The Federation of European Securities Exchanges (FESE) has criticised EU regulators’ plans for the implementation of a real-time consolidated tape, warning that it would deprive exchanges of an important revenue source.
In a statement reviewing the MiFIR proposals put forward in November by the European Commission and the European Securities and Markets Authority (ESMA), FESE has said a real-time tape could damage exchanges’ revenues and their subsequent ability to maintain operations: including “listings and nurturing the SME markets.”
It added that the revenue-sharing model of the proposed tape would not counteract these effects as the scope and conditions of this model are “unclear”. The revenue-sharing model proposed as part of the plans for a tape in November has proved extremely contentious, with many raising concerns that it favours incumbent European exchanges that already receive significant revenues from listings.
As an alternative, FESE has suggested a 15-minute delayed post-trade consolidated tape be implemented and that any reference to best bid and offer be removed.
Elsewhere, FESE has set out proposals for more stringent limitations to be brought in for non-pre-trade transparent venues, including systematic internalisers, which came under the spotlight in November.
The Capital Markets Union update suggested several measures across dark trading and systematic internalisers to encourage more volumes back onto lit and transparent markets.
These included a reduction of the double volume cap (DVC) for dark trading from 8% to 7%, the prevention of alternative trading venues (MTFs) from using the reference price waiver to execute small trades by introducing a minimum threshold, and limiting systematic internalisers’ ability to match at mid-point to when they are trading above twice the standard market size but below the large in scale (LIS) threshold.
FESE said these steps were in the right direction but were not “sufficient to truly increase transparency” instead suggesting that all trades without pre-trade transparency – except LIS blocks – be captured under a single cap to limit dark trading and limiting systematic internaliser equity trading only to above LIS.
“The absence of a transparent market structure in Europe poses a real threat to the integrity of the price formation function that exchanges provide, and on which all market participants rely,” said Rainer Riess, director general at FESE.
“Unfortunately, the MiFIR review proposal seems not to change this for the better: financial stability, fairness and integrity are at risk when price formation becomes the exception, not the rule.”