Consolidated tape project nears majority support from venues

Traction for an industry-led European consolidated tape solution is growing, with a number of the region's markets backing recent proposals made by The COBA Project.

Traction for an industry-led European consolidated tape solution is growing, with a number of the region's markets backing recent proposals made by The COBA Project.

Venues representing nearly half of European market turnover have expressed support for The COBA Project, which laid out the steps needed for the creation of a consolidated tape in an open letter to the industry last month.

"We've managed to formalise support from venues representing almost half of total EU market turnover and those participants will attract others," said Mark Schaedel, former global head of market data at NYSE Euronext, who runs the project with Graham Dick, former head of business development at Chi-X Europe.

The pair has rallied for industry support over the past seven months and surpassing the 50% market share milestone may form a tipping point, as remaining exchanges and multilateral trading venues look to have input into the initiative, ahead of a prospective Q3 2013 launch.

"Key participants including data vendors, sell-side banks and buy-side institutions have also agreed to discuss the proposal in more detail with the COBA group," said Schaedel.

The need for a standardised source of post-trade data in Europe was identified after the first version of MiFID in 2007 created a fragmentation of equity liquidity across the region. While proprietary consolidated tapes do exist, institutional investors require a standardised solution to help analyse execution performance. COBA plans to meet with members of UK buy-side trade body the Investment Management Association early next year.

Previous attempts to establish an industry-led, reasonably-priced consolidated tape have run into barriers, as domestic exchanges seek to maintain lucrative market data businesses.

COBA has detailed plans for allocating tape revenue back to trading venues, based on the contribution each reported trade has on price formation. Under the plan, trades that contribute to price formation will be weighted more heavily than give-ups or trades that use reference prices, for example. COBA plans to charge €69 for addressable liquidity, €39 for reporting events (technical trades investors could not have necessarily participated in) and €99 for a Europe-wide best bid and offer feed. Deciding how each type of trade will be categorised will be determined in conjunction with technical work currently being carried out by messaging standards body FIX Protocol and the Federation of European Stock Exchanges, both of which aim to harmonise how data is reported.

"A great deal of the money spent on data is inefficient. The value extracted is not proportionate to the amount being paid, which is due to data quality issues we intend to address. The market will get better quality data for less cost," said Schaedel.

Schaedel added the malleable nature of the initiative - where firms who participate can help shape the details of the tape - is seen as an attractive element of the project.

MiFID II is regarded by many as the industry's last chance to create its own consolidated tape, or face regulatory intervention. The European Commission's initial draft of MiFID II in October 2011 comprised three options for establishing a tape including: a commercially-led solution; a provider selected via a call for tender process; or a single entity that would operate the tape as a utility. The Commission and European Parliament have expressed their support for a commercial solution, while the Council of the European Union is believed to support the call for tender option. All three European bodies will need to agreed on a common MiFID II position during 2013.