When on 8 July 2010 the Federation of European Securities Exchanges (FESE) announced that its members planned to offer cheaper and simpler access to unbundled pre- and post-trade data, the exchanges were trying to drawing a line under the argument that the cost and complexity of their own data was inhibiting post-trade transparency.
That there was ever a significant problem with exchange data is questionable says Marc Berthoud, deputy head of data and index products, SWX, the Swiss exchange group. “Regulated markets and MTFs provide a level of market data that is very granular and timely. Our concern is the OTC market. Even if regulated markets unbundle their data, it won't improve the quality of OTC data,” he notes.
The Committee of European Securities Regulators (CESR), the body responsible for regulatory harmonisation across Europe, conducted a consultation into improving post-trade transparency to assist the European Commission in its review of MiFID.
The two main options for increasing transparency are to create a single consolidated tape of post-trade data, a model used in the US, or improve the current model, with competing tapes offered by commercial providers. Existing products are currently seen as expensive by many users. By offering unbundled pricing for pre- and post-trade data to commercial firms the exchanges hope to reduce the cost for end users. They have also pledged to make their data feeds easily cross-referenced to facilitate consolidation.
CESR has indicated that a consolidated tape of post-trade data may have to be mandated, something that is unpopular with a number of exchanges.
Deutsche Borse strongly denies that a mandated tape would provide a solution. In a statement it said, “A single consolidated tape has significant shortcomings (e.g. single point of failure, introducing additional latency in market data dissemination) and would neither fit with the European trading landscape nor the European regulatory environment in terms that both are based on competition.”
Following FESE's announcement the London Stock Exchange, which is not a FESE member, also announced that it would unbundle its post -trade data package, creating a low-cost offering specifically for commercial providers to use for commercial tapes. This show of solidarity emphasises the degree to which stock exchanges wish to show clean hands.
With exchange data costs and complexity addressed, accuracy of OTC data is the next target. Mark Schaedel, senior vice president for global data products at exchange technology supplier NYSE Technologies, says that the firm's parent, NYSE Euronext, is now working with trade reporting facility Markit BOAT to simplify the OTC side of post-trade data. “We are also a OTC trading reporting venue and therefore have a broader obligation. Between ourselves and Markit BOAT we represent over 80% of the OTC trade reports,” he observes.
He believes that the lack of post-trade transparency is a result of the inability to consolidate OTC post-trade information which lacks standardisation. “There are no requirements for [the OTC trading firms] to report all relevant details and some of those details are important,” he explains. “Whether a trade was accessible or whether it was a price forming trade might be important information for certain use cases. It is also very hard to get a view on the total volume in the market and what to hold your broker accountable for as its very hard to benchmark your exit rates and execution costs.”
To resolve this NYSE Euronext and Markit BOAT are developing an integrated feed that will consolidate streams of OTC data from both platforms. Flags from either feed will be harmonised into a single field that has one value to represent a particular condition, which Schaedel considers to resolve a big part of the problem.
Timestamps will be provided for the when a trade took place, when it was published and when the report was published giving users three points of triangulation for sequencing the trade with market events.
This should go some way to alleviating complexity but cost is still a problem, as Schaedel acknowledges. “The real issues seem to be cost of data and the ability to consolidate data across disparate platforms. Cost as it relates to exchange fees is too narrow a focus and should incorporate the costs imposed by all parties. We do not absolve ourselves from this debate however and these commitments demonstrate that we are part of the solution rather than the problem.”
No exchange or data vendor wants their income stream to be part of the costs that are cut. But if a consolidated tape is mandated, regulators may create a system that undercuts everyone's offering. Negotiations continue.