An industry-led solution to the creation of a European consolidated tape is gaining traction with The COBA Project developing a commercial framework that builds on recent data standards.
The COBA Project, led by Graham Dick, former head of business development at Chi-X Europe, and Mark Schaedel, former global head of market data at NYSE Euronext, is an independent body established six months ago to coordinate an industry led approach to a consolidated tape for European venues.
The group has published an open letter to the industry – including buy-side, sell-side, trading venues and market data vendors – that outlines the initial steps that need to be taken for a solution to emerge by Q2 2013.
COBA outlines what it considers to be a “reasonable cost” for a consolidated tape, including €69 for addressable liquidity, €39 for reporting events, i.e. technical trades that investors could not have necessarily participated in, and €99 for a pan-European best bid and offer feed.
The desire for domestic exchanges to cling on to revenue derived from market data has made them reluctant to reduce fees they charge, prohibiting the creation of a consolidated tape at a reasonable cost.
But the fixed price model devised by COBA uses a commercial framework that gives trading venues a share of the revenue depending on the extent to which trade data contributes to price formation.
For example, auction trades, which result from open order book participation, will be ranked higher than data from venues that import prices from price forming venues.
“The fees we came up with were based on a commercial and quantitative model we have developed and shared with the exchanges,” Dick told theTRADEnews.com. “There are also commercial opportunities to be had for exchanges and other firms that wish to create value-added services based on the data.”
“Our model also solves the problem of having consolidated tapes being made available to users that have little idea of the markets contributing to the data and therefore no way of knowing which markets to licence data from. We have established a fixed price for the full package and developed a model which then allocates the resulting revenues to market contributors,” added Schaedel, noting that the COBA solution would encompass all of the 67 markets that offer trading in European stocks.
Management of the revenue allocation model, billing and compliance would be run by a consolidated tape administrator – which COBA has put itself forward for – that would also licence vendors that want to distribute the consolidated tape. Providers would then compete on the based on the rules developed by the administrator.
The creation of an industry-standard post-trade data source has been called for by the buy-side community since the first version of MiFID fragmented European liquidity. Without full visibility on where trades are executed, buy-side traders have found it difficult to analyse execution performance and benchmark trading performance. It would also help regulators with market oversight and improve overall market transparency.
The COBA initiative incorporates the recent work undertaken by FIX Protocol (FPL) and the Federation of European Stock Exchanges’ Market Model Typology (MMT) project, which both aim to establish the technical parameters for the reporting and flagging of data.
“FPL plans to start talking to the regulatory community in earnest in the coming months, so we can educate rule makers on our thinking and gain clarity on parts of the current MiFID II text that are unclear on data standards,” said Jim Kaye, co-chair of FPL’s EMEA trade data standardisation working group and director for product development, European execution services at Bank of America Merrill Lynch. “Ideally, FPL also hopes that at least some of the guidance we have proposed, such as on harmonised timestamps, are adopted into the final directive.”
In its initial draft of MiFID II the European Commission made three proposals for the creation of a consolidated tape. These included a commercial solution that allows competition among providers – a method favoured by both the Commission and the European Parliament – the choice of a single provider selected via a call for tender process, or the appointment of an operator that would run the tape as a utility. The Council of the European Union, which is currently making its own revisions to MiFID, is thought to favour the single provider option. Once the Council has completed its reading of MiFID II, it will have to reconcile its version of the directive with that of the European Parliament, with input from the Commission.
“We decided to move ahead of regulatory initiatives and have been working on this on a full time basis to pose an industry led solution,” said Dick. “This a credible delivery plan that has garnered the support of all the different groups that have an interest in the creation of a consolidated tape. Accompanied with the FPL best practices and MMT data standards, there is no reason we can’t begin the first phase of implementation in Q2 2013.”