Buy-side asset management institutions have written an open letter to politicians imploring them to reconsider their proposals for a consolidated tape, in particular, the way it remunerates the tape provider and incumbent exchanges.
Seventeen institutional members of the European Fund and Asset Management Association (EFAMA) that manage over €8.5 trillion in assets have said current proposals are “disconcerting” in the way that they put the needs of the main stock exchanges before those of the end investors. Of those to sign it publicly are Allianz Investors’ Eric Boess, DWS’ Fiona Bassett, Fidelity’s Steve Ellis, Invesco’s Paul Squires and M&G’s Brian Mitchell.
Current proposals put forward by regulators set out that the winning consolidated tape bidder in equities will be the one that returns the highest revenue for regulated markets and the asset managers argue this will ensure “another failed CT venture for Europe” as it creates a business model around a high-cost tape that does not meet market demand. Instead, they have suggested the revenue of the contributing exchanges of the tape provider be capped to cover production costs and a “reasonable” margin.
Exchanges revenues are largely reliant on very low latency and non-display data that would not be included in the tape and therefore these revenues would not be displaced through the implementation of a consolidated public data source.
“The raison d’être of the tape is to support capital market functioning in the EU and thereby improve issuer and investor outcomes. It should not be designed to subsidise the operating models of intermediaries like the main stock exchanges,” said the institutions in their letter.
“We view the proposed operating model as a subsidy for the exchanges and not a replacement for actual lost data revenues. A real-time CT [consolidated tape] for equities, updating data on seconds speed is therefore complementary to, and not in substitution of, the exchanges’ data feeds.”
The letter highlights the “natural monopoly” that exchanges have over their own order book market data – an issue that has been heavily and vocally argued by participants for several years now – adding that the European Commission’s previous attempt to resolve this through its introduction of the reasonable commercial basis (RCB) principle and unbundling rules under MiFID II had failed.
Market data has been central to ongoing market debate for several years now, with many participants begrudged at the high prices they have to pay for essential data from both venues and the vendors that aggregate the data sourced from them. Regulators have subsequently launched investigations to explore competition concerns in this space in a bid to alleviate the issue.
“A reasonably priced CT would at the very least introduce an element of competitive tension with the prices set by venues for their proprietary data. Currently the proposal goes in the opposite direction, compounding an existing problem around market data costs,” the asset managers said.
The institutions are not the only ones to protest the remuneration plans under the consolidated tape proposals. Cboe called them “highly discriminatory” to pan-European exchanges in December shortly after the proposals were announced, while several trading associations also claimed they created an un-level playing field and favoured incumbent exchanges by giving them an unfair advantage.
Allianz, Invesco, M&G, Fidelity, and DWS had not responded to a request for comment at the time of publishing.