Indexes’ Five Truths
IIA’s members, all independent index providers, posit the following values:
Our Place in the Ecosystem
Independent index providers serve a central and pivotal role in facilitating market access and investment democratization; yet the role of indexes in financial markets is frequently misunderstood. Indexes plug into, but are distinct from, well-defined flows of information and productization across a wide range of market participants and trading activities. See the chart below for their roles and these relationships’ structure.
Market price Makers
Market makers and traders create liquidity and facilitate trading of financial instruments to determine the market clearing prices for financial instruments.
Data Providers & Exchanges
Pricing and trade data sources are used by index administrators to value the underlying constituents of an index. The most transparent sources for constituent prices are regulated securities or commodity exchanges and transaction facilities.
Index providers create, maintain, and govern the calculation and maintenance of an index and its methodology.
Asset Managers, Banks & Product Issuers
Asset managers create the investment vehicles and investible products, such as mutual funds or ETFs, to mirror a desired index. Indices are used as benchmarks to evaluate the performance of an active manager's portfolio of an index.
Investors ultimately purchase, sell, and trade investment products whether they are index based or actively managed. Investors or their financial advisors determine the appropriateness of the products that meet their investment objectives. Independent index providers do not determine whether any index-based investment product is appropriate for investor use. Index providers administer indices, but investors working with consultants, boards of trustees, financial advisors and asset managers determine the indices and/or index products they use.
IIA Best Practice Guidelines
Click below for more information about our best practices.