Exchanges are continuously looking for new ways of expanding their value-added service offering and finding new sources of revenue. Have you ever considered an index as offering that can help expand services?
Speaking from experience, tying an index to an exchange's product, creates valuable exposure for both the exchange and the product. Nasdaq launched its first index, the Nasdaq Composite, in 1971 and today the offering spans geographies and asset classes with more than 41,000 indexes, and includes diverse families such as the Dividend & Income, BulletShares, Green Economy, Nordic and Commodity Indexes. Over 150 exchange-traded products and $100 billion USD in assets track Nasdaq indexes.
Indexes are notably efficient for exchanges in establishing flagship assets and also serve as an important base for trading. In creating a good index, having an attractive underlying product with normally very high liquidity is key to increasing market data attractiveness. Currently, index futures represent some of the most attractive tradable products out there, outweighing trading in stock futures by more than 2:1.
Aside from providing an option for diversification of products and services and adding value to the exchange, indexes can also help exchanges to more effectively and efficiently meet the demands of the marketplace. Shortening of product development cycles has enabled exchanges to introduce new indexes even more quickly and flexibly than ever before.
Modern Index Calculation Engines typically include powerful index administration for management of index calculation creation, supervision and maintenance and can cater to local and global index creation with multiple input and output interface handling capabilities.
All of these capabilities are important to running a successful index offering. Important to note, should your firm be considering this route, it is advisable to use a customizable engine that can calculate multi-asset, multi-currency indexes and the ability to handle any type of index.
This is extremely important with the market moving and changing at such a rapid rate – while you may only want to consider a futures index today, you may want to consider any number of index offerings in the future.
All of these recommendations are, of course, based on our experience as an index creator ourselves and outsourcing index calculation and advisory services engagements for our Market Technology customers across the globe.
In conclusion, while only considered a basis for trading in the past, I challenge that the index is worth so much more. In an era of constant change, the index can be a powerful means of diversification to drive your business forward.