The indices are taking control of the financial markets. It all started in 1896, when Charles Dow, one of the founders of Dow Jones & Company, came up with an index, which bears his name to this day. Currently, the Dow Jones Industrial Average, the S&P 500 and the FTSE 100 are known even to people far from the world of finance. At the very beginning, they were not particularly influential, but today their power is impressive.
Index makers determine sentiment of investors all over the world. Three giants – the FTSE Russell, MSCI, and S&P Dow Jones Indices - have become major index makers. The amount of money they directly affect is quite impressive. The S&P Dow Jones influence assets worth $4.2 trillion, the S&P 500 covers $3 trillion. The two other providers of indices have a great impact on similar enormous amounts of money: $15 trillion of active and passive assets move up and down following the FTSE; and $11 trillion, for the MSCI index . It is not surprising that, having such power over huge capital flows, index makers attract attention of global regulators.
Despite statements about the objectivity and transparency of their regulations, many providers clearly make subjective decisions. That is why, starting from January 2018, the European index makers will have to follow the Benchmarks Regulation, which includes an annual external audit of critical benchmarks and direct supervision by the EU regulator.
