Equity market participants across Europe struggle when trying to base their trading decisions on a full and accurate picture of European liquidity because there is no standardised data feed encompassing the best bids and offers across trading venues, or a reliable reference price. But following industry consultations, an agreement on data standards may not be too far away.
For the moment, bulge-bracket sell-side firms have created their own ultra-low-latency proprietary consolidated tape solutions, which they use both to run algorithms and smart order routers and provide evidence of execution performance back to clients. The methodologies for sell-side data products have been redeployed in Europe from existing US solutions, but in most cases the real-time feed is not shared with buy-side clients.
Data vendors have launched their own products that buy-side traders can view in real time, but with multiple solutions to the same problem, investors can never be sure if they have an accurate picture of the trading landscape. Moreover, users had different expectations of which venues’ prices should be included.
In an effort to drive a market-led solution, Thomson Reuters recently held individual and joint consultations with the buy-side as part of its efforts to establish a set of common standards. It hopes a paper that will outline the conclusions reached will provide the basis for future industry standards.
The ultimate goal is to design a reference price and European best bid and offer (EBBO) data that provides real-time, full tick coverage of exchanges and multilateral trading facilities that provide depth and competitive stock prices. The solution also needs to be of a sufficient latency so it can be consumed visually by humans – rather than used to power electronic trading tools – and implemented consistently across vendors with ease.
“The mechanisms that data vendors have created for a pre-trade tape are good enough and I think we are poised to create market-wide standards,” says Andrew Allwright, business manager, MiFID solutions at Thomson Reuters. “There have been problems for some time, but heavy regulatory intervention is not required. Most of the issues have been due to a lack of communication, but this is now being addressed by numerous bodies including [UK regulator] the Financial Services Authority, CESR’s MiFID review and our own consultations.”
The Committee of European Securities Regulators (CESR), the body charged with ensuring regulatory convergence across the nations covered the EU, kicked off a review of MiFID in December 2008, which will be concluded in 2010.
One ongoing bone of contention, however, lies with post-trade data that is used to benchmark execution performance and help buy-side traders and portfolio managers make informed decisions when hunting liquidity. “We see problems with inaccurate time-stamping, double and triple counting and instances where a trade gets amended but the original entry doesn’t get deleted,” says Rob Boardman, head of electronic trading, Europe, ITG. “It would be helpful to have some mandates on technical standards and we think a regulatory directive to harmonise technical standards would be a key move in this area.”
According to Allwright, the biggest sticking point for post-trade data is the granularity and consistency of trades done over-the-counter (OTC) including across broker’s internal crossing engines.
“When we have discussions with the buy-side, the quality of OTC data is one of the first things they bring up,” says Allwright. “They want to see their executions in the context of the specific execution venues used and not just prints from exchange books and reporting venues. For this to happen, there would need to be more granularity in the reporting of trade types by brokers which would then be reflected in the data published by exchanges and reporting venues.”
If OTC data provided by exchanges and trade reporting venues like Markit BOAT was more detailed, for example including standardised information on type of trade e.g. VWAP, risk trade or hedge, buy-side firms will be able to distinguish where trades may have double counted or inaccurately reported.
“There needs to be a debate on how to report certain types of trades ?and I think a consensus could be reached quite easily,” says Martin Ekers, head of dealing, Northern Trust Global Investments. “For example, if a broker has a?100,000-share VWAP order going through its system throughout the day that is being reported and published in real time, for that to be reprinted after completion at an average price inflating volume is complete nonsense and only serves to mislead.”?
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