Council favours competitive tender for consolidated tape
European market data
providers have two years to implement a consolidated tape or face regulatory
intervention, according to the latest MiFID II proposals tabled by the Council
of the European Union.
The warning was
part of a working paper seen by theTRADEnews.com that listed a number of
amendments to MiFID II based on a number of questions posed by the Council’s
In its original
MiFID II draft released last October, the European Commission said it would
produce a report on advice from the European Securities and Markets Authority
(ESMA) if the industry did not establish a good enough consolidated tape of
post-trade data within two years of the revised directive. If appropriate, the
report could lead to a legislative proposal.
favoured a commercial
approach to the creation of a consolidated tape with the quality of data the
responsibility of approved publication arrangements, new entities created by
the directive. MiFID II also proposed a fully mandated and call for tender
But the Council now
proposes taking the Commission’s threat a step further, stating that in the
absence of an adequate industry solution, ESMA should launch a “negotiated procedure for the establishment of a
single commercial entity operating a consolidated tape”.
source of combined post-trade data across Europe’s multiple trading venues is
seen as vital by many buy-side traders that need a standardised way to
benchmark executions and the value of funds.
The new approach would
effectively pit potential consolidated tape providers (CTPs) against each other
with the aim of selecting a single entity that would provide the data.
“I suspect the Council want
some stronger leverage and a clearer deadline to make the industry sit up and
do something,” said Niki Beattie, managing director at consultancy Market
Structure Partners. “I don’t really think either the Commission or ESMA want to
be responsible for running a consolidated tape but they realise that something
needs to improve and it is only going to do so with a very real threat.”
Some consider regulators could
have done more to help the industry establish adequate technical standards
“Regulators have said standards are an issue for the industry, which is interesting in that
regulators suggest they aren’t part of the industry. I don’t think there was
enough thought on the impact standards could have on the industry overall,”
said Chris Pickles, head of industry initiatives, global banking and financial markets at UK telecoms provider BT.
According to Andrew Allwright,
EMEA, head of market structure at Thomson Reuters, the
industry is close to unveiling principles that will ensure data quality via a
working group set up under FIX Protocol (FPL), a provider of messaging
standards. The work conducted by FPL is being combined with an initiative led
by the Federation of European Securities Exchanges on harmonising the flags
used by exchanges to tag different types of trades.
“Real progress on establishing standards for
consolidated tape data has only really been made since the end of 2011, but its
overall success will depend on whether market participants are able to
cooperate – and certainly the industry has come together a lot to demonstrate
this is possible,” said Allwright. “The open question surrounds the commercial
aspect, in terms of how revenues can be shared between trading venues and CTPs. If you are expecting a commercial solution, there
needs to be a commercial opportunity.”
With most of the industry
focusing on the technical aspects of delivering a tape, the question of how
CTPs and trading venues would share revenues for delivering post-trade data is
yet to be tackled.
Many industry observers point
out exchanges have yet to lower fees for market data in a meaningful way, which
prohibits the industry from delivering a consolidated tape on the “commercially
reasonable basis” that the Commission expects.
While Allwright thought the
Council’s amendment would help renew the focus on this aspect, the idea of
regulatory intervention in selecting a single CTP from the outset appears to be
“BATS Chi-X Europe would support a competitive public
tender process, given the distinct lack of progress since MiFID I to create a
European consolidated tape by market forces alone,” said Mark Hemsley, CEO of
multilateral trading facility BATS Chi-X Europe. “Key to the success of such a
venture would be its commercial structure. A commercially available consolidated
tape would need to be priced affordably for users and offer a reasonable return
for market data contributors.”
From 1 October, BATS Chi-X Europe will start charging
for its market data using a tariff that undercuts most exchanges’ data costs.
The Council’s views on the consolidated tape are included
in proposed amendments to the first draft of MiFID II unveiled by the
Commission last October. After the Council has finalised its amendments, it
will be required to reconcile its version with that of the European
Parliament’s Economic and Monetary Affairs Committee, with input from the
European Commission, a process that is expected to take place in 2014.