IIA looks to build up a head of steam in Asia

14 December 2016   Category: News, Asia, Australia, Global, USA, Europe, United Kingdom   By Hui Ching-hoo

The Index Industry Association (IIA), an advocacy group for the index investing industry, is looking to promote sound practices and investor education related to index investing in Asia – in the wake of steady growth in the use of passive strategies across the region.   

Having held its first board meeting in Asia in November this year, Rick Redding, chief executive officer of the IIA, along with representatives of its founding members: S&P Dow Jones, MSCI and FTSE Russell, tells Asia Asset Management that the association is seeking to exchange views with its Asian counterparts and familiarise them with new regulatory changes in Europe; in hopes of boosting its membership in the region.   

Founded in 2012, the IIA’s existing affiliates currently compile and administer more than two million indexes globally, accounting for more than 95% of market share. 

Mr. Redding elaborates that one of the association’s objectives is to educate investors on the attributes and the role of indexes within the investment process; to advocate the interests of index users and providers worldwide; and to push for industry standards of best practices, independence and transparency.

“As for Asia, we aim to provide more transaction-based indices and benchmarks to local retail investors, helping them to access untapped assets and to bring over-the-counter markets of fixed income, commodities and foreign exchange into a regulated trading environment,” he explains.

In terms of membership, qualified members have to be an independent entity and must not be engaged in any product creation and pricing, says Baer Pettit, head of MSCI’s index business unit.

“We know that many Asian index providers are stock exchange-linked, whereby having greater diversity is critical to the association. As such, we hope to gain members out here and to help local players prepare for regulatory requirements regardless of their backgrounds,” he adds.

Alexander J. Matturri, chief executive officer of S&P Dow Jones Indices, opines that the association has placed a lot of effort into communicating with European regulators, especially in regard to the index-based price-setting mechanism following the LIBOR (London Interbank Offered Rate) scandal in 2012. “With the dialogues, we’ve seen the regulators in Europe and Australia have a broader sense of knowledge with regard to index usage,” he says.

For example, the association has helped to promote the IOSCO’s (International Organization of Securities Commission) Principles in Europe and Australia, which helps to address index manipulation.

The IOSCO’s Principles reflect a set of standards relating to benchmark calculation, methodology, and the maintenance process – key steps in strengthening confidence and integrity in the financial markets.

Ron Bundy, CEO, benchmarks North America at FTSE Russell, points out that many Asian index providers have yet to recognise the significance of these new European regulations that will impact the index industry globally. “It’s significant for the association to help our Asian counterparts become more familiar with these practices,” he says.