Scientific Beta

This article reviews recent regulatory developments and ongoing discussions related to indexing with particular emphasis on transparency, which has taken on critical importance with the emergence of new forms of indices.

Indices play a crucial role in investment management, from strategic asset allocation to risk analysis and performance measurement. They serve as references for passive and active investment products and mandates, whereby an asset manager attempts to replicate index performance or deliver performance that is superior to that of the index. While index provision is generally not a regulated activity, regulators have for long imposed qualitative restrictions on indices that could be used by retail funds. However, these requirements were relatively high-level. It is only recently, against the backdrop of the rapid growth and diversification of indexing products, and in the shadow cast by integrity issues with the oil price and interbank rate benchmarks, that indices have received closer scrutiny and the question of imposing higher standards of methodological quality, governance and transparency upon indices has been discussed. In this article, we review recent regulatory developments and ongoing discussions related to indexing with particular emphasis on transparency, which has taken on critical importance with the emergence of new forms of indices.