Data vendor Thomson Reuters has released a white paper outlining 14 proposals for improving the compilation of consolidated pre- and post-trade data across Europe’s equities markets, including the role a new version of MiFID could play in more effective data consolidation.
Since the existing incarnation of MiFID permitted the fragmentation of trading across multiple exchanges and alternative execution platforms, concerns have been raised, particularly by the buy-side, about the industry’s ability to create a consolidated pre- and post-trade view of the European market.
To understand the nature of the concerns, Thomson Reuters consulted with representatives from more than 20 buy-side firms and identified 14 solutions to barriers preventing the creation of both a consolidated best bid and offer and post-trade price source, which are analogous to the US’s national best bid and offer and consolidated tape plan respectively. The paper has been sent to the European Commission and the Committee of European Securities Regulators (CESR) – the body charged with ensuring consistent implementation of regulations across Europe – which will be working on a review of MiFID throughout 2010.
While several of the data vendor’s proposals need regulatory support, Andrew Allwright, business manager, MiFID solutions at Thomson Reuters, stressed, “We do not believe a mandated solution is necessary.”
Although vendors such as Thomson Reuters already provide consolidated pre- and post- trade data solutions, one of the buy-side’s main problems with such a solution is their cost, as they require users to subscribe to the underlying exchange and over-the-counter data feeds. Thomson Reuters proposes that the next incarnation of MiFID, referred to as MiFID 2, should ensure that execution and trade publication venues make their market data available for inclusion in a consolidated source at a much lower price than currently, “ideally at marginal cost”.
“What we and other providers do is largely sufficient [to create a European best bid and offer feed], but to make a consolidated tape commercially viable we would need access to level one data from exchanges,” said Allwright. “Thomson Reuters believes exchanges should make the necessary data for a consolidated tape available at a cost-plus basis.” Allwright added that this would not preclude exchanges from continuing to charge for their quote and price data.
In addition, the vendor proposes that to keep the process less cumbersome, the consolidated quote should be simplified and focused, while the consolidated post-trade tape should have a wider stock and venue coverage, including at least all CESR-listed stocks and trade reporting venues such as Markit BOAT in addition to lit and dark MTFs and exchanges.
Another buy-side bugbear is the quality of reported trade data. For example, many firms publish quotes to undisclosed venues, and while errors in over-the-counter trade reports are common, no one is held accountable. Thomson Reuters proposes applying clear standards to trade reporting and limiting the number of trades reported to proprietary websites. The vendor also calls on MiFID 2 to obligate firms to be transparent about where they report trades, and to ensure proper monitoring of firms’ trade reporting, either by requiring OTC reporting services to provide it, or by requiring firms to disclose statistics about the accuracy and timeliness of their reporting.
To tackle the problem of disparate stock symbologies across venues, Thomson Reuters suggests using existing unique stock identifiers, such as SEDOL or the multilateral trading facility standard UMTF, mapping all trades to the identifiers and requiring all reporting venues and MiFID OTC reporting services to provide execution timestamps, the time of publication and a flag identifying delayed reporting.
To facilitate the use of trade data in transaction cost analysis, Reuters proposes standardised calculations for the best bid and offer and VWAP benchmarks, and focusing the consolidated best bid and offer only on those stocks that are fragmented across multiple venues. It also suggests employing two consolidated VWAPs – an order book VWAP based on order book trades only, and a total VWAP, which would also include auction trades, dark pools trades and trades that are reported on exchange in real time.