29 Nov 2002: IndeXml Launches Standards for Index, ETF Markets

The IndeXml organisation last month went public with its schema for standardising the complex business of index and exchange traded funds (ETF) delivery. The standards group is being sponsored by Kinetic Information Systems Ltd., a London-based designer, builder and operator of index calculation systems covering the equity, ETF and bond markets.

The working group believes there are many benefits to be gleaned from adopting an industry standard for the consumers of index and ETF data are obvious. The most tangible benefit is expected to come through cost savings from the elimination of proprietary formats and the reduced integration work required.

Once the barrier of integration requirements is removed, consumers can more easily try new products on offer, as the new product using the same consistent IndeXml format will slot into the client’s existing interface.

For example, the index value represented in one product will have the same XML tag (eg: <value>) as in a different product, so no matter the source of the data, the interface will be able to read both versions.

According to the group, some less obvious but just as compelling benefits include the user’s ability to better utilise index data that can lead to trading opportunities, such as arbitrage across indices with similar constituents. Another is the ability for users to contribute data, such as constituent pricing, commentary, ratings, and views on future movements.

Peter Thompson, head of equity derivatives for Goldman Sachs, says “The index business needs a common data format, so anything that eases the complexity of the index business is welcome by us.”

Fund manager Barclays Global Investors is also enthusiastic: “We have invested in integrating our business chain through XML, and as a large consumer of index and producer of ETF data, IndeXml is the logical way forward for BGI,” says Matthew Rawlings, Principal at BGI. “Many index providers have multiple products each with their own formats, and if you multiply that by, say, 10 vendors, then you are investing many man years to build and maintain those evolving interfaces.”

He continues, “I believe that the only people who will lose are those who don’t adopt standards. BGI is committed to participating and helping to drive the IndeXml initiative.”

The working group believes that the IndeXml standard will also appeal to the index providers. The cost of maintaining different proprietary formats across their product lines can be significantly reduced. It also provides the ability to introduce new products with no additional software overheads or integration issues; and to take more control over the scope and content of the information being dissemination, including targeting a wider audience and in some cases reaching end users directly; and greater flexibility and reduced costs for marketing, such as being able to offer trials without the need to set up systems that incurs additional cost.

Robert Barriera, vice president of operations for Standard & Poor’s Index Product division, says, “From S&P’s perspective, we can definitely see the advantages to having IndeXml become a standard. We are currently somewhat limited, as many vendors and customers require a significant amount of time to program their systems to accept our formats. Having a standardised delivery method would enable us to quickly get our information out to the marketplace, and will enable us to deliver data directly to our clients. Having this ability will enable us to extend our current client base with an entirely new suite of index products.”

Gavin Day, operations director at FTSE, says, “We are always looking to help ease the use and integration of our products for our clients. If XML can add flexibility for our clients in interfacing to our services or will enable us to disseminate additional data without enforcing the need for all clients change their systems software, then we are supportive.”

He says, however, that some issues will need to be addressed, such as the increased size of the real-time data messages due to the addition of the XML tags that will require increased bandwidth and may increase the cost.

This is one of the issues that IndeXml is addressing through the implementation of advanced compression techniques. Another method would be to separate out the transmission of real-time critical data from the additional information that may not be required on a per-trade basis, giving priority to the real-time data traffic, or even flowing the additional information via another circuit.

IndeXml’s next phase will be to work with its supporters in the industry to develop the standard. This way it can ensure its range of coverage continues to be enhanced and that the standard can evolve as the way forward for the index industry.