Editor's letter: Bashing banks that create indexes risks stifling creativity

Who would have thought that the art of indexing could conceal so much skulduggery? Ask a third-party index provider about any bank's proprietary indexes and their response could form the plot of the next Scandinavian crime drama.

It is not clear whether these fears are based in reality or if it is just the sound of healthy competition pounding its fists into the ribcage of the battered banking industry. Let's face it, accusing bankers of being corrupt, dastardly and evil in today's world is like taking candy from a baby.

So let's start somewhere else. Yes, it is possible that a bank creating an index for a structured product may simply be doubling up on fees, but where is the problem if that index has been created transparently and perhaps with a third-party index provider chipping in with some much-needed independence by taking the role of calculation agent?

The issue here lies in proving that an index is transparent, and here the worlds of the European Commission and the International Organization of Securities Commissions have collided to spit out some decent protocols for depicting what is and is not permissible in the creation of an index.

Whatever the final agreed rules end up being, there are an awful lot of people who want to be sure that all indexes are created in the same way, but with some allowance for indicative levels to be used as the basis of an index. The allowance is a chink of light for those creating their own indexes, especially at banks, because if you don't have to commit to trades only as the basis for an index, then your remit is broad.

Yes, it is possible that a bank creating an index for a structured product may simply be doubling up on fees, but where is the problem if that index has been created transparently?

The point most often missed in this "he's got that, but I haven't, and that's not fair" debate is that bank-created proprietary indexes have been at the heart of creativity in many parts of the financial world. There are a number of reasons for this, and while you reflect on the complaints of third-party index providers - funnily enough, those that could have most to lose - perhaps it's best to settle on compulsory but less well-paid calculation agents.