Experts from Norges Bank Investment Management (NBIM), the Dutch Authority for the Financial Markets (AFM), MarketAxess, Ediphy and ICMA dived deep into a debate around the endless issue of a European consolidated tape this week, warning that although the end could now be in sight, numerous issues remained to be resolved – including concerns around data quality.
“From a development perspective it’s perfectly possible,” said Matthijs Geneste, project lead for consolidated tape at AFM. “The more important element to consider is data quality and consistency.” He also raised concerns around the quality and consistency of data reporting.
“If you look at the standards we’ve achieved with Mifir data, especially with RTS 1 and 2, we’ve seen that those pieces of legislation leave a lot of room for different interpretations and that has had an impact on the data quality we see as a supervisor.”
Chris Murphy, CEO and co-founder of Ediphy, which is currently working with a number of institutions including NBIM in order to create a European non-equity tape, added his thoughts on data issues from a provider perspective.
“With the best will in the world, there will be data quality issues.”
“Creating market standards is a necessary step and providing further guidance on that is critical. But we’ve been consolidating this data on a delayed basis for the last few years now and, with the best will in the world, there will be data quality issues. Looking at the data now, because it hasn’t been consolidated, it simply isn’t easily consumable. Once users start looking at the data, even more issues are going to come out.”
Murphy suggested a triaging system to try and address the data issues as they arise. “The provider is going to be the first port of call to start dealing with these issues more proactively. Then we can take this feedback back to the market and start trying to create a system to fix them. We need to work towards a higher quality CT – ultimately, what we want is a tape everyone can rely on, where a misprint on the tape isn’t going to cause a huge issue in the marketplace. An extension to that is that we need a way of tidying up the reference data. For example, we need to make sure the entire market has an understanding of what an ISIN actually is!”
“The last thing anyone needs is a flaky tape, so scaleability and resilience are key,” agreed Raj Paranandi, chief operating officer, EMEA & APAC at MarketAxess, which earlier this year joined forces with Bloomberg and Tradeweb to become the European consolidated tape provider. “But there is a lot of wood left to chop.”
“The last thing anyone needs is a flaky tape, so scaleability and resilience are key.”
One thing the panellists agreed upon was that a consolidated tape was not an exercise in profitability, but a project to benefit broader market efficiency. “Is the CT a moneyspinner? No,” emphasised Paranandi. “Nobody I’ve spoken to who is interested in being a tape provider is looking to make money out of this. It will be a costly exercise but ultimately, people are interested because it drives transparency for the market. I don’t think this will make money for us, that’s not why we’re doing this.”
The question now is how long it takes the legislators to reach a conclusion, and how long it will take all the different authorities across the EU to agree. The recent recommendations on Mifid II amendments from MEP Danuta Hübner were welcomed by the industry, but it depends now what the other political factions think of what she proposed.
“We might have an agreement by the end of the year, in my most optimistic outlook,” said Geneste. “Then it will take most of next year to negotiate what the final product will look like, and then realistically a couple of months for a tender process to run. So early 2024 would be my best guesstimate.”
That, of course, is for a European consolidated tape. Post-Brexit, there are still fears that a separate UK and EU tape could significantly fragment liquidity.
“We’re all interested in fair and transparent markets,” said Pauli Mortensen, head of rates trading at NBIM. “Of course it’s a bit naïve to think that the UK and EU tapes would be carbon copies of each other, but they’d have to be very close, otherwise they’d start to divide market liquidity.”
“If there is a perceived delta in terms of the favourability of the regime, then we would have a problem,” agreed Paranandi, while Murphy warned that although the UK was unlikely to diverge for divergence’ sake, and did not want to bifurcate the market, players should expect some differences in the treatment of the deferrals approach.
“What we need, actually, is a new transparency regime in the EU. Then a consolidated tape would be of some use,” he concluded.