ICMA Presses for One Non-Equity Tape

Shanny Basar

Buy-side members of the International Capital Market Association said they want a single consolidated tape for non-equity instruments in Europe, rather than potential multiple tapes.

Last October the European Securities and Markets Authority published a consultation paper on the technical standards for several consolidated tapes for non-equity financial instruments as part of the MiFID II regulations that come into force in January 2018. Icma 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 last month stressing the benefits of a single consolidated tape.

In its first quarter report this year Icma said the working group is concerned that Esma has not provided clear direction for a functioning dissemination of post-trade data or suggested a streamlined IT architecture for market participants to work towards.

“By leaving the IT architecture scope requirements indistinct, Esma has primed the landscape for the emergence of potential multiple consolidated tapes for non-equities,” said Icma.

The working group said the benefits of a single-source consolidated tape are clear including 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.

Icma said: “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.”

In addition, Icma believes that a number of consolidated tapes will lead to a fragmented and inefficient post-trade landscape. This will be exacerbated by Esma only collecting data from venues and Approved Publication Arrangements that meet or exceed reporting thresholds based on volume and/or number of trades. Icma said trade data from all trading venues and APAs in one place allows 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.”

The working group members were also concerned about the high probability of paying for their own raw data. However, they did not object to paying for enriched market data such as benchmark spread calculations, or data presentations and visualizations tailored to trader workflows and watch lists. The group’s preference is for Esma to create one single-source clean consolidated tape, owned and governed by the regulator.

“The consolidated tape working group’s proposed solution is that Esma owns and governs the process (which is self-funded) of assembling clean raw data into one consolidated source to be redistributed to the market, on a reasonable commercial basis and not bundled with other services,” said the report.

Amundi, the European fund manager said in its response to the Esma consultation that a consolidated tape will bring clarity on the real level of transactions and, to be informative, should theoretically consolidate all information relating to its scope.

“It is not advisable in that respect to establish a myriad of consolidated tape producers knowing from the experience of MiFID that the supposed benefits of competition are by far overweighed by the disadvantage of fragmentation and absence of global view,” said Amundi.

The fund manager also said that Esma should not limit the number of captured trades in the consolidated tape. “The essence of consolidation is to capture all trades and be comprehensive, added Amundi.

However the fund manager did support very minor APAs and market venues being excluded from the tape. Amundi said: “However, we challenge the thresholds mentioned in the consultation paper to identify marginal participants and believe that a global coverage ratio should be added as a third criterion.On top of a threshold expressed as a percentage of volume and number of trades, we think that a coverage ratio should be introduced to make sure that the tape captures at least 85 % of the market. ”

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.”

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