Measuring Markets Worldwide with Indices: How Financial Institutions Can Literally Open Up the Whole World of Investing to Their Customers

Measuring Markets Worldwide with Indices: How Financial Institutions Can Literally Open Up the Whole World of Investing to Their Customers

Financial institutions fight for market share among investors. Read on to discover what role high-quality data plays in this, and how it can be obtained as efficiently and cost-effectively as possible.

A seamless and convenient online or mobile experience with your own bank is crucial, particularly for the next generation of investors and younger demographic groups. In today’s digitalized world, the only way financial institutions can retain current customers or attract new ones is through user-friendly platforms and personalized services provided in real time.

This includes providing these target groups with the best possible support when making investment decisions – with suitable overviews of market and company performance. Using the appropriate information, financial institutions help investors to make sound decisions and measure the performance of their portfolios while also providing guidance in times of economic uncertainty or market turbulence.  

Market Data from around the World as a Success Factor

In order to keep up with neobanks and FinTechs in this regard, many financial institutions are currently updating their digital offering and looking beyond the borders of their own home markets. This means that they have to acquire huge amounts of market data and indices from around the world, which can then be incorporated into the website, news feeds, online banking solutions, smartphone apps, or a robo-advisor. This is no easy undertaking for a number of reasons.

4 Hurdles To Overcome En Route to a Global Market Overview for Investors

1. Number of Data Providers

Any financial institution looking to provide its customers with more than just key figures relating to its home market and maybe a couple neighboring countries in its digital presence quickly reaches its limit – or has to rely on several different data providers.

Having multiple data providers increases complexity when it comes to integration. With multiple sources, various data formats, differing interfaces, etc., inefficiency becomes built-in. 

2. Complicated – and Expensive – License Management

Relying on a number of data providers means having to maintain a number of licensing agreements. In some circumstances, there may be different types of billing, which conflict, and paying for overlapping data sets cannot be ruled out.

Additional questions crop up whenever customer needs or regulatory requirements change. For example, can more data packages be added? At what price?

3. Depth of Information

Indices are suitable for representing entire markets. But not all providers of indices and other data make it possible to conduct further research with the information they provide. For example, there may not be a connection or link between index data and price or reference data to allow statements to be made about companies in the market, corporate actions, or price development of individual securities.

Moreover, there are significant differences between different types of indices. For example, not all indices are suitable for meeting the needs of portfolio management or for supporting trading and hedging strategies.

4. Quality and Speed

Financial institutions have to ensure that the market data that they receive – and ultimately process and share with their customers – is of high quality and accuracy. Erroneous data can make risk management more difficult or even impossible, and in the latter case lead to losses in capital assets.

In order to ensure high data quality, financial institutions have to continuously validate and correct the data before they publish it via their own channels. That not only requires resources, but can also mean delays in reflecting changes in the market.

The alternative is to work with a provider that verifies and normalizes data from various sources. This also includes reflecting corporate actions on the underlying equities within a reasonable timeframe. 

Market Data and Indices as a Package: The Solution for Efficient Global Data Coverage

How can financial institutions overcome these hurdles, and provide their clients with access to high-quality insights into global markets? They do it by relying on a provider that delivers all the essential data – i.e. the indices, the index components, the equity prices, the reference data, and the information on corporate actions – via a single channel at attractive conditions. So-called broad-market and blue-chip indices play a key role in this.


What Are Broad-Market and Blue-Chip Indices?

Broad-market indices offer wide-ranging coverage of an equity market. The specific form of blue-chip indices includes the largest and/or most liquid companies within a market. For example, the S&P 500 index, with the 500 largest companies is the most recognized index for the US equity market, comprised of several thousand listed equities. In contrast, the CAC 40, with its 40 most significant stocks, is a blue-chip index for the French market.

In contrast with broad-market and blue-chip indices, synthetic indices simulate the real market using mathematical rules and therefore do not react to real events. These indices reconstruct an index from, among other things, derivative financial products (reverse engineering). Synthetic indices are therefore neither suitable for market observation for investor benefit, nor for risk management. 

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Since broad-market and blue-chip indices include the respective shares of companies in a country or region, they meet the depth of information requirements described above. It is thus important to find a provider that can offer broad-market and blue-chip indices from a single source for any desired markets around the world. It does not need to be the corresponding “brand index” itself, such as the S&P 500, but a comparable index in terms of market capitalization, risk/return profile, along with performance and level of index points.