12.03.2012
By Terry Flanagan

Industry-Led Consolidated Tape For Europe Edges Closer

Plans to establish an industry-led post-trade consolidated tape of record across Europe appear to be making some ground as the alternative option—force-fed regulation from Brussels—rears into view.

An increasingly fragmented marketplace in Europe, caused in part by the original MiFID review in 2007 that increased competition to the exchange landscape as part of sweeping reforms to the region’s financial services landscape, it has made it harder in recent times for market participants to get an easily accessible and transparent view of the market to understand whether or not best execution requirements have been met.

It is estimated that a full set of equity market data costs eight times as much to acquire in Europe as it does in the U.S., which has a consolidated tape in place.

Under the latest MiFID II proposals, if the industry cannot agree a commercial approach to the creation of a consolidated tape within two years then the European Securities and Markets Authority, the pan-European regulator, will be forced to step in and establish a single commercial entity to operate a consolidated tape.

Fearing the consequences of the hand of Brussels, two industry veterans this week announced plans for an industry-led consolidated tape in Europe.

Called the Coba Project and run by Graham Dick, the former head of business development at equity trading venue Chi-X Europe, and Mark Schaedel, the ex-market data chief at exchange operator NYSE Euronext, they believe their plan will succeed where others have so far failed.

“Following six months of extensive consultations with European and domestic regulatory bodies, regulated markets, MTFs [multilateral trading facilities], key buy side and sell side institutions, we believe that we have established a framework which addresses all of the regulatory, technical and commercial issues and has sufficient industry support to move forward,” said Dick.

Building on the market model typology plans—an industry initiative to come up with common standards as a precursor to the consolidated tape—and the recent best practice recommendations from the not-for-profit standards organization FIX Protocol, the Coba Project says it has established a plan which incorporates both proposals within a commercial framework that addresses many of the key issues which have impeded progress to date.

“This solution aligns to MiFID proposals, responds to stakeholder needs and facilitates the broad adoption of a pan-European consolidated tape as a means of restoring market transparency,” said Schaedel.

“We have also incorporated many lessons learned from the U.S. consolidated tape system while taking into account the unique circumstances and opportunities here in Europe.”

Dick added: “After a lengthy period of debate and consultation, there is now no reason to delay further. With the commitment and co-operation of key stakeholders, the first phase of implementation can be delivered by the end of the second quarter 2013.”

However, not all are convinced that the Coba Project will prove to be a success.

“Everyone acknowledges that the lack of an agreed tape of record makes any concept of true best execution pretty meaningless and yet, five years on from the introduction of MiFID, there still seems little sign of progress,” said Steve Grob, director of group strategy at Fidessa, a trading and technology company, in a recent blog.

“The two announcements this week [the Coba Project and FIX Protocol] claim to be industry-led solutions, but neither has the complete backing of the market and neither solves the fundamental problem that continually seems to get kicked down the road.

“Is it the investment managers that make the buy/sell decisions, the brokers who execute and, in some cases, match orders, or the venues that list the stocks in question and match order flow too? This has a crucial bearing on who should actually pay for this data and then how much.

“The Eurocrats seem vague on all this and yet they state that if commercial providers don’t step in to provide such a consolidated tape at ‘reasonable cost’ then they will take matters into their own hands.”

Initiatives to put a consolidated tape in place have been batted away by the incumbent national exchanges in the past who are loathe to lose the revenues on offer for use of their market data. The home markets are estimated to bring in €1 billion a year collectively from this—although the national exchanges argue that it is a price worth paying.

“The consolidated tape is the one thing the entire industry, except for maybe the exchanges, are unanimous on,” Andrew Morgan, co-head of equity trading for EMEA at Deutsche Bank, Germany’s largest bank, told Markets Media.

In May, Bats Chi-X Europe, Europe’s largest equities trading venue by market share, announced plans to charge customers to use its market data feeds—the first multilateral trading facility to do so—in a bid challenge the higher fee model charged by incumbent exchanges.

Michael Horan, director and head of trading services, Pershing

Michael Horan, director and head of trading services, Pershing

Bats Chi-X Europe said at the time it was a drive to offer a more competitive market data fee model and that the move may provoke a wider discussion on the provision of a consolidated tape.

“[Establishing a consolidated tape] is a challenge as the exchanges want to protect their revenues, but Bats Chi-X Europe has done the right thing,” Michael Horan, director and head of trading services at Pershing, part of custody bank BNY Mellon’s empire, told Markets Media.

“At the start, their data was free but they then charged for data and it brought a knee-jerk response that Bats were playing the same game as the exchanges. But what Bats has done is put a value on the price of data and they are waiting to see who follows.

“The regulators have expected an industry response all along in terms of forming it but when participants like Bats move the debate forward it can only be a good thing. But the regulators might come to a point soon and say we are going to do X, Y and Z due to industry inaction.”

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