Both the FCA and ESMA have published updates to their respective consolidated tape framework plans, including expected timelines, with a continued focus on the procedures for the selection of a bond CTP.
In the EU, ESMA has confirmed that the selection of the bond tape provider is set for two years from now. The expected timeline according to ESMA begins with the Mifir review entering into force in Q1 2024. The preparation of technical standards and procedures is expected to follow throughout the year. Following this will be the launch of the first selection for a bond CTP in Q4 2024.
The preparatory phase could include a public consultation and stakeholder workshops in a bid to adhere to principles of transparency and equal treatment, said ESMA.
Yet, the evaluation for the CTP is only set to take place from Q1-Q3 2025, with the authorisation of this bond CTP not expected until Q4 2025 – a year on from the initial launch of the bond CTP selection.
Read more: Long overdue consolidated tape is a ‘big missing piece’ in European market infrastructure
Speaking to The TRADE, Alex Wolcough, founder and chief executive at GreenBirch Group, shared the views from the market on the EU’s timeline: “In some respects, this is not a surprise as policy takes time but I know there will be a lot of disappointed individuals and firms to see this so far out. From a technology perspective, a consolidated tape still remains a relatively easy thing to do, and in many cases, prospective CTP candidates have already built their prototypes.”
ESMA has confirmed that it plans to award to a single entity the right to operate as a CTP for five years, with one authorised for each asset class: bonds, equity (shares and ETFs) and OTC derivatives (or relevant subclasses).
The selection procedure will call for tenders on a public platform and each selection process will be finalised six months after launch, confirmed ESMA, with explanations regarding the decision making process communicated publicly.
The EU authority confirmed in an announcement that “to appoint those CTPs, ESMA will be responsible for selecting the most suitable candidates on the basis of pre-defined criteria and subsequently authorising and supervising the CTPs.”
Read more: Mifid post-Brexit: The current state of play
In the UK case, the FCA has provided a detailed policy statement on the establishment of a CTP for bonds in the UK with final rules shared.
Under the tape specifications laid out by the FCA in CP23/33 – altered since its previous proposals (under CP23/15) – two significant changes are being proposed. First, that the bond CTP will be required to provide a historical data service, meaning that the provider must invest in making that data available.
“It will [also] mean that the CTP is a source of benchmark historical data which will put it in a stronger position to sell this data than would be the case if it were not required by regulation to make this service available,” said the FCA.
Secondly, comes the requirement for a CTP to establish a separate legal entity if choosing to provide value-added services. This is not expected to add significantly to the cost of the CTP.
In addition, the FCA has clarified governance requirements, including the aspect of a consultative committee, which may make recommendations to the CTP, which if rejected must receive clear reasoning for the decision. Moreover, the watchdog has confirmed that the CTP committee must have a majority of data users.
“The establishment of a consolidated tape for bonds in the UK is a major milestone. The UK has a leading global market and it is vital to ensure that it remains competitive by widening access to market data and broadening participation in capital markets from investors, both domestically and internationally,” said Victoria Webster, managing director of fixed income at AFME, in an announcement back in September.
Currently, the FCA is continuing to consult on the commercial aspect of how the CTPs will operate, with the question as to whether the provider should be required to make payments to data providers to the tape – and indeed how – still under discussion.
The short consultation on payments to data providers and on the forms for data reporting services providers closes on 9 February 2024.
This communication by the FCA effectively meets its commitment – as per the Edinburgh Reforms, previously communicated by the Chancellor – to have a legislative and regulatory regime for a UK CT in place by 2024.
Read more: If you build it, will they come?
The FCA has also confirmed that next steps for the equities consolidated tape will be published next year, while ESMA sets forth a possible 2026 equity tape date and confirmed Q4 2025 at the earliest for the launch of the first selection for derivatives CTP.
Elsewhere, the FCA also published its consultation paper on improving the UK’s non-equity transparency regime (CP23/32), which is aimed at protecting the market against risk, as well as importantly, improving the consistency and quality of data inputted into the future bond CTP. Responses to the market consultation on the regime can be submitted until March 2024.