While the need for a standardised European consolidated tape and best bidand offer is undisputed in Europe’s fragmented post-MiFID equities market, participants are divided on where it adds the most value, according to the result of the latest TRADE poll.
Responses were split fairly evenly between three of the four options: 36% indicated their greatest need was for real-time consolidated data to feed automated trading systems; 31% said real-time data for pre-trade analytics was most important; and 25% felt their biggest requirement was for post-trade consolidated data to prove best execution. Only 8% said the most urgent application of consolidated data was to provide intra-day and/or end of day reference prices.
“The poll results confirm our expectations and what we have been finding in our own consultations with the buy-side – that there are varied uses for consolidated data and it is not confined to pre-trade analytics, algorithmic use or post-trade analysis,” says Andrew Allwright, business manager, MiFID solutions, at data vendor Thomson Reuters.
Allwright argues that existing data vendor products already fulfill the two most popular applications for consolidated data – real-time pre-trade data for feeding automated trading systems and pre-trade analytics. However, others feel that respondents’ answers also indicate their hopes for the European Commission’s impending view of MiFID, due to commence before the end of the year.
“The themes coming out in the poll exactly match what our customers tell us they want to see from a review of best execution,” says Mark Howarth, CEO of pan-European multilateral trading facility Chi-X Europe. “There is a desire for a pre-trade European best bid and offer, either to conduct analysis or to feed trading algorithms, and equally a demand for a consolidated post-trade tape for proof of best execution. While we don’t believe you need to mandate the achievement of the best possible price available across all venues, as that is not a particularly good definition of best execution, you must be able to say what the best price was, compare that with the execution you got and determine whether that is acceptable.”
Critics of the current incarnation of MiFID point out that while the directive provided for multiple trading venues, it did not expressly mandate consolidation of pre- and post-trade pricing data from the resulting new platforms, leaving the market to develop commercial solutions. Despite the existence of vendor consolidated data products, such as Thomson Reuters .xbo and .xt codes and fellow data vendor Bloomberg’s Market Depth Monitor, many feel a more uniform approach is required.
“The vendors can produce a consolidated tape, but there is no standard definition of VWAP, for instance,” says Howarth. “Bloomberg VWAP for a stock is different to Thomson Reuters’ VWAP for a stock. The difference might only be in the third decimal place, but that is important if you have got $100 million of stock because it can make a significant difference to your net asset valuation.”
Work to develop industry-wide market data standards are underway. Thomson Reuters, for example, recently consulted the buy-side on its data requirements as part of its efforts, and hopes the resulting paper outlining the conclusions will form the basis for future standards. Allwright argues that industry-wide data standards are now close thanks to work by the UK Financial Services Authority, the Committee of European Securities Regulators and his own firm’s consultations.
For Tony Whalley, head of dealing and derivatives at Scottish Widows Investment Partnership, the biggest issue regarding consolidated pricing sources is the quality of post-trade data. “We are expected to produce post-trade reports for our clients, including the production of transaction cost analysis. If you are not seeing a large part of the data because it is inaccurate, that presents a problem, which is part of the reason why we need a consolidated tape.”
Whalley argues that a mandated tape, visible by all market participants, would facilitate the cleaning up of post-trade data. “If we had a consolidated tape, people would be able to see their own trades print and would therefore see if, for example, their trade was missing or was flagged incorrectly.”
To vote in the new poll on high-frequency trading, please click here.