Equities consolidated tape – the devil is in the detail

The potential cost of an EU equities consolidated tape is a crucial component of its success, finds FIX EMEA panel.

A lively discussion at the FIX EMEA conference today on the possibility of an EU-side equities consolidated tape threw up a number of controversial topics, one of the most hotly debated of which was the cost element.

In a panel moderated by Graham Dick, market structure analyst at Aquis Exchange and equities consolidated tape co-chair of the FIX Trading Community, it was broadly agreed that the same data from a golden source would potentially make investing across the EU more attractive. However, not everyone agreed to what extent, with some panellists arguing that having immediate access to that level of data would not necessarily make it easier to trade. “It’s not the universal sticking plaster for all these issues,” stressed on speaker.

The debate, which was conducted under Chatham House rules, included Tim Kreutzmann, department director and legal vice-president at BVI; James McKeone, head of European data at Nasdaq; Irina Sonich-Bright, director of global execution services and head of product management at Credit Suisse; and Natan Tiefenbrun, head of European equities at Cboe.

If an equities consolidated tape was introduced, cost would be a crucial factor, agreed the panel. In a poll of the room, 49% of audience members highlighted the cost to consumers as their top concern, while 27% identified issues around data standards and latency as a key challenge. Ten percent were concerned about who would use it and what it might replace, while other issues included the role of the provider (and whether technical consolidation and commercial revenue collection could be effectively managed by the same entity) and revenue allocation to contributors, regarding who should benefit and why.

Perhaps unsurprisingly, given the audience, the cost to consumers was of substantially more concern than the revenue allocation to providers, but both of these issues are interlinked.

“It needs to be dramatically cheaper,” stated one panellist. “Unless it is attractively priced it won’t be viable, because commercial entities won’t step forward to sell it. It has to be cheaper than the sum of its parts.”

According to the panel, top level data from venues currently comes in at around €675 per month, and given that many providers don’t necessarily even offer this level to all of their clients, a consolidated tape would need to be, one speaker estimated, at least two thirds to 80% cheaper than this.

The revenue split is another essential topic for debate. “Multilateral lit order books do contribute more – all trades have value, but some trades contribute more to price formation than others,” pointed out one panellist. But should the bigger exchanges receive more revenue than the smaller ones, because of this? Some smaller exchanges rely heavily on the sale of market data for their revenues, and a consolidated tape could significantly impact their ability to operate, which is a core concern especially from a regulatory perspective.

In addition, the topic of pre- versus post-trade data is a tricky question. “Any revenue-sharing model should incentivise the provision of pre-trade data, even if it is voluntary rather than mandatory,” stressed one speaker. “If you’re price forming, you should be renumerated.”