Index Calculation Agent and Conflict of Interest

Calculation agent is the one responsible to calculate the Custom Index. The way you are aware about the role that the Index Provider plays, similarly you need to be aware about the role of Index Calculation Agent also. In addition to this, you must also understand the situation of conflict of interest. Here we are going to discuss about the index calculation agent and conflict of interest.

Average investor
In case the investor is considered average then most probably he never gets an opportunity to interact with the calculation agent directly. This is because majority of derivatives accessible to the retail investors are basically standardized and the deal is basically in liquid in addition to being in the huge transparent markets. In such a case, publicly available market price is considered to be the base for finalizing the price.

Calculating agent as seller
When the derivatives under consideration get into the thinner markets or in case the nature of these transactions gets customized far away from the market standards, the role of the calculation agent gets more important. With an increase in importance of the role that the calculation agent has to play, the situation of conflict of interest arises in case the calculation agent also plays the role of a seller. The calculation agent is however expected to behave in good faith and avoid any such condition from arising.

In vase there is still a disagreement then the issue ought to be resolved by the disinterested third-party dealer. You must know that there is also a proper procedure for the calculation dispute resolution in order to guide the counterparties via a process that they consider to be complex.

All in all, this is all that you need to know about index calculation agent and conflict of interest.

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