The European Council and European Parliament have today reached a milestone agreement to implement a consolidated tape and limit the practice of paying for order flow.
Thursday’s agreement will see the establishment of a real-time EU-level consolidated tape for “different kinds of assets” traded in the EU. Key information such as the price of instruments and the volume and time of transactions will be included. Data from “all trading platforms” will be included in consolidated tapes. 
It also introduces a “general ban” on the practice of paying for order flow (PFOF). Thursday’s compromise includes the possibility for a member state where PFOF is currently allowed to offer firms in its jurisdiction an exemption. However, this will be phased out by 30 June 2026.
“I am glad we have found a political agreement on this review that will bring more transparency and make market data more available,” said Elisabeth Svantesson, Swedish Minister for Finance in a statement. “A more transparent and accessible financial market will improve the level-playing field between investors and strengthen the EU’s competitiveness at international level, to the benefit of businesses and citizens.”
A long time coming
The decision reached on Thursday follows lengthy debate surrounding the consolidated tape and PFOF. Both topics have proved the most divisive both in the build up to and during the various Trilogue sessions that have been sat, with the European Council and European Parliament holding opposing views on both.
With regards to the consolidated tape specifically, the European Commission was tasked with drawing up an additional proposal aimed at bridging the gap between the European Parliament and the European Council in May after discussions came to a standstill.
Central to this disagreement was the tape’s contents, namely whether or not to include both pre- and post-trade data in a tape for equities. Those for the inclusion suggest it would lower the cost of data for participants and that a tape is not commercially viable without it.
Those against suggest the tape would not be fit for purpose if pre-trade data is included as it could leave investors – both institutional and retail – subject to latency-based arbitrage strategies.
Thursday’s agreement makes no mention of what the tape will include other than that it will include key information such as the price of instruments and the volume and time of transactions.
However, several sources have told The TRADE that the compromise agreed on Thursday includes an anonymous EBBO with no attribution to venues, alongside real-time fully attributed post-trade data.
“This is the culmination of an extensive review of Mifid II/Mifir over the course of 2019 to 2021 covering the whole scope of the current regulations and, notably, the Mifir transparency regime,” Anne Plested MCSI, EU Regulation, at ION Markets, told The TRADE.
“This review has been twofold, one assessing whether existing rules have delivered on their objectives and two proposing any necessary targeted amendments, both at Level 1 and Level 2. With firms already actively planning for upcoming ESMA changes to technical standards for January 2024, this announcement puts the wider Mifid II Review project firmly on the map.”
Several joint ventures have come to light throughout the course of this year to try and push a consolidated tape model through. In February, 14 European exchanges confirmed they were working together to develop an application for a European CT in equities. This was followed by a similar joint venture announced by Barclays, BlackRock, Crédit Agricole CIB, Société Générale and UniCredit in April.
“Yesterday’s [Thursday’s] decision from the European institutions provides clarity on the legislative framework for a consolidated tape that aims to benefit all market participants,” Neils Tomm, spokesperson for the exchanges joint venture said in a statement.
“Our joint venture will be uniquely suited to take on this opportunity and provide a comprehensive, standardised, and consistent source of market data. The joint venture of 14 European exchanges is actively taking steps to prepare for the delivery of the Consolidated Tape (CT), demonstrating their commitment to implement this significant European capital markets project, and the long-term success and prosperity of retail investors and market participants.”
How to legislate PFOF in Europe has proved to be another key battle line drawn during the Trilogue process, with drastically opposing views that range from an outright ban to a discretional member state by member state approach being proposed by various parties.
Various compromises have been tabled in the last few months as a means to mitigating opposing viewpoints, including a regional ban with additional controls overlaid on top. Thursday’s conclusion is set to allow a member state exemption for a set time period, ending in June 2026.
Graham Dick, market structure analyst, Aquis Exchange, added: “It is extremely good news that the European Parliament, Commission and Council have agreed on the creation of a consolidated tape for European equities. A consolidated tape will be of considerable benefit to the capital markets industry, promoting transparency and ultimately helping to boost growth in European equities.”
“This agreement marks consensus on the structure of the consolidated tape and sets a much-needed timetable for development. Given the considerable analysis and debate so far, this is a significant milestone and we congratulate the Trilogue on having reached a conclusive compromise which all parties will be able to move forward with.”