European Consolidated Tape on Back Burner

Terry Flanagan

A European consolidated tape, one of the hallmarks of the MiFID regime, is in danger of getting lost in the shuffle as the trasntion from the original MiFID to MiFID 2 gets bogged down in minutiae.

“European equity brokers face a number of challenges during the current ‘interim’ between the original MiFID Directive of 2007 and its MiFID 2 successor,” said David Morgan, marketing director for trading and client connectivity in SunGard’s capital markets business, in a blog. “The interim period is unfortunately becoming steadily longer as debate on the details of MiFID 2 and MiFIR grinds on, with implementation unlikely before 2015 at the earliest.”

The consolidated tape appears to be a casualty of the current “between MiFIDs” market environment, characterized by delays in the drafting and discussion of MiFID 2.

“The need for a consolidated tape, like the one that is long-established in the U.S. market, remains paramount: this tape needs to carry basic transaction data from all trading venues, plus OTC trade reports, in a standard format and at an affordable price,” said Morgan. “So it’s regrettable that the one vital prescription on which virtually everyone can agree – the consolidated tape, delivering affordable market transparency – is delayed while the other complexities are debated.”

MiFID 2 includes an extension of the pre-trade transparency regime to non-equities and a revision of the pre-trade transparency waiver regime, as well as the creation of Approved Publication Arrangements (APAs) and Consolidated Tape Providers (CTPs).

“This aggregation of market data will allow market players and regulators to acquire a unified view,” said Steven Maijoor, chair of the European Securities and Markets Authority, in a speech. “I do not know if the new rules will effectively bring at least one truly, full consolidated tape; but I think that it would be a lost opportunity if, as some say, they did not. It will also enhance the surveillance function of trading venues, which would for the first time have a consolidated source of all trading in all venues and OTC.”

Earlier this year, the COBA Project, which was established objective of establishing a pan-European consolidated tap, was abandoned due to insufficient support. Although many Exchanges were willing to adopt the proposed commercial model, they are concerned with the risks related to the potential expansion of scope to include pretrade data.

“While the technical and data standardization challenges for any consolidated tape provider will be considerable, they can almost certainly be overcome,” Morgan said. “But COBA’s setback shows that the commercial issues will be even more difficult – what price should be charged for the data and how should revenues be shared between the originators? The threat to some existing business models, particularly those of the established exchanges, is large, and resolution of the inevitable conflicts will almost certainly require ESMA’s direct involvement.”

It is now unlikely that a commercial solution will appear of its own accord.

“Unless market participants are prepared to wait several more years for basic enabling data that many argue they should have had since 2007, it would be desirable to separate the consolidated tape requirement from the rest of MiFID 2, and launch the necessary regulatory process for its delivery immediately,” Morgan said. “There are many lobby groups active in the MiFID context: maybe it’s time for a “tape now, please” group to make its voice heard,” he said.

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