CESR: Build EU Tape or Face EC Mandate

European financial market participants should be given a final opportunity to provide a fairly priced consolidated tape of real-time, pan-European equity trade data before regulators consider imposing a mandated solution, according to recommendations from the Committee of European Securities Regulators in advance of the European Commission's review of the Markets in Financial Instruments Directive (MiFID).

In its report, CESR suggests that the consolidated tape should be implemented "on the basis of a project developed by the industry," which would place the emphasis on "the users, creators and disseminators of transparency data to design a solution that best meets their collective needs - including the necessary IT infrastructure and data formats - and gives the industry scope to determine a fair allocation of costs and charges associated with delivery of the solution."

According to the CESR report, once the "establishment and the essential features of a European consolidated tape" have been legally mandated through an amendment to MiFID, the industry should then be given "a clear and relatively short timetable" to produce the tape. The report adds that this timetable should be set out by the European Securities and Markets Authority, which would be given powers to set project milestones and monitor the delivery and continued operation of a tape, and also to "intervene with respect to prices charged for market data."

Industry-Led vs. Mandated

Industry practitioners agree that an industry-led solution would be preferable to one mandated by regulators. "This is the last chance [for an industry-led solution to a consolidated tape], and it would be the best result for the industry to take that chance," said Stephen McGoldrick, director of market structure at Deutsche Bank, speaking at an event organized by standards body FIX Protocol Limited (FPL) last week.

Others also agree that a consolidated tape - along with other measures suggested by CESR to improve data quality, such as the creation of approved publication arrangements (APAs) for reporting over-the-counter trades - would not only help investors to analyze transaction costs and execution quality, but also guide ongoing trading decisions.

"[The lack of a consolidated tape] also has an impact when you are making decisions about how you should trade," said Kristian West, managing director and head of equity trading at JP Morgan Asset Management, at the FPL event. "For example, if you are not seeing the full picture, then your order relative to ADV (average daily volume) is wrong, and you could be making the wrong decisions."

Standards

Creating a consolidated tape would require clear standards, though it remains to be seen whether this would require all exchanges and MTFs to publish data in a standardized format, or simply to map their existing feeds onto whatever standard emerges, McGoldrick said.

Although CESR's recommendataions do not specify who would create a common data standard to support a pan-European tape, FPL could help orchestrate industry efforts - though the group would stop short of addressing any issues relating to the commercial operation of a tape, officials said.

"There are two issues that we need to be very clear on. One is a standard-setting process; the second piece is more contentious, and that is putting together a structure that addresses commercial issues," said Chris Jackson, co-chair of FIX Protocol's EMEA regional committee and head of execution sales for Citigroup in EMEA. "For the standard-setting process... FPL could do it... but we would need to have a serious look at representation. To address the second component would require a serious overall review," Jackson added.

While questions remain over how a consolidated tape of European trade data will be provided, CESR has specified the features that such a tape should possess, including full coverage of all shares admitted to trading on European Economic Area regulated markets, and a distribution infrastructure that permits real-time data delivery with as little latency as possible and ensures easy and equal access for all subscribers.

In addition, the tape must be made available at "a reasonable cost," and users should be allowed to subscribe to subsets of data-even on "a share-by-share" basis-to ensure they are not forced into purchasing data they do not require. And while different classes of users - such as professional and private investors - may be subject to different subscription fees, CESR states that the "cost must be the same for all participants within the same class of user."

Any operator of a consolidated tape would also need to meet operating standards for factors such as security, reliability and availability, and be responsible for detecting multiple publication or double-counting of data, while also keeping a historical record of data spanning at least five years, says the report.

Ultimatum

Should the industry fail at any point in its delivery of a consolidated tape then "MiFID should... require the establishment of a mandatory single European consolidated tape run as a not-for-profit entity," according to the CESR recommendations.

However, some warn that in the event of this model, the EU might revisit a proposal from CESR's initial consultation paper that suggested exchanges, MTFs and APAs should provide their data freely to the creator of the consolidated tape in return for a share of revenues generated - which could cannibalize exchanges' own data revenues.

"A previous recommendation [from the original CESR consultation paper] that data be licensed freely to the mandated tape has now gone... but that might be resting in the background, and if we can't find a sensible industry solution, it could re-emerge as part of a utility offering," McGoldrick said.