Performance Perspectives Blog

Promoting market index cost transparency

by | Nov 24, 2015

Too many in our industry are unaware of the increases in benchmark costs. TSG is committed to promoting market index cost transparency, in order to shed increased light on this topic.

For some time now, TSG has been working with three leading custodians (BNY Mellon, Northern Trust, and State Street) to promote increased transparency into the rising costs of benchmark data, specifically market index data.

Over the past few years, these costs have, in some cases, doubled, tripled, or risen by even more.

Today, it’s the asset manager and custodian who shoulder most of these costs, although we’re finding many of these service providers passing these costs along to their clients, who are typically unaware of the extent of these costs.

BNY Mellon: one of the leading custodians who is also promoting market index cost transparency

I was invited by Frances Barney, BNY/Mellon’s Head of Global Risk Solutions – Americas, to participate in a short video-taped interview, to highlight the issues surrounding this topic.

Frances Barney

The video follows, and it does, I believe, give a great introductory summary to the topic.

As we explain in the interview, the industry has begun to respond to these rising costs in a variety of ways.

Industry Reaction to Rising Cost

We’re finding lower cost solutions; for example, NASDAQ offers quite a number of indexes, covering a variety of markets, at fractions of what the costs are for some of the more popular indexes.

A mutual fund company that stands out in its response to these costs is Vanguard, who replaced many of their more costly indexes with lower cost alternatives.

The Custodian Guidelines for Transparency in Benchmark Costs

In addition, we’re finding larger custodians adopting The Custodian Guidelines for Transparency in Benchmark Costs:

Custodian Guidelines

During the interview Frances and I went back and forth, addressing a variety of issues related to this topic.

Dave & Frances

Frances, for example, identified some of the indirect costs that custodians must bear when it comes to index data.

Interview indirect costs

I was quite impressed with the editing job done by BNY/Mellon’s videographic professionals. During the interview, I stumbled multiple times, but believe they made me sound fairly intelligible, which is a good thing.

This is a very important topic: one that we will continue to work on. As we note in the discussion, we’re working with these large custodians on an important research paper, which will appear soon in The Journal of Performance Measurement(r). We’ll let you know when it’s available.




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