In February this year, the Dow Jones STOXX indices celebrated their fifth birthday. But the celebration was surely muted given the jaded performance of European markets in the last few years.
Indeed, the Dow Jones STOXX 50 index declined by more than 3% in March, taking its year-to-date decline to almost 13%.
So how does the decline in the index affect the index provider? Zurich-based STOXX is a three-way joint venture of German exchange operator Deutsche Börse, Swiss exchange SWX and information provider Dow Jones & Co.
The company’s acting managing director Ettore Candolfi is sanguine about the impact of declining markets. “The only impact that we see is that assets under management fall,” he says.
As well as declining markets, there’s also some tough competition in the index market, with at least one player, UK-based FTSE, not being coy about its ambition to be the world’s top index provider.
Three years of falling markets have obviously affected index users, who are now having to focus on cost cutting. “All banks now have to look at their cost structure and one cost block is indices,” Candolfi says. And he sees the cost pressures continuing in the next six to nine months. Candolfi says STOXX will ride out the storm thanks to the quality of its raw and customised data as well as its dedicated customer support.
Candolfi took over from Scott Stark as the head of the index provider in January this year. The three partners had become sole owners of the company last December when they bought Euronext Paris’s 25% stake – each now owns a 33% stake. Candolfi acknowledges the inherent difficulties of running a company that is owned by a three-way joint venture. “All the partners have their own interests,” he concedes.
In effect, STOXX is a virtual company, with just 20 employees, with all the muscle provided by its various backers. Each partner provides something different to the mix, Candolfi says. SWX calculates the indices at its headquarters in Zurich, while Deutsche Börse disseminates the data and Dow Jones provides historical data. “For us it’s good we have now three very strong partners,” he says. Interestingly, Dow Jones’ 2002 annual report makes no mention of STOXX.
Candolfi took over at a difficult time for STOXX, with the market decline in full-swing and geopolitical events taking a turn for the worse. His background is on the data side of the business at SWX.
Candolfi admits that he has to “spend a lot of time” in the management of the partnership. It can be frustrating not being able to develop local products. But, he says, the benefits outweigh the disadvantages.
STOXX generates its income by licensing its products. It seeks to add value to raw data, with customised indices one area of potential growth. “We have to bring more services to the client,” Candolfi says.
As befits an executive from the data side of the business, Candolfi stresses the importance of providing a “neutral index from a neutral provider”. Clients benefit from a transparent and rule-based index.
STOXX currently licences its indices to 298 licensees. And there is the “potential” to grow this figure, Candolfi says. Indeed it added four new licensees in March, names such as Capitalia, Bankinter, Barclays Fondos and Sampo.
He sees a “big potential” for new licence business in Italy, Greece and Eastern Europe, as well as in the US, though he says it was very hard to provide a target.
Surprisingly perhaps, STOXX’s biggest market by number of licensees, is Spain, with 50 licensees. Also surprising is the fact that it has just eight clients in Switzerland, mainly among private banks – although UK-based arms of Credit Suisse and UBS are licensees. STOXX has 35 licensees in Italy compared to 31 in Germany.
He says the indices are an example of European integration. “The indices have provided the catalyst for a massive increase in cross-border financial trading in a very short period.”
It will be interesting to see what the next five years hold for the company.