An industry-led solution to the European consolidated tape is gaining traction among market participants. But its success will depend on greater participation and engagement from the buy-side.
Institutional traders have repeatedly called for an aggregated source of post-trade data since MiFID fragmented liquidity across multiple venues in 2007, making it difficult for the buy-side to accurately monitor execution quality.
But according to Mark Schaedel, co-founder of the COBA Project, gaining the backing of the buy-side has proved challenging because of the scepticism which has shrouded previous attempts.
Schaedel is calling for the buy-side to increase their involvement in the COBA Project by specifying their needs when it comes to a standardised consolidated tape.
“There does appear to be some frustration among the buy-side on the consolidated tape issue, which is perhaps understandable given the barriers that have held up an industry-led process so far,” Schaedel told theTRADEnews.com. “The success of COBA depends on engagement from all sides, and particularly the institutional investment community that need accurate post-trade data the most.”
Last May, Schaedel set up COBA with Graham Dick, former head of business development at Chi-X Europe, to develop an independent, industry-led consolidated tape solution by the end of Q2. He said a lack of buy-side engagement would likely prevent COBA from achieving its goal and ultimately result in a consolidated tape mandated by regulators.
His views are echoed by other COBA Project participants, which include data vendors, brokers and exchanges.
“As the main advocates for – and consumers of – an official tape, it is critical that the buy-side now participates to provide more clarity as to exactly what it needs and what success would look like,” said Alexander Clode, European head of core equity product, Bloomberg. “Buy-side participants need to provide detailed and prioritised ‘use cases’ that they wish to have addressed, together with clear measures for judging when success has been met.”
Clode said use cases would help identify gaps between user requirements and currently available solutions, as well as achieve better consensus between stakeholders.
Looking to MiFID II
MiFID II proposes three options for the creation of a consolidated tape: an industry-led solution; a single provider selected via a call for tender; or the appointment of a firm to run the tape as a utility.
Previous industry-led attempts to develop a consolidated tape have largely failed for commercial reasons. Domestic exchanges keen to retain market data revenues have been hitherto unwilling to reduce their data fees, making it difficult to establish a consolidated tape solution at a reasonable cost.
COBA has suggested distributing consolidated tape revenues to trading venues, based on the bearing each trade has on price formation. In theory, such distribution of revenue would result in a higher share allocated to domestic exchanges, which are largely viewed as the core price forming venues.
COBA has undertaken the technical work on data standards that is required to deliver a standardised solution in conjunction with FIX Protocol Limited and the Federation of European Securities Exchanges. This includes flags for the different types of trades conducted over-the-counter and how data should be reported.