Esma Specifies Non-Equity Tape

Shanny Basar

The European Securities and Markets Authority has issued specifications for a consolidated tape for non-equity instruments which may lead to a number of tapes for separate asset classes.

Law firm Norton Rose Fulbright said on its Regulation Tomorrow blog that MiFID II, the regulations which will cover European financial markets from 2018, provides for the establishment of a consolidated tape for both equity and non-equity instruments.

Esma’s draft regulatory technical standards for an equity tape were endorsed by the European Commission in June last year. However the specifications for the non-equity tape were only released last week due to the complexity involved and as the provisions will only apply from September 2019. The regulator consulted on the specification at the end of last year.

“Esma reports that there was broad support for its proposals and therefore its main approach has been maintained,” added Norton Rose Fulbright. “However, Esma has made some changes to the draft regulatory technical standards in order to simplify the identification of the approved publication arrangements and trading venues that have to be included in the consolidated tape by replacing the approach based on market share of APAs and trading venues with a minimum coverage ratio that the consolidated tape provider has to meet.”

The Esma standards allow for the possibility of tape providers specialising in one or some asset classes. In the consultation buyside members of the International Capital Market Association had wanted a single consolidated tape for non-equity instruments in Europe, rather than potential multiple tapes.

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Icma had set up a working group of 14 member buyside heads of global or European trading desks to respond to the consultation paper which submitted a response to Esma stressing the benefits of a single consolidated tape which include protecting the smaller investor who may not have access to several consolidated tapes or the ability to pay for an aggregator. In addition, large traders want condensed, succinct and accurate pre-trade information before advising on or executing a trade.

“With a consolidated EU view of trade data, a market participant can identify counterparties he or she has previously never traded with, allowing interaction between regionally diverse market participants who may never had previously heard of each other, much less traded” said Icma.

The Esma standards also allow APAs and trading venues that have to be included in the tape to be based on a coverage ratio of 80% of all transactions published in an asset class in the EU. Icma had also wanted Esma to collect trade data from all trading venues and APAs in one place to allow for more accurate sourcing, price discovery and formation.

“The consolidated tape working group members are particularly concerned about Esma’s proposal as they believe multiple tapes will increase the cost of assembling a ”single source” tape (necessary for an all-inclusive EU view) while potentially introducing trade data errors, duplications and differences between the various “consolidated” tapes,” added Icma. “All of this would result in the lack of a single authoritative tape, potentially leading to a set of multiple platform-dependent solutions and fragmentation.”

Amundi, the European fund manager, had also said in its response to the Esma consultation that it was inadvisable to establish a myriad of consolidated tape producers. The fund manager continued that cost is a real issue for investors and it would be more efficient and less expensive to start a unique consolidation organized by a government body to the benefit of the total financial community.

“A non-profit consolidated tape with governmental supervision and organization is a possibility that should be better assessed,” said Amundi. “We see many merits in it: absence of duplication, resulting in lower cost for the community, security of a service supervised  by authorities, easier enforcement (due to public authority’s power) to cover all transactions, golden source for all participants, neutrality.”

The final draft specifications on the non-equity tape have been submitted to the European Commission, which has three months to decide on an endorsement.

Anne Plested, who heads up the regulation change programme for Fidessa in Europe, said in a blog that the last day in March was a milestone for MiFID II when the remaining regulations and directives were published in the EU Official Journal.

“Even with the finish line pushed out to January 2018, this less than speedy endorsement of the regulatory technical standards means that MiFID II is looming rather faster than some might like,” added Plested.

In addition the Financial Conduct Authority, the UK regulator , also published its next consultation paper and its first MiFID II implementation policy statement. Plested said: “As we spring into quarter two it’s full steam ahead for all investment firms as they gear up for January 2018.”

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