The profile of index data among data administrators has risen in recent years as suppliers of the data underpinning market benchmarks have sought to capitalize on the value of their services. In short, index data providers have become more aggressive in ensuring their license agreements with clients are being applied fairly. This puts greater onus on administrators to get index license management right, as failure can be costly.
On paper, it shouldn’t be so difficult. For a start, index data sits very much alongside market data, which has long been subject to rigorous administrative and audit processes. For another, there is much commonality among vendors of market data and benchmark information.
But there are nuances that merit special attention, and these can present a barrier to implementing a one-stop-shop as far as data administration is concerned. A lot of this centres on the restrictions around which departments and locations have access to index data, as well as to the maximum number of users allowed to access it. As index data providers have added complexity to the content of their services, so the spread of benchmark data has expanded from the front office – which traditionally simply paid their invoices – to the broader enterprise.
These factors combine to create the need to take a more professional approach to administering index data. Given the greater complexity of both services and audience, it’s essential for firms to set robust service eligibility rules that define who is and who is not allowed access to index data services and components thereof. And given the growing voracity of index data providers it’s similarly essential to provide transparency on entitlements and usage in the form of defensible reports.
This particularly applies on the buy side, where market data managers often manage index data in support of their firms’ management of index-linked funds.
While their sell-side counterparts often have the scale and resource to maintain dedicated teams, investment management firms typically are more stretched. Where this is the case, managers can struggle to come to terms with the differing requirements of market and index data management, at the risk of falling out of compliance, particularly of more onerous index data contracts.
The ability to handle both market data and index data through the same inventory management platform can address these issues and relieve the burden of compliance with more challenging licensing terms and application. Administrators need to ensure access counts are declared accurately. They need to ensure index data is used only within functions authorized under service contracts and hasn’t crept out elsewhere.
In short, many of the disciplines of market data administration learned over the past two decades – which saw exchanges and market data vendors enforce their contracts more vigorously, often through the dreaded data audit – now apply to index data management. And data administrators everywhere ignore them at their peril.
The good news is that the ability to handle both market and index data is a core capability of our FITS platform. FITS Index Data Licensing provides all the functionality you need to track your licensing commitments, allocate costs, reconcile the invoicing and provide cost transparency back to your business, pretty much as you’d expect for market data.