I am trying to calculate implicit transaction costs for a newly launched portfolio, as per the definition from ESMA: "transaction costs may be calculated either by multiplying an estimate of portfolio turnover in each asset class with the costs calculated according to the methodology referred to in point (c)"

Point C is effectively describing how to get estimated transaction costs using bid/ask spread. Here is the point in question: "To estimate the cost, one or more reference indexes shall be identified for each asset class. Then, the average bid-ask spreads of the underlying indexes shall be collected."

I interpret this to mean that you should select an appropriate benchmark for your fund, and calculate that benchmark's bid/ask spread. So for example, if I was launching an S&P500 fund, I would use the S&P 500.

My issue is that as far as I understand, one cannot calculate bid/ask spread for an index (i.e. S&P 500, FTSE 100, etc). Is this understanding correct? And if so, any advice on how to proceed? I was thinking of trying to find an appropriate reference ETF. Or, alternatively, just writing a letter of complaint to the ESMA authority.


  • $\begingroup$ You are right that an index typically does not have a b/a spread. Does it make more sense if we interpret it as "then the average bid-ask spreads of the stocks in the underlying indexes shall be collected" ? For example you would try to estimate the b/a spread of a typical stock in the S&P 500. $\endgroup$
    – nbbo2
    Jan 6, 2021 at 15:48
  • $\begingroup$ thanks for the response! That seems like a reasonable interpretation... One could maybe do a weighted average of the underlying bid/ask spread, based on the weights of the stocks within the index. I'm just not sure if there is any precedence in this method $\endgroup$ Jan 6, 2021 at 15:56

1 Answer 1


You can't get Bid/Ask for an index. To get a proxy for this, either use a futures instrument (that generally has a lead-lag relation with the index, but replicates the index) on that index or use a weighted average of all the components' Bid/Ask (would be the more accurate way).


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