FCA moves to consult with industry on UK consolidated tape model as back and forth continues

Latest development follows last week’s milestone agreement from European Council and Parliament to introduce a consolidated tape in the EU.

The UK’s Financial Conduct Authority (FCA) has announced that it will consult with industry participants on reforms to improve markets and competitiveness, including the introduction of a UK consolidated tape.

The watchdog’s focus will be on a single consolidated tape provider per asset class, which could help ensure that associated data costs remain low alongside addressing the existing fragmentation of post-trade transparency data.

An initial focus will be on a consolidated tape for bonds, followed by an equities tape. The FCA plans to run a competitive tender process for the bonds tape.

It makes sense that the UK would prioritise a fixed income consolidated tape first as the asset class has traditionally been much more opaque than, for example, equities,” said David Everson, head of trading, fixed income EMEA at Liquidnet.

“A fixed income consolidated tape will, [however], unlikely solve all the pain points overnight. The US has had TRACE for some time, yet suffers from similar obstacles around price transparency.”

Coinciding with the Edinburgh reform, the FCA will work closely with the government with the aim to have a regulatory framework in place by 2024.

The UK tape’s revenue and sharing model and its inclusion of pre- and post-trade data have not yet been confirmed.

The FCA also stated that it will consult on additional reforms to bond and derivative transparency requirements later this year, to establish a more effective regime to bolster the content and delivery of trade data in the UK alongside the tape.

“We are adapting our rules to make sure the UK market works well, providing certainty for firms and so providing a good environment for investment,” said the FCA’s executive director of markets and executive director of international, Sarah Pritchard.

“The new consolidated tape will help reduce trading costs, increase transparency and improve data quality.”

Read more: European Council and Parliament reach milestone Mifid compromise on consolidated tape and PFOF

The development comes days after the EU Council and Parliament approved a consolidated tape for the EU across all asset classes, alongside enforcing a general ban on payment for order flow with temporary member state exemptions.

However, the compromise reached in Europe has proved controversial to those that argue it lacks detail around its attribution and revenue sharing model.

“It would’ve been great to see the EU consolidated tape go one step further to include venue attribution, which would have maximised the utility of the tape. This is hopefully something we will see addressed by the UK consolidated tape proposals, as venue attribution is incredibly important to provide transparency to investors around which venues are displaying best execution at a given point in time,” said Jim Goldie, head of EMEA ETF capital markets at Invesco.

“Additionally, similar to the EU’s consolidated tape, it will be incredibly important to see ETFs included alongside equities in the UK version […] It is important that the UK consolidated tape is as near real-time as possible and includes ETFs alongside equities in one tape, similar to the EU consolidated tape. It is also important that it includes venue attribution, unlike the EU consolidated tape.”

Earlier this year, The TRADE revealed that the FCA had communicated to market participants and trade associations its plans to move forward with a single consolidated tape (CT) model.

At the time, the FCA stated that it would take a single provider approach rather than having a competition between providers, to offer more clarity and avoid a duplication of costs or of infrastructure build expense.

Read more: Recent EU consolidated tape compromise is a ‘missed opportunity’, says AFME

“A functioning consolidated tape had started to look like the “white whale” of the Mifid II framework. While an overall assessment of the proposal will depend on the final details – including in particular the timing of data disclosures – it’s clear that the UK is taking an evidence-based, market-aware approach that increases the chance of a successful roll-out,” said Nathaniel Lalone, partner at Katten Muchin Rosenman UK.

“That approach compares favourably to the horse-trading that has characterised the EU negotiations, where the need to find an acceptable political compromise has raised questions whether its consolidated tape will be fit for purpose.”

Speaking on the latest development, Adam Farkas, chief executive of the Association for Financial Markets in Europe (AFME), noted that a single consolidated tape provider will also be easier for the official sector and industry to monitor.

“We recognise that even an appropriately constructed consolidated tape will not fully address the current unacceptably high cost of market data,” he said. “We trust that the FCA’s extensive work on wholesale data will help address anomalies in this area, which are detrimental to financial markets and their users.”