Consolidated Tape Needed In Europe
Fixed income market participants said a consolidated tape is needed as soon as possible in Europe in order to meet the increased transparency desired by new regulation.
MiFID II, which came into force in the European Union in January, introduced pre-trade transparency and post-trade transaction reporting into fixed income for the first time. In addition, MiFID II extended best execution regulations into the fixed income market for the first time. Firms now need to take all sufficient steps, rather than all reasonable steps to obtain best execution, and evidence this process.
Panelists at the AFME European Trading & Market Liquid Conference in London said a consolidated tape is needed across the EU as traders have to collect data from many individual platforms.
Juan Landazabal, global head of fixed income and foreign exchange trading at Deutsche Asset Management, said: “The landscape is fragmented and there is no more transparency than in November last year.”
He added that if transparency improves, this will boost the shift to all-to-all models where buy-side firms can find new liquidity through trading with other asset managers.
“More data points will allow us to develop models in-house for improving best execution,” he said.
Zoeb Sachee, head of Euro government and SSA trading at Citi, said the MiFID II data being reported is poor quality. “Our clients feel request for quotes give them more transparency than the MiFID II obligations,” he added.
However, Sachee also pointed out that the implementation of MiFID II did not have a negative impact on liquidity, which some had feared.
Christoph Hock, head of multi-asset trading at Union Investments, said transparency had not improved as few bonds are liquid enough to meet the reporting requirements and in addition, trade reporting can be deferred so the data being publicly reported is not real-time.
“We need a consolidated tape as soon as possible,” Hock added. “Getting real-time data from APAs (Approved Publication Arrangements) is costly and we should learn lessons from equities where market data costs have exploded.”
Ashlin Kohler, fixed income market structure at Citi, agreed that the MiFID II data is not useful in its current state and the industry need to significantly invest in data analytics.
She said: “Commercial solutions for a consolidated tape will evolve and more innovative vendors will emerge.”
A previous commercial venture to launch a European consolidated tape, the Coba Project, failed in 2013 due to insufficient support from banks, fund managers, data providers and stock exchanges.
Daniel Mayston, EMEA head of electronic trading and market structure at BlackRock, said that now MiFID II has been implemented, the industry needs to look forward and assess the value of data being generated.
“The date needs to be standardised, useable and actionable,” he added. “There is a huge opportunity to assess best execution so it becomes data-driven. I would like to see an evolution in 12 to 18 months as useful data could revolutionise how we trade.”
— AFME (@AFME_EU) March 22, 2018
A survey of global asset managers by institutional trading network Liquidnet, Future Tech—Trading Bonds Post MiFID II, found that 86% of firms are currently in the process of re-configuring workflows and 68% are improving data collection.
Rebecca Healey, head of EMEA market structure for Liquidnet and author of the report, said in a statement: “Firms are now beginning to recognise the central role technology plays in making workflows more efficient, allowing trading desks to better evaluate the true cost of execution and not solely focusing on the lowest price possible as that is not necessarily ‘best execution.’ This will ultimately help portfolio managers to build more resilient strategies that take liquidity conditions into account at the point of investment selection, not just execution.”
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