European market data providers have two years to implement a consolidated tape or face regulatory intervention, according to the latest MiFID II proposals tabled by the Council of the European Union.
The warning was part of a working paper seen by theTRADEnews.com that listed a number of amendments to MiFID II based on a number of questions posed by the Council’s Cypriot presidency.
In its original MiFID II draft released last October, the European Commission said it would produce a report on advice from the European Securities and Markets Authority (ESMA) if the industry did not establish a good enough consolidated tape of post-trade data within two years of the revised directive. If appropriate, the report could lead to a legislative proposal.
The Commission favoured a commercial approach to the creation of a consolidated tape with the quality of data the responsibility of approved publication arrangements, new entities created by the directive. MiFID II also proposed a fully mandated and call for tender option.
But the Council now proposes taking the Commission’s threat a step further, stating that in the absence of an adequate industry solution, ESMA should launch a “negotiated procedure for the establishment of a single commercial entity operating a consolidated tape”.
A comprehensive source of combined post-trade data across Europe’s multiple trading venues is seen as vital by many buy-side traders that need a standardised way to benchmark executions and the value of funds.
The new approach would effectively pit potential consolidated tape providers (CTPs) against each other with the aim of selecting a single entity that would provide the data.
“I suspect the Council want
some stronger leverage and a clearer deadline to make the industry sit up and
do something,” said Niki Beattie, managing director at consultancy Market
Structure Partners. “I don’t really think either the Commission or ESMA want to
be responsible for running a consolidated tape but they realise that something
needs to improve and it is only going to do so with a very real threat.”
Some consider regulators could have done more to help the industry establish adequate technical standards already.
“Regulators have said standards are an issue for the industry, which is interesting in that regulators suggest they aren’t part of the industry. I don’t think there was enough thought on the impact standards could have on the industry overall,” said Chris Pickles, head of industry initiatives, global banking and financial markets at UK telecoms provider BT.
Industry progress
According to Andrew Allwright, EMEA, head of market structure at Thomson Reuters, the industry is close to unveiling principles that will ensure data quality via a working group set up under FIX Protocol (FPL), a provider of messaging standards. The work conducted by FPL is being combined with an initiative led by the Federation of European Securities Exchanges on harmonising the flags used by exchanges to tag different types of trades.
“Real progress on establishing standards for consolidated tape data has only really been made since the end of 2011, but its overall success will depend on whether market participants are able to cooperate – and certainly the industry has come together a lot to demonstrate this is possible,” said Allwright. “The open question surrounds the commercial aspect, in terms of how revenues can be shared between trading venues and CTPs. If you are expecting a commercial solution, there needs to be a commercial opportunity.”
With most of the industry focusing on the technical aspects of delivering a tape, the question of how CTPs and trading venues would share revenues for delivering post-trade data is yet to be tackled.
Many industry observers point out exchanges have yet to lower fees for market data in a meaningful way, which prohibits the industry from delivering a consolidated tape on the “commercially reasonable basis” that the Commission expects.
While Allwright thought the Council’s amendment would help renew the focus on this aspect, the idea of regulatory intervention in selecting a single CTP from the outset appears to be gaining traction.
“BATS Chi-X Europe would support a competitive public
tender process, given the distinct lack of progress since MiFID I to create a
European consolidated tape by market forces alone,” said Mark Hemsley, CEO of
multilateral trading facility BATS Chi-X Europe. “Key to the success of such a
venture would be its commercial structure. A commercially available consolidated
tape would need to be priced affordably for users and offer a reasonable return
for market data contributors.”
From 1 October, BATS Chi-X Europe will start charging for its market data using a tariff that undercuts most exchanges’ data costs.
The Council’s views on the consolidated tape are included in proposed amendments to the first draft of MiFID II unveiled by the Commission last October. After the Council has finalised its amendments, it will be required to reconcile its version with that of the European Parliament’s Economic and Monetary Affairs Committee, with input from the European Commission, a process that is expected to take place in 2014.