A single consolidated market data tape in Europe is still a number of years away, but it looks increasingly likely that the European Securities and Markets Authority (ESMA) will play a leading role, a conference session on MiFID II heard yesterday.
Rodrigo Buenaventura, head of market division for ESMA, speaking on a regulation panel at TradeTech 2013 in London, said that although the regulator had begun addressing the formation of a consolidated tape, no major progress could be made ahead of the finalisation of MiFID II.
“The current version of MiFID II does not envision a single consolidated tape driven by ESMA. That is a fallback option in case the market does not develop one. It would take us a few years to get to a single consolidated tape, if that indeed happens,” he said.
The version of MiFID II agreed upon by the European Parliament last year offers three options for establishing a consolidated tape: competing providers offering tapes based on pre-defined data standards; a single provider selected by a competitive tender process; or the appointment of an entity that would run the tape as a utility.
While the Commission and Parliament had previously indicated they would favour the competing provider option, current MiFID II discussions by member states at the European Council may not lead to the same conclusion, Buenaventura suggested.
In March, the COBA project – an industry-led initiative to develop a consolidated tape that would financially reward providers of data based on price improvement – was put on indefinite hold due to regulatory uncertainty.
Buenaventura said ESMA was “looking very closely” at developing a pan-European tape for equities, but said it must wait for the final directive before serious work could begin.
“Politicians and the institutions have not decided which option [to pursue]. We could have competing tapes from the start, a single tape or a mixed option. Therefore all the preparation we are doing is dependent on what choices they make,” Buenaventura said.
Co-panellist Ruben Lee, CEO of markets consultancy Oxford Finance Group, said an ESMA-run tape would be fraught with difficulties and market participants needed to drive an industry solution.
“It will come down to ESMA, but I’m not optimistic it will do well,” Lee said.
“Governance structures will be too cumbersome, it will be difficult to realise and the way participants get revenues from it will determine market structure in the future – by regulatory process rather than commercial,” Lee said.
At present, MiFID II is closing on the trialogue phase, where the Parliament and Council of the European Union work together to agree a final text with input from the Commission, although the Council has not yet put forward its position.
Jasper Jorritsma, policy officer, DG internal markets and services for the European Commission, told the conference a final text could be agreed within months.
“The Irish Presidency is very ambitious in its timetable that would have them actually finish the MiFID discussions, not just within the Council but with the Parliament, by the end of summer,” Jorritsma said, adding that this was reliant on member states in the Council agreeing their position very soon.
In addition to the consolidated tape, a number of key MiFID II issues are likely to see protracted debate in the trialogue stage, including whether the organised trading facility (OTF) will include equities, as the Council is known to favour.
“In the equities space, the omission of the OTF for equities is intended to be balanced by the requirement to trade equities on regulated markets and multilateral trading facilities (MTFs),” Jorritsma asserted. “The only way to trade in the dark will be to trade under a waiver on a regulated market or MTF.”
However, the waivers themselves have also become a flashpoint of debate for European policymakers, acknowledged Jorritsma. “From the Commission’s point of view, we’re pushing to reduce waivers as much as possible and hoping to have a situation where only large in scale orders are allowed to be traded in the dark,” he said, adding that recent reports suggesting the Council wanted to develop different approaches to the issue of waivers, could fundamentally change the final outcome of the directive.