A study undertaken on behalf of the European Commission recommends the creation of a single EU consolidated tape provider for financial market data.
European Financial Markets Regulators had hoped that the Markets in Financial Instruments Directive and Regulation, MiFID II/MiFIR, would create a regulatory environment in which commercial, competing consolidated tape providers (CTPs) would emerge. However, no CTP in any asset class has materialised.
The study, conducted by Market Structure Partners, contends that a consolidated tape that could save end investors billions of euros can be built for as little as €11 million with annual running costs of between €7-€9 million.
Set up and running costs could be funded by a fee levied on trading venues and systematic internalisers.
Niki Beattie, CEO off MSP, says: “It’s scary to hear the stories of so many market participants struggling without good data. Asset managers who manage trillions of euros of assets on behalf of investors say they have sub-optimal data with which to do their jobs, risk managers of even the largest firms speak of the difficulty of monitoring the markets without consolidated data and regulators struggle to compile data sets to undertake basic regulatory calculations and perform the required oversight."
The technology to build the consolidated tape already exists and is widely available, states MSP, however, the underlying data that needs to be consolidated currently resides across many competing commercial entities, some with disproportionate economic leverage and conflicts of interest.
SaysBbeattie: "It’s unrealistic to expect competing consolidated tapes to emerge under the current market structure and legislation. If the current impediments to consolidation are not resolved then trying to consolidate data is a waste of time and it is not surprising that no consolidated tape provider has come forward.
MSP recommends the establishment of a single, exclusive, consolidated tape provider, run as an industry utility and governed by a broad set of data stakeholders. Such a body would require oversight by The European Securities and Markets Authority, to set and enforce market-wide standards and pricing of consolidated data.
Importantly, data should be free for retail investors, in order to avoid a "proliferation of inferior products developed by the very same trading venues that control and profit from the consolidated tape".
While the Commission has has sufficient powers under the current legislation to commence the creation of an exclusive tape provider for post trade data in both equity and debt markets, further legislation to fully entrench the exclusive provider’s position would be beneficial, states the study.
“There are pros and cons to waiting for legislative change to deliver the entire solution but the delivery of CT data for the EU is already long overdue," Beattie concludes. "It’s possible to achieve quite a lot now and to delay further raises the risk that it may not be delivered at all.”