Feb 01, 2012
Buy-side leads doubts over Brussels’ consolidated tape plans
Voices from across the
industry have doubted the viability of the European Commission’s commercial approach
to a consolidated tape for equities, fearing the proposal outlined in MiFID II will
be hindered by vested interests.
MiFID II suggested three
routes to a consolidated tape for European equities – commercial, mandated or
call for tender. In its proposal, the Commission said it preferred the
commercial model, where businesses compete to market their own tape.
“We would have preferred a
tender process for a single operator solution to avoid the possibility of [vested
interests] arising,” asset management firm Blackrock said in its response to a
call for comment on MiFID II by Markus Ferber MEP, rapporteur to the Economic
and Monetary Affairs Committee (ECON) of the European Parliament.
Buy-side fears were further
confirmed by the Investment Management Association (IMA), a UK trade body.
“We support commercial
solutions for consolidated tape providers (CTPs) in principle but fear that
there will be no sufficient commercial driver for comprehensive CTPs to
emerge,” the IMA said in its submission to Ferber.
In the absence of a single
tender, Blackrock advised that any proposed solutions should be delivered at
cost to offer investors a single view on liquidity in Europe, while the IMA
believed the Commission should be equipped to mandate a single authoritative
tape in case the commercial option failed.
Data aggregators also remain
unconvinced the Brussels commercial model will work. Markit, a financial
information services provider, agreed the creation of the CTP category was
sensible “in principle” as it provided the principles and objectives of data
consolidation.
“However, particularly given
the commercial incentives of the stakeholders that are involved in relation to
data consolidation, we doubt that any data services providers will actually
want to register as CTP,” Markit commented to Ferber.
The Commission has also
proposed that market data vendors will be able to establish consolidated tape
solutions based on data delivered via new entities called approved publication
arrangements (APAs), which would be responsible for cleaning and normalising
data for consolidation to a set of pre-defined standards.
Improvements needed
Markit has raised specific
concerns over the competitive position of potential consolidated tape providers
in relation to trading venues and the timeliness of dissemination, which it
believed needed to be improved.
The service provider also
said Brussels needed to consider requiring market participants to subscribe to
a CTP to provide evidence of best execution.
The Association for Financial
Markets in Europe (AFME), a sell-side industry body, was sceptical of the merits
of allowing CTPs to compete.
“Multiple operators may make
it more difficult to deliver the other elements of the European consolidated
tape, including price control and the concept of a single official tape of
record,” the lobby group doubted, advocating instead that a single provider be
appointed, subject to a tender process every three years.
But the London Stock Exchange
Group (LSE) was more convinced by the Commission’s proposals. “Appropriately
regulated consolidators can provide as authoritative a tape as a single
provider and in a more efficient and market focused way than a single
provider,” the exchange group said.
The LSE, which in December
secured full ownership of index firm FTSE International, believed the best way to
enable the creation of an affordable consolidated view of the market was to “make
the current commercially-driven consolidation processes work more effectively”.
The LSE encouraged the
Commission to build on existing initiatives, specifically work undertaken by a
technical working group initially established by Committee of European
Securities Regulators – the predecessor of the European Securities and Markets
Authority pan-European watchdog – and the Market Model Typology (MMT), both of which were developed in collaboration with
exchanges, multilateral trading facilities, market data vendors and trade
reporting venues.
“We would hope that ESMA
would support the MMT proposal. There will then be a definitive, detailed and
comprehensive set of rules that prescribe all trade types, flags, formats,
standards and parameters that will effectively and comprehensively define the
data to be reported and consolidated,” wrote the LSE.
ECON is presently now
considering the responses to Ferber’s MiFID II questions. Once the European
Parliament agrees its amendments, the Council of the European Union will conduct
its own review of the legislation. The implementation of MiFID II is expected during
2014.
Bruce Love
+44 (0)20 7397 3818
bruce.love@thetrade.ltd.uk