Have financial benchmark costs gone too far?

Investment associations urge regulators to rein in complexity and steep pricing across market data landscape

Have financial benchmark costs gone too far?

A new report is calling on global regulators to step in and help contain what it sees as a trend of complexity and overpricing of benchmark data licenses enabled by the outsized market powers of financial market data providers.

In a joint report, the European Fund and Asset Management Association (EFAMA) and the International Council of Securities Associations (ICSA) said that the financial benchmark data landscape is dominated by “natural monopolies and oligopolies” composed of stock exchanges, rating agencies, and large index providers or data vendors. That has allowed companies with a concentrated share of the market, it said, to enact massive price increases, as well as impose complex and “arguably overpriced data licenses.

“During the last two decades asset managers have observed a significant increase in costs related to the use of benchmarks, especially in terms of access to the underlying data,” the report said citing double-digit price increased imposed by benchmark administrators and, indirectly, by market data distributors who provide the information underpinning the benchmarks.

With the increase in data usage fuelled by a surge in non-programmatic processes across the value chain of asset management, the report said data sources, distributors, and benchmark administrators have responded by developing new strategies, with providers introducing a “significant above-inflation price increase for their products, without any additional value for asset managers.”

One issue, according to the report, is that benchmark providers today foist more than 50 different licenses on the asset management community. With no taxonomy or standardization in the definition of licensing concepts and increasing diversity in data and price policies, investors are finding it harder to compare the cost of different index services.

Integrated asset managers and banks, the report added, often have to pay for multiple licenses to have companies across their whole value chain access the same data, depending on the different circumstances of its use. In extreme cases, it said benchmark administrators have prematurely and unilaterally terminated licensing agreements, imposing new contract terms that include renewal at elevated prices.

Asset managers may also be “forced” into using particular benchmarks as certain providers let institutional investors use the indexes for free. Those institutions, in turn, require the asset managers handling their money to use the same benchmark, effectively pushing them to pay for the license.

“[A]sset managers, several ETF issuers and index fund managers have experienced instances of index calculation errors by the administrator, especially during volatile trading environments,” the report said, noting claims that licenses don’t include liability clauses for users to hold the administrators responsible. 

Observing that none of the current regulatory efforts surrounding financial benchmarks address unfair pricing and licensing practices, the report made several recommendations for regulators, including:

  • Increasing benchmark data (BMD) cost supervision by national competent authorities under the auspices of IOSCO globally;
  • Imposing a cost-based licensing mechanism;
  • Mandating transparency on costs and prices;
  • Requiring certain best practices on high-impact data licenses; and
  • Establishing clear responsibility for index calculation errors.


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