Europe’s Consolidated Tape Plans May Yet Get Stuck in Red Tape

Terry Flanagan

Plans in Europe to finally establish a consolidated post-trade tape of record, despite being advanced by the European parliament’s latest draft of MiFID II, appear to still be some way off as reluctance from some sections of the industry continue to stymie efforts.

One of the biggest gripes from the European buy-side community is the lack of a consolidated tape. MiFID II, which is a comprehensive review of the financial services landscape in Europe, 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.

The latest draft of MiFID II advocates 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. And the latest draft says the consolidated tape must contain all markets, including multilateral trading facilities, and not just focus on a sub-set of exchanges.

This, though, could be a major sticking point to the creation of the tape. The incumbent exchanges charge high fees for their market data prices—the home markets are estimated to bring in €1 billion a year collectively from this—and some of the bigger MTFs are beginning to get in on the act, including Bats Chi-X Europe and Turquoise.

One of the stipulations by the European Commission to establishing a consolidated tape is that it is produced at a reasonable cost. So unless market data prices are lowered considerably, especially by the incumbent exchanges who are loath to do this, then a consolidated tape for Europe becomes quite possibly unworkable.

“Adding a potentially unlimited number of non-home markets will just make the cost of a consolidated tape unreasonable,” said Dr Christian Voigt, business solutions architect at trading and technology company Fidessa, in his recent blog.

Voigt also warns that if the consolidated tape does come about and encompasses all the exchanges in Europe—as it states in the current MiFID II draft—retail brokers may, in the future, be forced to connect to every European exchange in order to offer best execution if they are to beat the benchmark set by any future consolidated tape.

Earlier this month, pan-European MTF Bats Chi-X Europe, the region’s largest equities platform with an approximate 25% share of the European market, became the first MTF to charge for its market data.

Bats Chi-X Europe, which says it is offering its feeds at much cheaper prices than rival national exchanges, made the move earlier this year in a bid to provoke debate about what is the ‘right’ price for this kind of service and spur on the movement for a consolidated tape.

And this week it expanded the offering by announcing the availability of Bats Chi-X Europe market data for use in real-time index calculations, in a bid to allow its trade data to be used for the purposes of valuing key benchmarks in real time.

The license will allow Bats Chi-X Europe’s trade data to be used exclusively, or combined with data from other trading venues for consolidated prices for the purposes of valuing indices in real time.

“We are expanding our market data offering in this way to provide a high quality and cost effective alternative to the incumbent exchange offerings,” said Mark Hemsley, chief executive of Bats Chi-X Europe.

“The Bats Chi-X Europe data is an accepted price source that customers consider part and parcel of the market. Customers are conscious that exchange index calculations, particularly intraday, do not fully reflect the market reality because many do not yet include our prices. Our aim is to ensure that those wishing to value European indices in a manner that best reflects the market can achieve this.”

However, the only light at the end of the tunnel for the buy-side community regarding a consolidated tape appears to lie with the European Union. It has the power to set the rules and one provision in the latest MiFID II draft says that regulators can intervene if they think the market data fees of exchanges are too expensive.

Market participants, though, are generally not hopeful of anything happening any time soon regarding a consolidated tape.

“Unfortunately, there isn’t a consolidated tape that is readily available at a reasonable cost because the providers of market data will not allow their data to be available at reasonable cost—limiting price formation and the ability to see what is really going on out there,” Owain Self, global co-head of direct execution and global head of algorithmic trading at UBS, a Swiss investment bank, told Markets Media’s recent European Trading Investing Summit in London.

The Federation of European Securities Exchanges (Fese), which lobbies on behalf of 46 of the region’s exchanges and supports a competitive data consolidation solution model, also believes that the consolidated tape proposals are not quite at the top of the MiFID II agenda, with other more pressing issues to be dealt with.

“Although data consolidation has not been discussed at length during negotiations, the European parliament seems to broadly support the proposal of the European Commission (i.e. competing solution) while in Council some member states may be calling for a central data consolidation solution,” said Fese in a statement to Markets Media.

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