In September 2018, Burton-Taylor International Consulting (part of TP ICAP’s Data & Analytics division) released its first annual global share & segment sizing report on the financial index industry. Since then, we have continued to chronicle the key events shaping the industry, uncovering themes that impacted the competitive landscape in 2018.
Three major themes emerged from our research that impacted the industry in 2018:
- Index providers announced efforts to increase inclusion of Chinese securities in indices.
- The EU Benchmarks Regulation went into effect driving benchmark administrators to take action towards compliance.
- M&A activity had less of an impact on shaping the competitive landscape of the market compared to previous years.
Major Index Providers announce plans to increase inclusion of China securities in indices; Stock Connect and Bond Connect provide infrastructure to pave the way
Most of the largest index providers ramped up their China securities inclusion efforts in 2018 as the maturation of Stock Connect (a collaboration between the Hong Kong, Shanghai and Shenzhen Stock Exchanges) and Bond Connect (a joint venture established by China Foreign Exchange Trade System and Hong Kong Exchanges and Clearing Limited) provide the mutual market access infrastructures for international index providers to include Chinese assets into select indices.
MSCI increased inclusion of China A shares in its Emerging Markets and ACWI (All Country World) indexes starting in June 2018. MSCI also launched 12 new China indexes and, later in the year, launched a consultation to explore further increasing the weight of China A shares in its indices. MSCI is proposing to increase the inclusion factor of MSCI China A Large Cap securities up from 5% to 20% in a multi-phase process to occur in 2019.
In March 2018, Bloomberg announced its conditional intention to add Chinese RMB-denominated government and policy bank securities to the Bloomberg Barclays Global Aggregate Index starting in 2019, Bloomberg announced confirmation of this addition in January 2019. In November 2018, Hong Kong Exchanges & Clearing Limited (HKEx) announced that the Bloomberg Terminal will be the second trading platform to operate within the Bond Connect infrastructure. Near the end of 2018, FTSE Russell and S&P Dow Jones Indices also announced plans to add China A shares to select respective indices.
EU Benchmarks Regulation Goes into Full Effect in 2018
The European Union Benchmarks Regulation (“EU BMR”) went into full effect on January 1, 2018, providing a regulatory framework for ensuring the accuracy and integrity of indices used as benchmarks in the European Union. To comply with EU BMR, benchmark administrators must apply for authorization or registration status with the UK Financial Conduct Authority and gain approval prior to January 1, 2020. Most of the major index providers announced their compliance with the regulation during the course of 2018 including MSCI Limited, Cboe Europe, ICE Benchmark Administration, FTSE Russell, IHS Markit, Thomson Reuters Benchmark Services Limited and S&P DJI Netherlands B.V.
Burton-Taylor expects benchmark administrator regulatory compliance announcements to continue throughout 2019 as the January 2020 deadline approaches.
M&A Activity has less impact than in previous years
Market data vendors and exchanges have made a number of major index business acquisitions in recent years, particularly focused on fixed income indices, including Bloomberg’s 2016 acquisition of Barclays Risk Analytics and Index Solutions (“BRAIS”), The London Stock Exchange Group’s 2017 acquisitions of The Yield Book and Citi Fixed Income Indices from Citigroup, and Intercontinental Exchange’s 2017 acquisition of Bank of America Merrill Lynch’s index business. While M&A activity continued to make an impact on the index industry in 2018, the year notably lacked any blockbuster acquisition deals. S&P, FTSE Russell, Invesco Indexing and Aretex Capital Partners completed acquisitions in the index space during the year.
Burton-Taylor Industry Chronicle Reports
Burton-Taylor is pleased to announce the publication of a series of reports which chronicle key events in the Exchange, Financial Market Data/Analysis, Index, and Media Intelligence and PR Information/Software industries in 2018. The reports provide a comprehensive record of mergers and acquisitions, partnerships, key product announcements, and significant regulatory events within each respective industry. More information on the reports can be found by clicking one of the links below.
- Global Exchange Industry Chronicle – Key Event Reference, 2018 is available here.
- Financial Market Data/Analysis Industry Chronicle – Key Event Reference, 2018 is available here.
- Global Index Industry Chronicle – Key Event Reference, 2018 is available here.
- Media Intelligence and PR Information/Software Industry Chronicle – Key Event Reference, 2018 is available here.
David Tabaka is an Analyst at Burton-Taylor International Consulting, part of TP ICAP group, where he is responsible for compiling research and analysis on the global Exchange and Index industry.