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Who is going to consolidate all the consolidated tapes?

Couldn’t resist a smile this week when I read that NYSE Technologies will be producing a consolidated tape in 2011. This comes hot on the heels of a similar announcement from Thomson Reuters, stating that it too intends to provide a real-time feed of consolidated prices. The NYSE announcement is particularly interesting as I doubt that other venues will allow such an important part of market infrastructure to be owned and run by a competitor. So, expect a slew of further announcements as all parties with a vested interest throw their consolidated hats into the ring.

The worry is that we will have a whole bunch of conflicting tapes which will only make the problems surrounding transparency and price formation worse. From a pre-trade perspective this is a real issue, as MiFID allows market participants to choose which venues they include or exclude in their best execution deliberations. Any tape that includes all venues will therefore have varying degrees of relevance in the real world. Also, any rules involved in their construction will, by definition, be arbitrary and therefore proprietary – again not good for the industry.

Post-trade the problem is even worse, as without an agreed syntax for describing trade types and a universal mechanism to avoid double counting, the net result will be more rather than less confusion once again.

In light of this, I think that the proposal by FIX Protocol Ltd (FPL) might be the best way forward for an industry led solution. FPL has proposed to CESR that it acts as the ‘delivery authority’ for a consolidated tape in Europe. Given that the issue is really all about agreeing and promulgating an industry standard, then this sounds like easy territory for the FPL chaps.

I guess it all comes down to the regulators. FPL looks like the best bet for an industry led solution that could drive an agreed set of minimum standards for consolidated data. All data providers would be obliged to follow these standards but, of course, could enhance them too in order to meet specific client requirements. If, however, CESR really wants a ‘US style’ utility approach to the whole problem, then it will need to take direct and very deliberate responsibility to ensure a fair and effective outcome for us all.


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