With the European consolidated tape for shares and ETFs set to create waves across the continent’s markets, how to address key challenges of fragmentation and what lessons should be learned from the US were at the forefront of discussions at the Equities Leaders Summit in Miami.
Specifically, panellists acknowledged Europe’s late arrival to the equities consolidated tape game compared to US – which has had an operational tape since 1976.
Speakers emphasised the importance of timing, highlighting that the US tape emerged alongside centralised exchanges, whereas Europe’s is being built after fragmentation became entrenched into its markets.
Moreover, Michael Warlan, head of global trading at Third Avenue Management, acknowledged the challenge of fragmentation for Europe, yet retained support for the tape, indicating that better data and consolidated views is crucial to improving execution quality and market efficiency.
“Fragmentation from an implementation side is one challenge, but bringing things together through the tape will ensure more transparency and consolidation” he said, adding that “after that, execution quality will follow suit.”
Read more – EuroCTP named EU consolidated tape provider for shares and ETFs by ESMA
In order to address issues of fragmentation in Europe for global traders, panellists also pointed towards the importance of harmonising market definitions and post-trade processes between both the US and Europe.
However, for Robert Miller, global head of equity execution sales at Kepler Cheuvreux, it is essential that Europe ensures there is sufficient transparency across its markets – through the consolidated tape or other ventures – before adapting US-style approaches to tackle fragmentation, to balance integration with Europe’s unique multi-national market realities.
Speaking on this, he asserted: “A key dynamic to be aware of would be to avoid importing fragmentation without sufficient transparency. That’s why the US markets work out well because they have that transparency there, and we’re trying to bring things in Europe along. For Europe, we’ve got to decide whether we want to integrate new dynamics or stay as we are.”
Discussions around fragmentation also shifted toward dark pools, an area where Europe has historically been more sceptical than the US. Miller pointed to fundamental regional differences underpinning this hesitation, stating: “In the US we are more comfortable trading dark than in Europe.
“In Europe it’s not just fragmentation of the market, it’s fragmentation of currencies, of regulation, it’s even more fragmentation of mindset. We are a group of different nations together […] On the sell-side, what we’re trying to do is find out how we can navigate that for complexity. We’re not trying to solve fragmentation, we’re trying to manage it.”
This sentiment was also echoed by Scott Charity, head of market structure at Berenberg, who recommended cautious adoption of adopting US-style dark pools, warning that Europe’s rapid dark pool setup post-Brexit led to incomplete data and misaligned transaction cost analysis (TCA).
“Europeans didn’t like the dark book and it was set up very quickly which then means that not all of the referrals and indicators come back,” he added.