05.28.2012
By Terry Flanagan

Consolidated Tape Moves Step Closer In European ETF Space

iShares, the exchange-traded fund provider, and data vendor Bloomberg have joined forces to offer a consolidated tape for ETFs in a bid to increase post-trade transparency and limit the effects of market fragmentation in Europe.

As part of the joint venture, the first of its kind in the European ETF market, Bloomberg will utilize its European Composite tickers, which aggregate volume and trading data for reported over-the-counter and exchange-traded iShares ETFs, to allow investors to see the best prices and liquidity. This includes data from 22 venues in Europe where ETFs are traded. Under upcoming European financial regulation in the form of the Markets in Financial Instruments Directive (MiFID II), it is expected that consolidated tapes will become mandatory for both equities and ETFs.

“Industry players have long called for the creation of a consolidated tape,” said Jean-Paul Zammitt, Bloomberg’s global head of core product. “We’re pleased to work with iShares to create the first composite view of the European ETF marketplace.”

For example, the iShares FTSE 100 is currently traded in sterling on five European exchanges and in euros on another four. To determine the overall volumes traded, an investor would have had to look at nine different tickers in two currencies but now this total volume can be viewed on just two tickers, one for sterling and one for euros. Over iShares’ entire ETF product range this means it will only need 517 tickers to view information that was previously spread over 1,385 tickers. The tape will only cover ETFs from iShares, the largest issuer of ETFs globally and which is owned by asset manager BlackRock.

“This unique view of ETF volumes will bring added transparency to investors across Europe,” said Leland Clemons, head of iShares’ capital markets in EMEA. “iShares is committed to working with our partners to improve the investor experience in this marketplace and initiating these types of advances for the benefit of our clients.”

The European ETF market is fragmented because of the number of venues on which ETFs trade as well as cross-listings in several countries. The rise of market fragmentation, caused by the harmonization of markets under MiFID I from 2007, has made it difficult, and costly, for market participants to aggregate information. MiFID II is also likely to push all ETF trades through regulated venues. Currently, about two-thirds of all ETFs are traded over-the-counter.

The creation of a consolidated tape is one of several contentious issues brought up by MiFID II so that fund managers, broker-dealers, banks and their clients can understand whether or not best execution requirements have been met.

The current MiFID II proposals, which are likely to become law in 2014, are 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 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.

In February, market participants across the industry made their points felt to the European Commission about potential problems of a commercial-driven consolidated tape in their responses to questions on MiFID II.

One reply, from the Association for Financial Markets in Europe (AFME), a sell-side industry body, was dubious of allowing more than one firm to deliver the data.

“Multiple operators may make it more difficult to deliver the other elements of the European consolidated tape, including price control and the concept of a single official tape of record,” the lobby group said in its response. AFME said that a single provider should be appointed, subject to a tender process every three years.

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