European Regulators Call for Consolidated Tape
July 29, 2010
Creation of a consolidated tape of post-trade data, greater oversight of broker-dealer crossing networks and faster delivery of data have emerged as three key recommendations of the Committee of European Securities Regulators on how the Markets in Financial Services Directive that has been in effect since 2007 should be revamped.
The recommendations, published on Thursday, will be incorporated in the first quarter of 2011 into the European Commission’s proposal to revamp MiFID. That’s a start, but it could take another nine months for legislation to be adopted within the 27-nation European Union to actually make changes to the directive.
The EC acts as the executive body of the European Union while CESR’s responsibility is to harmonize securities regulations across the continent. The Paris-based CESR is set to take on more responsibilities as a market regulator next year when it becomes the European Securities and Markets Authority.
The fragmentation of liquidity and disparate reporting requirements across European trading venues after the adoption of MiFID in late 2007 has caused fund managers to be concerned about the effort and cost required to gather data across multiple trading platforms. Investment firms say MiFID has undermined their ability to benchmark the performance of their broker-dealers in executing transactions for their clients, because the data is inconsistent in quality and format.
Stock exchanges have also complained that they are at a disadvantage against alternative trading platforms -- multilateral trading facilities, broker-crossing networks and other dark pools – which differ in the granularity of quote details they must publish and how quickly.
To facilitate the creation of a consolidated tape, investment firms would be required to publish their trades through “approved publication arrangements” which would create a standardized format and facilitate consolidation.
Such a consolidated tape would gather all trade data regardless of where the trade was conducted; in as real time or close to real time as possible, and available at a “reasonable cost” depending on the type of user. A consolidated tape – which is in effect in the U.S. market – allows for prices to be combined from multiple trading venues.
“Concrete steps should be taken [to set up a consolidated tape] in the very short term as we remain convinced of its necessity,” said CESR chairman Eddy Wymeersch in a statement release on Thursday. Such a consolidated tape would improve the quality of trading data and offer market players a “single point of access.”
The introduction of a consolidated tape has generated considerable controversy on the continent. Buy-side firms say it is necessary to ensure a clear and consistent level of transparency among disparate trading venues. However, representing the views of stock exchanges, the Federation of European Stock Exchanges recently said it opposed such a tape as “neither improving transparency nor lowering costs” but instead posing “serious threats to the competitive framework that MiFID has enabled.’ The exchanges are naturally hesitant to reduce their revenues from data services – which could occur under a consolidated tape regime – and warn of unpredictable consequences. “Gaming would likely become a fixture of the market and, instead of venues competing on the basis of their execution quality they would compete in terms of their gaming,” said the FESE.
