Five years on, how will the tale of the tape end?
Market participants have
expressed concern that proposals in MiFID II are not substantive enough to
facilitate the creation of consolidated tape, despite renewed pressure on
exchanges to reduce data fees.
In addition to the charges levied
by exchanges for their data, observers argue that the commercial approach to a
consolidated tape – one of three solutions proposed in MiFID II – will not
yield a timely or effective solution.
In its October 2011 MiFID II
draft, the European Commission opened the door for competing providers to
create consolidated post-trade market data solutions based on pre-defined
standards. Ensuring that data is of a sufficient quality prior to consolidation
would be the responsibility of approved publication arrangements (APAs), new
entities created by the directive. MiFID II also proposed a mandated and call for tender option, but the Commission stated its preference for a commercial solution.
The fragmentation of
liquidity that resulted from the first iteration of MiFID in 2007 makes it
difficult for market participants to benchmark and analyse their executions
against a standardised source of post-trade data. While larger sell-side firms
have devised proprietary versions of the tape, a common industry-wide solution
is yet to emerge.
“Ultimately, the lack of a
consolidated tape continues to be a big issue,” Gregg Dalley, head of EMEA trading,
Schroder Investment Management, said in the Q1 edition of The TRADE. “MiFID was
supposed to create transparency but from a post-trade reporting perspective,
it's the worst it has ever been.”
According to Richard Semark,
head of European client
trading and execution relationships at UBS,
the commercial incentive to offer a consolidated tape is not strong enough.
“The competing providers proposal is essentially no different to what we
have faced over the last five years, where regulators were waiting for an
industry-led solution,” Semark told theTRADEnews.com. “It’s unlikely we will
solve all the problems without one body that is mandated to do this.”
One of the primary problems for market participants is the cost of
compiling a consolidated tape, with stock exchanges criticised for charging too
much for their market data, despite reductions and unbundling coordinated by trade body the Federation of European Securities
The current version of MiFID
II states that data must be made available on reasonably commercial terms, but
Niki Beattie, managing director of consultancy Market Structure Partners, said
more must be done.
"The concept of making market data
available on a commercially reasonably basis is vague and it's unlikely that
regulators would step in and stipulate what data costs should actually be,” said Beattie. “Exchanges have paid lip service to
reducing market data costs, but what they really need is to give firms the
option to break down the data they take by index, or even by individual stock.”
But she admitted that the
likelihood of exchanges doing this is slim given the negative impact it would
have on their data revenues.
Semark added: “We are in a position where the incumbents have strong
vested interest in maintaining the status quo. If prices were forced down to
facilitate a consolidated tape, we would want the authorities to keep a close
eye on other forms of data costs, like non-displayed data used
to calibrate algos.”
A further incentive for
exchanges to reduce data costs is the decision by BATS Chi-X Europe to become
the first multilateral trading facility to charge for data from October. The
fees levied by BATS Chi-X Europe for its pan-European feed are a tenth of
the aggregated fees charged by the underlying domestic markets.
“It is now up to the
industry to push the debate further with what we think is a good quality
reference point,” BATS Chi-X Europe CEO Mark Hemsley told theTRADEnews.com.
But cost is not the only issue.
There are also technical aspects of the consolidated tape that need to be
resolved, such as which trading venues are included, a common timestamp and the
formatting of data.
“The key to creating a
consolidated tape lies with fixing the underlying data,” said Beattie. “APAs
are a big improvement, but MiFID is still very high level and there needs to be
some consideration on how the this regime will be implemented.”
FESE and standards body FIX
Protocol Limited collaborated to solve some issues, such as harmonising exchange flags used to tag trades
and the identifiers for different types of OTC equity trades.
Such initiatives have
run into difficulties as market participants with vested interests look to have
“A central mandated body can take all these aspects and propose a single
solution.,” said Semark. “When you hit thorny problems, you have one body
responsible for solving it, as opposed to lots of committees likely to
come out with different solutions.”