Consolidated tape stifled by incumbent exchanges

The market data policies of Europe’s incumbent exchanges “go against the spirit of MiFID provisions”, according to a letter from Equiduct Trading joint-CEO Artur Fischer sent to the Committee of European Securities Regulators (CESR).
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The market data policies of Europe’s incumbent exchanges “go against the spirit of MiFID provisions”, according to a letter from Equiduct Trading joint-CEO Artur Fischer sent to the Committee of European Securities Regulators (CESR).

“The current status quo does not allow for the benefits of MiFID and increased competition amongst execution venues to be enjoyed equally by all investors,” writes Fischer, who calls for more regulatory guidance to help establish a consolidated tape for aggregating price data in Europe.

CESR issued a call for evidence in November on the workings of MiFID and its impact on Europe’s market structure, in preparation for the European Commission’s upcoming evaluation of the directive’s provisions. Submissions are scheduled to be available on CESR’s website from today.

The lack of a consolidated tape has frustrated buy-side firms since European liquidity started fragmenting to new venues, following the introduction of MiFID in November 2007. Without a consolidated source of pre- and post-trade market data, it can be difficult to establish a clear and precise picture of market activity across multiple venues. Most investors still rely on primary exchanges as their key source of data, which can prove inaccurate as some stocks in the FTSE 100, for example, can have almost 50% of their volume traded on MTFs.

Europe’s national stock exchanges have been resistant in supporting such a solution. At its interim results announcement last November, Clara Furse, CEO, London Stock Exchange, noted that the quality and transparency of trading data had declined post-MiFID, but that a “US-style consolidated tape is superfluous”.

In his written response, Fischer urged CESR to provide more detailed guidance for the provision of market data to increase price transparency.

“We do not agree with the LSE that no action at all is needed in this area,” read the letter. “The stranglehold of the European incumbent exchanges and their refusal to move to an alternative fee system for consolidated tape products seriously hinders the commercial initiatives of market data providers in this area, as well as the uptake of those products by investors.”

Speaking to thetradenews.com, Fischer admitted that incumbent exchanges would be reluctant to lose out on data revenues. “If a consolidated tape can replace seven separate data feeds with one, then that is obviously better for the market,” he said. “However, the incumbent exchanges would have little commercial interest in providing a consolidated tape, unless they themselves want to prepare for the future.” The LSE derived 26% of its revenue stream (£89.96 million) from information services in the six months ending September 2008.

Along with Equiduct, multilateral trading facilities BATS Europe, Chi-X and Turquoise are reported to be collaborating with the intention of creating a consolidated price reference point. Many consider the adoption of common symbology by the MTFs, announced in October, to be the first step towards this.

Equiduct’s written response also noted that best execution would function more effectively with more comprehensive guidance from CESR to tackle problems such as slow smart order router adoption, lack of a trusted benchmark for post-trade analysis and divergent interpretations of best execution by home country regulators. It also observed the “vague” nature of MiFID’s approach to clearing and settling, arguing that a lack of harmony between member states has increased clearing costs. “It is clear that this approach seriously undermines the harmonisation efforts of MiFID and the Code of Conduct on clearing and settlement, as it considerably increases the cost for accessing non-domestic CCPs and/or the time required to obtain regulatory clearance for such access.”

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