Bats Europe’s entry into the UK index market has raised hopes of a shake-up for retail users.
Last week, the firm launched a UK-focused index series with the backing of a number of wealth managers. The benchmark provider is launching 18 products covering UK-listed companies across the market-cap scale in 12 industry sectors.
Included is a rival index to investment management staple, the FTSE 100, that will also include quarterly rebalancing.
However, Bats took no chances with FTSE’s dominant position in the UK, and came to market with the backing of four investment firms: Rathbones, Hargreaves Lansdown, Alliance Trust Savings and AJ Bell.
Bats is looking to capitalise on disgruntled feelings about FTSE among some investment firms and indices users. It pitched its new product range as a “robust and trustworthy alternative to incumbent providers”.
FTSE, the London Stock Exchange-owned provider, has a dominant position in the UK. Due to legacy relationships, it has complex contractual terms regarding replication of data and provides information with a 15-minute delay.
Bats’ entry into the space where FTSE is already well-known, such as the large-cap arena, could mean some funds switching benchmarks.
However, Whitechurch Securities managing director Gavin Hayes said he did not think the new indices would fundamentally change the fund selection process, or how managers positioned portfolios.
He added: “I welcome competition in the market, with Bats looking to undercut the high charges that FTSE imposes on institutions quoting its indices and in providing real-time pricing to all investors free of charge through media outlets.”
But he had reservations on how quickly Bats could have a meaningful impact on the index market.
“FTSE has built up a strong brand. It is likely it will remain a dominant force for some time [and] as the benchmark to beat for active equity fund managers,” he said.
Bats’ real-time offering and simple contract pledge could alter the market structure and offer index users innovation and competition, according to one of the backers.
Paul Chavasse, head of investment at wealth manager and fund house Rathbones, said an extra provider should benefit end-investors given the potential for stale products in a one-company situation.
Mr Chavasse said: “The current crop of bond and portfolio indices are not always what clients need. [Bats Europe’s launches] could stimulate examination of products to get better [products] for clients. If Bats did not enter the market now then I am not convinced [innovation] would have come.”
However, he too suggested this would not happen overnight and that Bats would find it difficult in the short term given FTSE’s dominance.
“I think it will start to see traction on the back of this announcement,” he added.
