Lack of regulatory support thwarts consolidated tape effort

The COBA Project, an industry-led solution to the creation of a European consolidated tape, has been suspended due to regulatory uncertainty and a subsequent lack of support.

The COBA Project, an industry-led solution to create a European consolidated tape, has been suspended due to regulatory uncertainty and a subsequent lack of support.

The end of the COBA Project will mean buy-side traders are highly unlikely to get an aggregated source of European post-trade data until after MiFID II has been finalised, currently slated for mid-2014.

The first version of MiFID in late 2007 led to the fragmentation of liquidity across multiple markets, creating an absence of a single data source for institutional investors, making it challenging to benchmark trades and analyse executions in a standardised way.

COBA – established by former trading venue executives Mark Schaedel and Graham Dick – attempted to find a solution to the commercial considerations that had halted progress of previous industry-led attempts, many of which revolved around exchanges’ desire to maintain market data revenue.

The model proposed by COBA, first unveiled in an open letter to the industry last November, recognised the contribution to price formation made by the different types of venues and rewarded them accordingly.

“We were close to getting a critical mass but it is now unlikely we’ll get the broader market support required to move this forward,” said Schaedel. “We still think the problems the industry faces in trying to create a consolidated tape are entirely solvable, but the timing and regulatory backdrop is becoming more of a burden.”

Schaedel added that debate on the commercial aspects surrounding a consolidated tape had clouded the ultimate aim of achieving greater equity market transparency.

The biggest barrier obstructing COBA’s progress was regulatory uncertainty. MiFID II presented three options for establishing a consolidated tape that included the ability for competing providers to offer tapes based on pre-defined data standards, a single provider selected by a competitive tender process or the appointment of an entity that would run the tape as a utility. While the European Commission and European Parliament had previously indicated they would favour the competing provider option, current MiFID II discussions at the Council of the European Union level have raised uncertainty.

“Debate around MiFID II is now politicised, A single-provider model for the consolidated tape is just one of the bargaining chips on the table, along with issues like the organised trading facility,” said Schaedel. “It’s hard for us to put capital on the table under these circumstances.”

Moreover, European regulators ­– while offering the industry the ability to solve the consolidated tape issue itself – were unable to support COBA’s work.

For instance, the Commission was unable to endorse the project’s work on OTC equity trade reporting flags, despite the fact it was first initiated by the Committee of European Securities Regulators (the former name for the European Securities Markets Authority).

As such, it will take the finalisation of MiFID II’s level one text before a consolidated tape solution can move forward.

“We don’t see many alternatives, short of waiting to see the outcome of MiFID II,” added Schaedel. “Brussels gave the industry two years to form an industry-led solution. But in reality, they cannot support any commercial initiatives or help in terms of changing trade reporting behaviour.”