FIX stakes consolidated tape claim, but regulation may be inevitable

FIX Protocol Limited, the organisation responsible for the FIX financial messaging standard, claims it is well placed to undertake the technical implementation of a consolidated tape in Europe, but some observers still expect the final solution to be mandated by regulators.
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FIX Protocol Limited (FPL), the organisation responsible for the FIX financial messaging standard, claims it is well placed to undertake the technical implementation of a consolidated tape in Europe, but some observers still expect the final solution to be mandated by regulators.

Pressure on the industry to devise its own consolidated source of post-trade data has increased following the publication of technical advice by the Committee of European Securities Regulators (CESR) to the European Commission (EC) for revising MiFID. While some data vendors have created consolidated tapes, a standardised, cost-effective solution has not yet materialised.

CESR, which holds responsibility for coordinating European securities regulation, has told the EC to give the industry one more chance to create its own source of post-trade data, or face mandatory regulatory action.

According to Stuart Adams, regional director, EMEA, FIX Protocol, the benefits of using FIX standards as the technical basis for such a project are many.

“On a global basis, FIX is increasingly being seen as a mechanism that regulators can look to when framing new legislation of this kind,” Adams told “We are looking to play a role in the European consolidated tape, but ultimately it will be up to our members to decide what this role will be.”

To clearly define the challenge faced by for potential data consolidators like FIX, CESR has proposed a list of pre-conditions for producing a consolidated tape: the creation of approved publication arrangements (APAs), entities that are required to clean and validate data to enable easier consolidation; the availability of market data at a reasonable cost and on an unbundled basis; and the ability of a consolidated tape operator to make data available at low latency.

Steve Wood, founder of Global Buy-Side Trading Consultants and former global head of trading at Schroder Investment Management, considers the rules governing APAs to be critical.

“There needs to be aggressive regulation governing the quality of data that is scrubbed and validated by APAs to facilitate the effective creation of a consolidated tape,” says Wood. “Without this, buy-side traders will continue to question the quality of transaction cost analysis and the data they use to shape their trading strategies and cost structures.”

If the APA regime is successful, Wood believes FPL can play a central role.

“FPL has years of experience in this type of environment and it is a global standard that covers all sides of the industry, so I believe it will be an ideal entity in this space,” he added.

From a technical perspective, Adams notes that the main obstacle for firms trying to build a pan-European consolidated tape is how particular types of trades are identified in post-trade feeds. One reason this is important to the buy-side is that it allows them to identify which trades they could have interacted with.

“There is a lot of debate around individual transaction types and how they are designated. These kinds of details are designed within FIX quite specifically,” said Adams. “It will be challenging to get these issues aligned across the whole of Europe, but once a normalised baseline has been established, it will give firms the opportunity to innovate and differentiate their data solutions.”

And because use of FIX is already widespread across Europe, the cost of implementing a FIX-based consolidated tape will be lower than alternative approaches, Adams argues.

But while FIX is well positioned to solve the technical details of a consolidated tape, commercial barriers still exist.

According to Niki Beattie, managing director of consultancy firm Market Structure Partners, one commercial aspect that has so far been largely overlooked by market observers is the dominance of Bloomberg and Thomson Reuters data terminals on the trading floor.

“Bloomberg is widely used on trading floors and buy-side trading desks and there is a significant fixed fee for each Bloomberg screen plus additional charges for market data feeds,” said Beattie. “This means that the data distribution is controlled by the data vendor and that the user has already incurred considerable expense before they even add on the cost of the data feeds. At the moment each vendor has compiled their own consolidated tape but is not distributing anyone else's.”

Therefore, other data vendors that build a good quality consolidated tape may not get a look in unless market participants are willing to pay for extra screens from a different vendor, for which Beattie claims there is a “limited appetite” for.

“Until this changes, I don't see the point in discussing the possibility of a competitive, industry-led consolidated tape,” she added.

Furthermore, in its advice to the EC, CESR recognised that the unbundling of pre- and post-trade data is key to providing consolidated data at a reasonable cost. Currently, most exchanges bundle their pre- and post-trade data together, which increases costs for investors that may not require all of the data.

Trade body the Federation of European Securities Exchanges (FESE), which represents 52 exchanges, recently laid out a four-point plan designed to address the issue of unbundling and data costs. Deutsche Börse was the first of FESE's members to commit to unbundling its data by the end of the year.

But Beattie points out that unbundling of data will have to go further than pre- and post-trade data to satisfy the real requirements of investors.

“It is currently only the top 500 or so European stocks where tracking information and consolidating data has become an issue, so what really needs to be unbundled is the data for blue-chip stocks,” said Beattie. “Furthermore, while FESE's plans are a step in the right direction, they don't really cater for traders that are focused on specific sectors.”

While the exchanges have begun to address some of the commercial aspects that have so far prohibited the creation of a consolidated tape, the remaining hurdles may prove too great for an industry-led solution to prevail.

“It's quite likely the regulators will end up taking action as there doesn't seem to be any end in sight for some of the commercial barriers, despite the fact that the technical capabilities are there,” said Beattie.