What Are Index Licensing Fees and Who Pays Them?

Key takeaways

• The SPDR S&P 500 ETF Trust discloses an S&P licence fee of 0.0301% a year, which is 31.9% of its entire 0.0945% expense ratio.
• Invesco QQQ itemised a Nasdaq licence fee of 0.08% against total gross expenses of 0.20% in its January 2025 prospectus. From 20 December 2025 a single 0.18% unitary fee replaced that breakdown.
• MSCI's disclosed fee on ETF assets tracking its equity indexes was 2.28 basis points at 30 June 2026, down from 2.41 at the end of 2025.
• S&P Dow Jones Indices took $1,206 million in asset-linked fees in 2025 at a 69% operating margin, against ending ETF assets of $5.480 trillion.
• The FCA found that 70% of benchmark users absorb the cost in their own P&L rather than passing it to investors through the OCF or TER.

What index licensing fees are, and why almost no fund shows you the number

You hold a tracker. Somebody else owns the index it tracks. What does that cost you?

On the clearest disclosures available, between 2 and 8 basis points a year, which is £2 to £8 on every £10,000. In one large fund it was 40% of the entire expense ratio. The reason you've probably never seen the figure is that most funds don't publish it. The fee sits inside the ongoing charge, and the contract that sets it is usually confidential.

The mechanism is simple enough. An index provider writes the rules for a basket of securities, calculates the basket's level, and owns the name. A fund that wants to track that basket, and to say so on the cover, signs a licence. The FTSE Global Equity Index Series ground rules put it plainly: "Use and distribution of LSEG data requires a licence from LSEG and/or its licensors." The S&P 500, the Nasdaq-100 and the FTSE All-World are not public goods. They're intellectual property with a price list.

The SEC described the arrangement in its June 2022 request for comment on information providers. "Index providers are compensated by licensing indexes to users for the creation of investment products, reporting, and internal use." Two groups pay: funds that track the index, and active managers who only want to be measured against it.

Index licensing fees are therefore a real cost of your fund, charged per pound you hold, and almost always invisible. The FCA's 2024 wholesale data market study found the reason. "Licensing fees charged by benchmark administrators to asset managers are generally subject to confidentiality clauses." Around 70% of the providers in its sample imposed such a clause.

Four funds that print the licence fee on the page

There's a small group of exceptions, and they're the most useful evidence on this subject anywhere. A handful of American ETFs are structured as unit investment trusts rather than as ordinary funds. The trust has no investment adviser charging one fee for everything, and its prospectus itemises every expense it accrues, including what it pays the index provider.

Here is what four of those prospectuses disclose. Three were filed between January and February 2026. The Invesco QQQ figures are from its January 2025 filing, the last one to carry the breakdown.

The chart above plots that last column. The spread is the thing to look at. Across four funds run by two sponsors, the index licence absorbs between 13% and 40% of what the fund charges. The cheaper the fund gets, the larger the licence looms, because the licence is the one layer the fund manager can't compete away.

The audited accounts say the same thing in pounds and cents. In the year to 30 September 2025, the S&P 500 trust paid an S&P licence fee of $186,125,603 out of total expenses of $584,405,656. That's 31.8% of everything the fund spent, which lands within rounding of the 31.9% the fee table implies. The Dow trust paid $15,398,302 of $60,210,858 in the year to 31 October 2025, or 25.6%. The MidCap 400 trust paid $6,966,941 of $54,597,909, or 12.8%.

None of these is a UK fund, and that matters for the detail rather than the principle. There's no equivalent figure to read off a UK tracker, and the FCA explains why: the licensing fees asset managers pay are generally covered by confidentiality clauses. These four prospectuses are the closest thing to a readout of what sits underneath, and the true cost of owning a fund has several other layers that behave the same way.

What index licensing fees cost on your own balance

Three disclosed rates, two balances. The arithmetic is a multiplication and nothing more.

Those are small numbers, and anyone claiming otherwise is selling something. On a £100,000 portfolio the index provider's cut runs from £22.80 to £80 a year. Set that beside the rest of the fund's charge, let alone a platform fee, and it almost disappears.

It stops being trivial at two points. The first is when the rest of the fund gets cheap. At 0.0945% total, the S&P 500 trust has already squeezed its trustee, marketing and other operating expenses down to 6.4 basis points between them. The licence is the remaining 3.01, and it's the one piece the sponsor has no power to cut. The second is when the licence rate is high relative to the fund. Eight basis points on a fund charging 20 is a different proposition from three on a fund charging nine.

The licence fee structure is tiered, and it has a floor

Where the contracts are disclosed, they aren't flat percentages. They're volume schedules with a minimum, which is why a licence fee structure rewards scale and punishes small funds.

The S&P 500 trust reimburses its sponsor for fees "equal to 0.03% of the daily size of the Trust (based on Unit closing price and outstanding Units) plus an annual license fee of $600,000". The Dow trust pays "0.05% on the first $1 billion of the then rolling average asset balance and 0.04% on any excess rolling average asset balance over and above $1 billion", with a stated minimum annual licence fee of $1 million.

Read that second one against a hypothetical small fund. A $1 million floor on a $100 million tracker is 100 basis points of licence cost on its own, before anyone is paid to run it. A new fund tracking a flagship index therefore starts at a cost disadvantage that only scale removes. The FCA's profitability work shows the other side of the same trade: established administrators earned operating margins of around 56% on average over 2017 to 2022, exceeding 60% in places, while challengers and new entrants ran at around 11%.

The Nasdaq-100 contract was tiered the same way. The licence fee ran at 0.09% on aggregate Nasdaq-linked assets up to $25 billion and 0.08% above it, capped at 0.09%, measured across the sponsor's whole family of Nasdaq products rather than one fund.

QQQ stopped showing the number in December 2025

The single clearest illustration of how this cost hides is one fund changing shape.

In the Invesco QQQ prospectus filed on 27 January 2025, the expense table read: trustee's fee 0.04%, Nasdaq licence fee 0.08%, marketing 0.08%, other 0.00%, total gross expenses 0.20%. A reader could see that two fifths of the fund's cost was the index.

Effective 20 December 2025, the fund began paying "an annual management fee equal to 0.18% of its average daily net assets". The prospectus filed that month shows management fees of 0.18%, other expenses "None", total 0.18%. Out of the unitary fee, the adviser "pays for substantially all expenses of the Fund".

So the fund got cheaper by 2 basis points, and the index licence stopped being a visible line. Both things are true at once, and neither is improper. A unitary fee is simpler and caps what the investor pays. It also means the figure that let you see the licence has gone, and Nasdaq's cut is now a private matter between Nasdaq and Invesco.

The rate per pound is falling while the revenue keeps rising

MSCI publishes the one clean time series on this. Its quarterly results give a period-end basis point fee for ETF assets tracking its equity indexes, computed from run rate over assets.

That fee was 2.41 basis points at 31 December 2025 and 2.28 at 30 June 2026, a fall of 0.13 basis points in six months, or 5.4%. Over the same period the assets rose from $2,341 billion to $2,818 billion. MSCI's 10-K attributes its revenue growth to "increases in average AUM, partially offset by a decrease in average basis points".

That's the shape of the whole industry. Price per pound down, pounds up faster, revenue up a lot. MSCI's Index segment took $1,786,808 thousand of operating revenue in 2025, of which $770,670 thousand was asset-based fees, at an adjusted EBITDA margin of 76.4%. S&P Dow Jones Indices reported revenue of $1,850 million, of which $1,206 million was asset-linked fees, at a 69% operating margin. FTSE Russell reported total revenue of £954 million, of which £324 million was asset-based, at a 66.6% adjusted EBITDA margin.

Divide S&P's asset-linked fee line by its average 2025 ETF assets of $4.772 trillion and you get 2.53 basis points. Treat that as a ceiling rather than a rate: the numerator also carries mutual funds and derivative royalties, while the denominator counts only ETFs. The honest reading is that the big three charge somewhere around 2 to 3 basis points on tracked assets, and that the number has been drifting down.

What the index provider is selling is the rulebook, not the data

It's tempting to think a licence buys a list of company names, which would make the price look absurd. It buys something less obvious.

The FTSE Global Equity Index Series ground rules, version 14.4 of September 2026, run to 51 pages covering securities in 49 different countries. They set out country eligibility, free float thresholds, liquidity screens and the quarterly review calendar in March, June, September and December. A tracker's holdings are an output of that document. Changing one screen changes what thousands of funds own, which is why free float adjustment is a methodology question with real money behind it.

The SEC's reading is sharper. Compiling and running an index involves activities that "leave room for significant discretion". An index provider "typically has the ability to make changes to the index by adding or dropping" its constituents, and the SEC noted that this sometimes happens without the methodology being published at all. A licence fee is what you pay for somebody else to exercise that discretion, publish it on a fixed calendar, and stand behind the result.

Concentration follows from that. The FCA found the top three providers, FTSE Russell, MSCI and S&P Dow Jones, account for over 75% of the assets in UK-domiciled open-ended funds and ETFs available in Britain, and almost 95% for equity funds specifically. Aggregate UK revenue from index data and benchmark licensing was around £600m in 2022. The SEC, citing a 2022 Financial Times report, put three providers at over two thirds of the market for indexes on roughly $5.0 billion of 2021 revenue. When 95% of a category runs through three rulebooks, the price of a rulebook isn't set by competition.

The regulator found that most of this never reaches your OCF

Here's the strongest objection to everything above, and it comes from the FCA rather than from the industry.

When the FCA asked users what share of their benchmark-linked revenue goes on benchmark access, the majority answer was that it doesn't reach the investor at all. "The majority (70%) of respondents suggested that benchmark costs are reflected within firms' operational cost base and absorbed within their P&L and not passed onto clients or end investors directly through OCF/TER or AMC charges, or directly considered in pricing decisions." Half of those who gave figures said benchmark costs were under 1% of the revenue from products using benchmarks.

If that's right, then the SPY and QQQ disclosures are the exception rather than the sample. In a unit investment trust the licence is passed through by construction, because there is no adviser balance sheet to absorb it. In a normal fund with a management fee, the licence competes with the manager's own margin, and the FCA's respondents say the manager usually eats it.

The counter to the counter is in the same document. The FCA noted exceptions among "respondents who identified passing on benchmark costs via the variable fees for tracker funds or ETFs", which is precisely the product this article is about. And a cost absorbed into a manager's P&L still has to be earned somewhere. The FCA also recorded users reporting specific price increases of 10% to 40%, and a minority putting benchmark costs at 10% to 16% of management revenue. A fee that large doesn't stay invisible forever.

What this evidence cannot tell you

The itemised disclosures are four American unit investment trusts, three of them run by the same sponsor and three licensing from the same provider. That is not a sample of the fund industry. It's the handful of funds whose legal structure forces the number into public view, and there is no reason to assume the 13% to 40% range travels to a UCITS tracker sold in the UK.

Nor can these figures be compared like for like with a UK ongoing charges figure, because confidentiality means there is no UK itemisation to compare them against. And the tracking difference between a fund and its index often moves more than any of this.

The MSCI basis point figure is a company-reported operating metric, not an audited one, and it's an average across every equity ETF linked to MSCI, from the largest core funds down to a thematic launch. The rate any single fund pays could sit well either side of 2.28. The derived 2.53 basis points for S&P is an upper bound built from two numbers that don't share a denominator.

The FCA's survey evidence is self-reported by firms with an interest in the answer, drawn from a sample it does not name, and its headline revenue figure describes 2022. Confidentiality clauses mean neither the FCA nor anyone else published a price list. Nobody writing about index licensing fees, including this piece, is working from the contracts themselves.

What would change the conclusion

If a regulator forced the licence onto the cost disclosure. The FCA decided in February 2024 that the statutory test for a market investigation reference was met, then concluded it was "not referring any of the markets to the CMA for investigation at this stage". A line item in an OCF breakdown would settle the question in a year.

If self-indexing became normal at scale. A manager that builds and administers its own index pays no external licence, and the schedules above show what that saves at the top end. The cost is that the manager now exercises the discretion the SEC was asking about, and marks its own homework.

If the rate stops falling. The 2.41 to 2.28 move over the first half of 2026 is the pattern that makes the current fee defensible: providers take a smaller slice of a much larger pie. A flat or rising basis point fee alongside rising assets would be the signal that pricing power has started to bite rather than ease.

The number to watch isn't in any fund factsheet. It's the basis point fee in MSCI's quarterly release, the one index licence price that gets a public update every three months. Every other figure in this piece moves once a year, if at all.