The UK’s Financial Conduct Authority (FCA) on 2 March communicated to market participants and trade associations its plans to move forward with a single consolidated tape (CT) model, The TRADE can reveal.
An email from Stephen Hanks of the FCA to market participants, sent at 7.40am and seen by The TRADE, confirmed the FCA’s plans.
“After listening to representations on this issue and considering our competition duty, we believe a model of a single provider chosen by tender for a specified duration could offer an effective approach to dealing with the practical delivery of a tape for bonds as well as offering some of the benefits of competition through competition for the market,” said Hanks.
“Having a single provider will need to be coupled with suitable measures to mitigate the lack of competition between authorised consolidators and these will be part of the design considerations that we will be asking for feedback on. It will be important to ensure that the overall framework for the tape ensures as far as possible that it delivers on providing enhanced access to trade data at a reasonable cost.
“Once a tape is up and running, we will at an appropriate stage during the initial tender period conduct a review of its operation. Amongst other issues, that review will consider how the chosen model has played out in practice and whether that continues to remain the most appropriate structure.”
Although the UK has not until now made a firm decision on a tape, the assumption has always been in favour. However, this morning’s decision marks a key milestone by the FCA in terms of single project rather than a competition between providers. This is a big difference – according to sources speaking to the TRADE, it is likely to give more clarity, and also means no duplication of costs or of infrastructure build expense.
The decision has been received favourably by players in the running for the EU project, with Sassan Danesh, CEO of Etrading Software (which already plans to bid for the EU tape) telling The TRADE today that the firm has every intention of bidding for both models.
“The expectation is that we would build a single infrastructure for both, to ensure maximum synergies across the marketplace, but with two separate governance models,” he explained. “We will be responsive to the FCA’s requirements for the UK jurisdiction, and ESMA’s requirements in the EU, including building flexibility so that the detailed specs can be different. For example, if the UK wanted additional data points that the EU did not, we’d have the ability to implement that. This would allow the possibility to aggregate across the two separate streams of data, so where market participants want to consolidate both, they could do so.”
At the moment, the EU tape looks to be a two-horse race, with the ‘big three’ consortium of MarketAxess, Tradeweb and Bloomberg (along with FINBOURNE as their technology provider) the only other players to have confirmed plans to bid for the tender – although more players may join as the process continues.
The Bloomberg, MarketAxess and Tradeweb consortium, along with FINBOURNE, declined to comment for this article.
The FCA move follows Wednesday’s vote by the European Parliament’s Economic and Monetary Affairs Committee (ECON) in favour of MEP Danuta Hübner’s draft report on Mifid/Mifid. First drafted by Hubner in July 2022, the suggested amendments outline an overall of the current regulatory treatment, including clarification on a number of issues for the industry such as payment for order flow (PFOF), dark pool caps, and of course the perennial problem of how to create a comprehensive consolidated tape.
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The Hubner amendments include a suggested ban on the controversial practice of payment for order flow, along with the scrapping of dark pool caps and a defined, qualitative definition of what exactly constitutes a systematic internaliser.
The element of the amendments that has garnered the most attention, however, has been the implementation of a consolidated tape and the knotty issue of whether or not to include pre-trade data, a decision in which the original Hubner report was strongly in favour. “The efficiency of the CT will be proportionate to the value it provides to its users – in this sense, it is essential that the equity tape contains real-time, pre-trade information, necessary to inform investors’ trading decisions,” said the report.
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Wednesday’s vote finalises the European Parliament’s negotiating position, and allows the reviews process to move to its final stage in trilogue, under the new Swedish presidency.
Cboe Europe, a longstanding and vocal supporter of a consolidated tape, noted that: “While work remains until a final framework is agreed, the amendments proposed by the European Parliament and European Council represent significant improvements on the initial text and have the potential to create a final framework which drives forward EU capital markets for the benefit of all participants, particularly end investors.”
“We have been saying it for some time, but the review of Mifir/Mifid represents a pivotal moment for the EU and the future of its capital markets as it seeks to reverse a period of declining volumes and competitiveness compared to other developed markets,” said Natan Tiefenbrun, president of Cboe Europe. “The review offers the EU an opportunity to create a regulatory framework which puts the needs of investors and issuers to the fore and makes the bloc a more attractive investment proposition for all types of investors.”
The competition begins
Danesh added: “It is great to see movement in both the UK and EU, towards the establishment of their respective consolidated tapes. We also welcome the FCA’s conclusion that a consolidated tape can help improve the overall cost, quality and accessibility of wholesale data. We stand ready to provide technical input to UK authorities to accelerate the move to tender stage for a UK Consolidated Tape.
“In the EU, we hope trilogue negotiations between EU Council, EU Parliament and EU Commission can start in April in order to preserve momentum for the selection of a bond Consolidated Tape around the end of the year.”
April seems to be the general consensus in terms of timeline, at least in the EU.
“We would expect trilogue negotiations to begin possibly by April and potentially conclude before the summer recess that begins at the end of July,” agreed Tarek Tranberg, public affairs manager at Optiver, speaking to The TRADE.
“That could lead to a final text being published in early 2024, with most of the rules being implemented in the following 24 months.”