The performance measurement services firm announced these principles in partnership with custodial banks State Street, BNY Mellon and Northern Trust, which supply best practices in an effort to shed additional light on the embedded fees that affect benchmark data expenses.
By having greater transparency into what they are paying for this information, buy-side firms can make better-informed decisions. David Spaulding, founder and CEO of The Spaulding Group, emphasized the need for this visibility in a statement.
“The ever-increasing cost of benchmark data has been an issue that has grown in importance every year,” said Spaulding, an investment performance measurement expert. “It has been a major theme of our Performance Measurement Forums, and a hot topic of discussion at our annual Performance Measurement, Attribution and Risk conferences and in our surveys.”
The Spaulding Group released these guidelines at a time when buy-side firms are encountering steadily-rising costs for benchmark data and a licensing situation that is increasingly complex, according to FTSE Global Markets.
While institutions are making an effort to effectively manage their expenses, there are concerns surrounding what services they can access and what the associated cost will be, the media outlet reported. Custodial banks cannot obtain benchmark data for free, and their customers can benefit from knowing how much these buy-side firms are paying for the required information.
If the transparency recommendations help custodial bank clients – predominantly asset owners – reduce their fees, this development could increase efficiency in the investment management industry.
By having greater transparency into what they are paying for this information, buy-side firms can make better-informed decisions.
Buy-side firms might welcome such a benefit, as they are currently coping with numerous challenges including rising data expenses and a difficult regulatory environment. The rules and regulations that these institutions must follow are sometimes ambiguous, and this lack of clarity could easily continue as lawmakers, industry groups and companies all push to change aspects of landmark reform.
The transparency guidelines launched by The Spaulding Group and endorsed by the three custodial banks will make make it easier for organizations to understand benchmark data costs, as well as how these expenses could affect their asset portfolios, said Brian Downer, senior vice president and head of Global Product and Platform Solutions within State Street Global.
To further ease the challenges that industry participants face, banks that follow the recommendations will obtain a free license to the NASDAQ Global Index Family.
John Jacobs, who works for Nasdaq as executive vice president of Global Information Services, stated that the exchange is interested in providing cost indexes that cover different asset classes and geographies as the broader industry investigates benchmark data costs.