Scientific Beta

Funds Europe: "Over two years later, the issue of transparency and related regulations has divided the market, especially in the nascent area of smart beta indexes. One of the most vehement proponents of greater transparency is EDHEC-Risk Institute (ERI), the France-based academic body that has also entered the index market with its own “scientific beta” index."

Funds Europe 17/09/2014

"(…) Over two years later, the issue of transparency and related regulations has divided the market, especially in the nascent area of smart beta indexes. One of the most vehement proponents of greater transparency is EDHEC-Risk Institute (ERI), the France-based academic body that has also entered the index market with its own “scientific beta” index. According to Frédéric Ducoulombier, director of ERI Asia, ESMA’s guidelines have yielded limited progress. He cites the imperfect application and narrow interpretation of the rules by index providers and a failure to disclose methodologies, especially in the smart beta space where, he says, “some providers refer to proprietary models and data and use vague language”. Ducoulombier is also concerned that ESMA’s attempts to introduce more transparency could be undermined by the Principles on Financial Benchmarks devised by the International Organisation of Securities Commissions (IOSCO) which, due to successful lobbying from the index providers, ensures continued opacity in the industry because it only requires that they make available “summary information and key features”. Europe is at a crossroads, says Ducoulombier. A draft regulation is currently being discussed by the European Parliament and while the chair of the Parliament’s economic and monetary affairs committee, Sharon Bowles, has openly called for greater transparency, if this draft was to be based on IOSCO rather than ESMA rules, it would represent “an important step backward on the road to transparency”. (...)"