Tuesday, October 15, 2013 11:44:31 AM

Exchanges sing different tunes on consolidated tape

Exchanges’ varying business models came to the fore at a conference, with Nasdaq OMX Nordic president Hans-Ole Jochumsen prioritising capital raising for SMEs over a pan-European consolidated tape.

Speaking at the European Exchanges Summit in London, Jochumsen said there was too little institutional capital being invested in small companies. “That is Europe’s problem; that is what we need to solve,” he told delegates. 

As a consequence of new capital requirements under Basel III, banks are reducing lending to SMEs. Jochumsen said exchanges have an increasingly important role in the economy, giving SMEs access to capital, and as a result, creating new jobs in the market.

“Whatever we do in the next 25 years, banks will play less of role in providing risk capital to people who want to create jobs,” he said.

Nasdaq OMX Nordic launched First North in Stockholm specifically for SMEs in 2005 and has since listed 106 companies, which have raised €400 million. Jochumsen said the annual growth of jobs during that period was 36.6%, or 2,600 jobs. The exchange will soon be launching First North Helsinki as well. 

Jochumsen said Nasdaq OMX Nordic’s business model is designed to focus on local needs, not pan-European, while using the strengths of being part of a global group. As a result, providing capital to SMEs was more of a priority than real-time price data access across the whole of the European securities markets. 

Accessing data

Mark Hemsley, CEO of pan-European exchange BATS Chi-X Europe, told delegates market data was still too expensive and the Markets in Financial Instruments Directive (MiFID) II didn’t entirely address pricing.

“However, what we are seeing is that market regulators across Europe are starting to understand the problem of the high price of market data.”

Hemsley said the industry needs – a real-time pre- and post-trade consolidated tape, which includes exchange-based and OTC trading.

Earlier this year, the European Securities and Markets Authority said no major progress on a consolidated tape could begin before MiFID II, which has hit the trialogue phase, is completed. MiFID II presents three options for establishing a tape including: a commercially-led solution; a provider selected via a call for tender process; or a single entity that would operate the tape as a utility. 

In March, the COBA Project, an industry-led solution to create a post-trade consolidated tape, was suspended because of regulatory uncertainty. 

NASDAQ OMX Nordic’s Jochumsen was not in favour of having a consolidated tape similar to that of the US, where trades are routed to the exchange with the cheapest price, calling it a “subsidy”.

“If we want to have a consolidated tape in Europe it needs to be built in another way, in my view,” he added.

Jochumsen said there would be a consolidated tape for post-trade today if market participants were eager to make it happen, blaming delays on a lack of progress in the regulation of off-exchange equity trading.

Hemsley disagreed however, saying the creation of a consolidated tape could happen in parallel to OTC changes.

“The exchanges and the multilateral trading facilities that currently contribute to all of those market data providers have the mechanisms to produce a pre- and post-trade consolidated tape,” he said.

“When we sort out the OTC reporting, we can add it in, but it doesn’t need to happen in that order.”

Paloma Migone +44 (0) 20 7397 3815