Voices from across the industry have doubted the viability of the European Commission’s commercial approach to a consolidated tape for equities, fearing the proposal outlined in MiFID II will be hindered by vested interests.
MiFID II suggested three routes to a consolidated tape for European equities – commercial, mandated or call for tender. In its proposal, the Commission said it preferred the commercial model, where businesses compete to market their own tape.
“We would have preferred a tender process for a single operator solution to avoid the possibility of [vested interests] arising,” asset management firm Blackrock said in its response to a call for comment on MiFID II by Markus Ferber MEP, rapporteur to the Economic and Monetary Affairs Committee (ECON) of the European Parliament.
Buy-side fears were further confirmed by the Investment Management Association (IMA), a UK trade body.
“We support commercial solutions for consolidated tape providers (CTPs) in principle but fear that there will be no sufficient commercial driver for comprehensive CTPs to emerge,” the IMA said in its submission to Ferber.
In the absence of a single tender, Blackrock advised that any proposed solutions should be delivered at cost to offer investors a single view on liquidity in Europe, while the IMA believed the Commission should be equipped to mandate a single authoritative tape in case the commercial option failed.
Data aggregators also remain unconvinced the Brussels commercial model will work. Markit, a financial information services provider, agreed the creation of the CTP category was sensible “in principle” as it provided the principles and objectives of data consolidation.
“However, particularly given the commercial incentives of the stakeholders that are involved in relation to data consolidation, we doubt that any data services providers will actually want to register as CTP,” Markit commented to Ferber.
The Commission has also proposed that market data vendors will be able to establish consolidated tape solutions based on data delivered via new entities called approved publication arrangements (APAs), which would be responsible for cleaning and normalising data for consolidation to a set of pre-defined standards.
Markit has raised specific concerns over the competitive position of potential consolidated tape providers in relation to trading venues and the timeliness of dissemination, which it believed needed to be improved.
The service provider also said Brussels needed to consider requiring market participants to subscribe to a CTP to provide evidence of best execution.
The Association for Financial Markets in Europe (AFME), a sell-side industry body, was sceptical of the merits of allowing CTPs to compete.
“Multiple operators may make it more difficult to deliver the other elements of the European consolidated tape, including price control and the concept of a single official tape of record,” the lobby group doubted, advocating instead that a single provider be appointed, subject to a tender process every three years.
But the London Stock Exchange Group (LSE) was more convinced by the Commission’s proposals. “Appropriately regulated consolidators can provide as authoritative a tape as a single provider and in a more efficient and market focused way than a single provider,” the exchange group said.
The LSE, which in December secured full ownership of index firm FTSE International, believed the best way to enable the creation of an affordable consolidated view of the market was to “make the current commercially-driven consolidation processes work more effectively”.
The LSE encouraged the Commission to build on existing initiatives, specifically work undertaken by a technical working group initially established by Committee of European Securities Regulators – the predecessor of the European Securities and Markets Authority pan-European watchdog – and the Market Model Typology (MMT), both of which were developed in collaboration with exchanges, multilateral trading facilities, market data vendors and trade reporting venues.
“We would hope that ESMA would support the MMT proposal. There will then be a definitive, detailed and comprehensive set of rules that prescribe all trade types, flags, formats, standards and parameters that will effectively and comprehensively define the data to be reported and consolidated,” wrote the LSE.
ECON is presently now considering the responses to Ferber’s MiFID II questions. Once the European Parliament agrees its amendments, the Council of the European Union will conduct its own review of the legislation. The implementation of MiFID II is expected during 2014.