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Index Data Licensing – The New Complexity

In today’s environment, where firms are required to do more with fewer resources while dealing with increasing complexity in commercial index data policies and licensing models, it is becoming more and more difficult to ensure that index data usage is being managed effectively and that the cost of index data is controlled.

Effectively managing index data requires a variety of skills and resources including:

  • Data Governance ModelAn enterprise-wide model which combines the disciplines of data management, data policy management, business processes management, financial management, and risk management to ensure there is quality control and compliance throughout the organization.
  • Knowledge of Index Data Usage and SpendWithout knowledge of your index data usage and spend, it is impossible to be aware of who owns the data and understand who within the firm is authorized to use it and in what manner. This in turn makes it difficult to ensure that the firm is not overspending due to over-licensing, such as where a firm obtains an enterprise license to cover all use cases for the sake of convenience even though its actual usage is narrower and does not require such an expansive license. It also makes it difficult to ensure that the firm isn’t in breach of its licensing agreements due to under-licensing, such as where certain affiliate legal entities, business divisions, or use cases are not covered by the firm’s license. The most effective index data management allows an index to be mapped directly back to its respective contract and index family in addition to the relevant businesses, applications, and users that use the index. Furthermore, a firm should have a deep understanding of index data alternatives available that are appropriate for the business.
  • Licensing Expertise Index data licensing is governed by legal contracts and data policies. A license that allows for wide dissemination of index data that is pertinent to operations is an important driver of value. Without legal and licensing expertise in data acquisition, licensing policies and terms, and identifying potential compliance gaps, firms risk misusing index data and potentially incurring financial penalties and reputational damage. The largest firms may have this expertise in-house; however, others cannot afford this specialized expertise which is the reason why much of this function is outsourced.
  • Index Data Management SoftwareGiven the granularity and complexity of index data licenses and their administrative requirements, it is increasingly becoming necessary to implement inventory management systems and other software that help firms catalogue their index data licenses as well as assist with functions like declaration reporting and cost allocation. Automating some of these processes and keeping everything organized will not only help firms stay in compliance with their licensing agreements but will ensure that expenses are kept under control and that administrative obligations are met consistently and in a timely manner. This level of centralization and organization will also provide transparency throughout the firm regarding what the firm has licensed and for what purposes, making index data acquisition and onboarding of new use cases easier and quicker. Accurate allocation of index license costs back to products such as funds can also make a significant impact on that fund’s overall profitability calculation.

Firms with the ability to maintain accurate and consistent information regarding their index data usage by leveraging a data governance model, index data licensing subject matter experts, and index data specific software will be much better positioned to make informed and efficient decisions about their index data needs and ensure compliance with index data licenses.

To read the full white paper from Calero-MDSL and Jordan & Jordan, click here