Exchange-Traded Funds (ETFs) continue to grow in popularity right across the buy-side. This includes for financial institutions such as banks and insurers, which increasingly use ETFs to gain efficient and cost-effective exposure.
However, while ETFs deliver significant benefits to financial institutions, they also present a compliance challenge. Regulations such as The Fundamental Review of the Trading Book (FRTB) and Solvency II require that regulated entities analyze the risk exposures resulting from the funds they use for transparency and better risk management.
Banks and insurers therefore need to be able to model fund exposures using look-through data, which is derived by decomposing an ETF to analyze its underlying fund holdings. Look-throughs enable financial institutions to measure the true economic exposure of the funds in their portfolios and trading desks, providing a complete view of risk.
Constantinos Demetriou, VP Product Manager at RIMES comments: “Fund look-throughs deliver the granular detail needed for financial institutions to really understand what’s in their ETFs. However, sourcing, normalizing, validating and deploying composition data to achieve look-throughs is a significant data management challenge. There are thousands of ETFs on the market and no standardized data formats or delivery channels, meaning firms have to spend considerable time and resource onboarding and processing data before it can be used.
“Managed data services providers like RIMES offer an alternative. Our ETF Data Management service delivers market leading look-through views and benchmark compositions, as well as options to enrich ETF data with reference data, credit ratings, prices and sector classifications. Working with RIMES frees financial institutions of time-consuming data management tasks with a ready-to-use and enriched breakdown of composition data.”