Index providers warn of ‘unintended consequences’ from regulation

Alex Matturri, CEO of S&P Dow Jones Indices (SPDJI), Waqas Samad, CEO of FTSE Russell and Baer Pettit, president of MSCI, have warned a lack of regulatory harmonisation across different jurisdictions will lead to a number of unintended consequences for the end investors and the industry.

The trio were speaking of potential regulatory risks amid the implementation of the European Union’s Benchmark Regulation (BMR).

MSCI, SPDJI and FTSE Russell have all been registered as benchmark administrators by the European Securities and Markets Authority (ESMA), however, there remain some index providers who are yet to receive approval.

As global businesses, Pettit (pictured right) said a “highly problematic” area of rising regulation would be if it led to different rules in different parts of the market.

It would entirely inefficient, he added, if index providers had to calculate their indices in different ways depending on which jurisdiction they were in.

“Without exception, all index providers run one global process even if they only run a country index,” Pettit continued. “It is a possible future situation where different regulators in different countries have slightly different rules which we must all apply to our one global process.”

Matturri (pictured left) warned this lack of harmonisation would lead to higher barriers to entry and therefore less competition in the market.

“There are always unintended consequences with regulation. One of the risks is the barriers become so high it stifles new entrants entering the market. Competition is healthy and you do not want to stifle that.”

Furthermore, the SPDJI CEO said increased complexity comes with added costs to the end of investor, especially if firms are no longer able to run a global business and did not have the benefits of scale.

“If we have to have operations in every country, costs go up and customers have to pay for it. That should not be the by-product of regulation.”

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For Samad (pictured centre), the introduction of the BMR would overall be beneficial for the industry and the end investor.

However, the FTSE Russell CEO said the added complexity of a jurisdictional “drift” would impact end users just as much as index providers.

“We calculate in line with the EU BMR regulation and deliver to a global client base,” Samad continued. “If the lack of harmonisation of regulation materialises it is going to complicate our operations but also make it extremely difficult for end users.”

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