The prisoner’s dilemma is an aspect of game theory that shows why two individuals might not agree, even if it appears that it’s best to do so.  In its simplest version, two prisoners have to decide whether to assist or betray one another. If they co-operate then they both receive relatively light punishments, whereas a betrayal by one prisoner means that the other is severely punished whilst the betrayer goes free.

It seems like a similar situation is playing out (again) in Europe over the consolidated tape. It’s a complicated issue and different industry bodies are naturally trying to achieve the best outcome for their members. The problem is that the players concerned have different outcomes in mind. The exchanges want to protect their market data revenues whilst the MTFs want to challenge the monopolies of the big boys. The brokers want lower market data fees and the buy-side wants to be able to make sense of best execution. Hardly surprising that progress on finding a way forward has been slow.

But, just as with the prisoner’s dilemma, all these participants need to decide if mutual co-operation is better than trying to outflank one another. Maybe the only realistic outcome we can expect is that everyone ends up equally dissatisfied and there can be no outright winner in this version of the game.  A colleague suggested to me that one thing that would help would be the imposition of standardised market data contracts. It may sound like a small point but, in many instances, the legal and compliance burden of negotiating different market data contracts with every venue in Europe is often more onerous than actually doing the technical work.

Meanwhile, and after four years, the European securities industry is still struggling to make sense of the effectiveness of MiFID as no two measurements of the results produce the same answer.