Buy Side Fear Inaction on European Consolidated Tape

Terry Flanagan

Senior buy-side figures are worried that plans for a universal European consolidated tape are being put on the back burner once again.

The Markets in Financial Instruments Directive (MiFID II) regulatory review, which is proposing a huge shift in the way financial markets operate in Europe and is currently being held up in Brussels due to political wrangling, has provisions in it to finally create a consolidated tape, or system of record for the market so that market participants can have an easily accessible and transparent view of the market to understand whether or not best execution requirements have been met.

Buy-side firms, though, are worried that this may be one of the proposed new rules that fails to make the final MiFID II cut. One major buy-side industry body, the European Fund and Asset Management Association (Efama), is fearful that a consolidated tape, which it says will benefit liquidity and market supervision, will not see the light of day in Europe.

“Efama is highly supportive of the European consolidated tape program and regrets the delay in its application,” said Christian Dargnat, chief executive of BNP Paribas Asset Management and vice-president of Efama.

An increasingly fragmented marketplace in Europe, caused in part by the original MiFID review in 2007 which increased competition to the exchange landscape, has made it harder in recent times for buy-side firms to gain a complete view of the market at a reasonable cost. It is estimated that a full set of equity market data costs eight times as much to acquire in Europe as it does in the U.S., which has a consolidated tape in place.

Paul Squires, head of trading, Axa IM

Paul Squires, head of trading, Axa IM

“When we first started talking about MiFID II nearly all the buy side said we need a consolidated tape as a priority,” Paul Squires, head of trading at Axa Investment Managers, told Markets Media.

“I can’t believe we are still talking about it. We got to a point where that seemed to be progressing and I think we all kind of stopped talking about it and got on with our day jobs as we thought it was going to happen. Unfortunately, that looks to have stalled for some reason.”

Initiatives to put a consolidated tape in place have been batted away by the incumbent national exchanges in the past who are loathe to lose the revenues on offer for use of their market data.

“There is a bit of finger pointing as to why that hasn’t progressed as it might have done with some suggesting the exchanges are not working too hard to support the testing of technology as it’s in their interests to retain ownership—and resulting revenues from—the data,” said Squires. “It feels like it’s lost a lot of momentum, which is disappointing.”

In May, Bats Chi-X Europe, Europe’s largest equities trading venue by market share, announced plans to charge customers to use its market data feeds—the first multilateral trading facility to do so—in a bid challenge the higher fee model charged by incumbent exchanges.

Bats Chi-X Europe said at the time it was a drive to offer a more competitive market data fee model and that the move may provoke a wider discussion on the provision of a consolidated tape.

“[For Bats Chi-X Europe] to charge for their data looks not very friendly but I think there was a bigger picture there to highlight and establish a new pricing structure to challenge who is allowed to charge, and how much, for reporting data,” said Squires.

Others in the market, though, are worried that a consolidated tape would not be fully trusted and credible due to the amount of trading that now takes place outside of regulated market venues.

The latest draft of the MiFID II proposals, which is likely to become law in either 2014 or 2015, is advocating a commercial competitive approach to the development of a European consolidated tape, instead of a process to pick a single provider or one mandated by the European Union, but some market participants are skeptical that the plans in their current format, if they even make it into the statute books, will work.

“Everyone agrees we need the consolidated tape, but who will drive the difficult negotiations needed in order to make exchanges’ unbundled post-trade prices available at ‘reasonable prices’?” said David Morgan, marketing director, trading and client connectivity, at SunGard’s global trading business, a trading and technology firm, earlier this year.

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