participants react to indexing guidelines published by Esma and IOSCO.

The debate over transparency of methodology calculation and costs of data has seen financial research house and index provider Edhec-Risk call for full transparency after IOSCO published its Principles on exchange-traded fund regulation and free data.

However, commercial and mainstream index providers have argued that they are already transparent and that free data would not work.

Rolf Agather, managing director of global index research and innovation at Russell Indexes, previously told “Indexing firms provide a service and part of this service means we have support desks around the world, we have a good reputation and offer a quality service, which includes maintaining the index. Ultimately we are a full service provider, not a ‘do it yourself’ model. That business model will have a lower support system.”

The IIA, which was set up last year in March by MSCI, S&P Indices and FTSE as a trade body to represent the industry, has also seen CRSP, Research Affiliates LLC and Stoxx join the association, bringing the total number of members to 10.

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