Consolidated tape hopefuls gear up for uncertain tender process

This week, amendments to Europe’s Markets in Financial Instruments Regulation (Mifir) will come into force, firing the starting gun on the race to build a key market infrastructure. These changes to the regulatory regime for EU markets are intended to usher in a consolidated tape—the live stream of trade data from across Europe that public authorities have been trying to set up for years.

The European Securities and Markets Authority (Esma) is aiming to authorize a bond tape by Q4 2025, and an equities tape shortly thereafter—potentially Q1 2026. The UK’s Financial Conduct Authority (FCA), not to be outdone, aspires to get its own bonds tape up and running in the second half of 2025.

In theory, this means that the consolidated tapes for the UK and EU are within touching distance. But one crucial detail remains to be resolved: Who will build them? Public bidders for the highly regulated role of consolidated tape provider (CTP) are few and far between, and those that have thrown their hat in the ring are faced with the challenge of preparing for a tender process that has not been fully defined.

Neil Ryan, consultant at Finbourne—former technology partner for the venue-led Cassette consortium, which collapsed last year—says his company is continuing its work on the consolidated tape, and that it is looking to bring several partners on board in the near future. 

He explains that potential bidders are currently mulling up-front technology investments, licensing models, governance structures, and means to bring any future tapes to market at speed. All of these points must be considered before the tender process to select the ultimate CTP has even begun.

“For the various companies who have put their hands up, you just have to pick a point in the future and say, ‘With the information that we have and where we think the scope is going to go, this is where we want to be,’” Ryan says.

That process is getting easier as public officials release more details about what the tapes and the tender will look like. Esma has run two workshops on the role of the CTP—one for prospective bidders and the other for market participants. 

Meanwhile, the FCA has put out a series of consultation papers and policy statements providing glimpses into its thinking on how the tape will be run, highlighting thorny questions like whether data providers should be paid for the burden of building connections to the tape infrastructure and whether historical data should be included on the tape.

Perhaps the biggest concern for those eyeing the role of CTP is whether it will be profitable to run the tapes using the commercial model prescribed by regulators. The FCA has ruled out the provision of value-added services by the bonds tape provider, although it has suggested that this could still be possible if the CTP sets up a separate legal entity for this purpose. 

And the FCA’s initial proposal of a reverse auction process as a means of selecting the CTP from candidates who pass an initial eligibility check makes the commercial proposition for the ultimate provider of the tape all the more challenging.

The question is exactly how they’re going to run the tender process and whether the way they’ve designed things will be appealing enough for anyone to show up

Chris Murphy, Ediphy

Trading analytics and execution services provider Ediphy built a prototype consolidated tape for European bond markets in 2021, so CEO Chris Murphy is well aware of the potential challenges and rewards that come with the project. “The broad outline of the tape in each jurisdiction is becoming clearer,” he says. “The question is exactly how they’re going to run the tender process and whether the way they’ve designed things will be appealing enough for anyone to show up.”

Finishing touches

In both the EU and the UK, the time between the selection of the CTP and the tape going live is expected to be a matter of months. Participants in Esma’s first workshop say the turnaround will be just three months, whereas they had expected it to be closer to a year.

In practice, this means that bidders need to have already completed much of the work of designing and building the tape before they are awarded the tender. Showcasing a proof-of-concept (POC) and demonstrating a degree of technology investment is therefore likely to be an important step in the tender process.

Ediphy’s Murphy anticipates that most bidders will show a POC on existing delayed data from bond markets. “I think it’s incumbent on any serious bidder to demonstrate that they have the technical capability. And given that the delayed data is out there, there’s also a data set that you can use to demonstrate that,” he says.

But he adds that any technical solution built around delayed data will not form the basis of the final consolidated tape, which will receive more up-to-date information from venues and Approved Publication Arrangements (APAs). Bidders will need to decide how much time and money to invest in the POC.

Delayed data is currently free to access, but there is no standard format or delivery method. This means that bidders building a POC who are not willing to pay the data contributors for a direct feed will have to build a patchwork of delivery mechanisms to extract data from CSV files, APIs, and even webpages, which will not bear any relation to the way that the finished tape ingests data.

Another consideration for potential bidders is how much of the groundwork they should be doing to allow them to quickly integrate into the technology stacks of the buy-side technology vendors who will ultimately be receiving data from the tape. It can easily take 18 months to connect to large order management systems (OMSs) and execution management systems (EMSs), so starting talks early could prevent delays in the delivery of a tape.

Etrading Software, a technology provider that also operates the Isin and Unique Product Identifer services, announced its bid to run the EU and UK bond tapes last year. It subsequently received an undisclosed investment from private equity firm LDC. The company said in a press release that this investment would strengthen its consolidated tape bid.

Etrading Software CEO Sassan Danesh says the company is working on a POC for the bonds tape but emphasizes that it is important to manage the balance between designing a demo and beginning integration talks with OMS and EMS vendors.

“Imagine you’ve got this box. Inside, there’s an engine. How much of the engine should we build? That box also has all these connection points. How much of the connection points should we build? We could try to do everything, of course. But before a tender win, we also have to think about cost. So we’ll do the things that are most important. And the feedback we had from our industry stakeholder group was, ‘Don’t worry too much about the engine—you can build that yourself, and you don’t have a dependency on external factors. Focus on the thing that takes the longest,’” Danesh says.

Money, money, money

Although the UK and the EU have mostly mirrored each other in their plans for the consolidated tapes, the two jurisdictions have diverged over their proposed tender process. The UK has suggested two rounds of selection: The first will weed out the bidders who lack the technology or expertise to become CTP; the second will allow the remaining candidates to bid against one another, with the tender ultimately going to the company offering to provide the tape to end-users for the lowest price.

Critics of the reverse auction idea say that the data quality could suffer if the provider is driven to cut costs by a competitive bidding process. Supporters say it is not the regulator’s responsibility to ensure that the CTP is profitable, and that defining a minimum data quality will ensure that the result is still usable.

But for potential bidders, the reverse auction would mean trying to distill a stack of different fee tiers into a single number. Ultimately, they say, this would require the FCA to explicitly define the commercial model.

“It’s not just a single price for the tape for any user. It potentially depends on use case: Is it terminal display only? Or is it going into your algo? Are you redistributing it? And there’s a variety of different price points—whether you’re a large firm or a small firm, whether you’re going to charge per user or on an entity basis. And unless they say, ‘This is exactly how the commercial model works,’ I don’t know how they’re going to normalize everything into a single number that we all compete on,” says Ediphy’s Murphy.

Other factors, yet to be determined, could also change the calculus on how much it would cost to run the tape. If a single technology provider became the CTP for both Europe and the UK, and the data for both jurisdictions could be consumed together, this could create cost savings while making the tape more valuable for market participants. The decision on how much alignment the two infrastructures will have is ultimately up to policymakers and regulators.

“A large proportion of UK trading happens on European venues, and vice versa. So now you have to end up buying two tapes. Who’s going to glue them together? I think ideally, what the market would like is one pipe that’s telling you both things. And you can get it all immediately, with a consistent set of deferral rules,” says Finbourne’s Ryan.

Given the scarcity of fintechs in wholesale capital markets compared to retail, and the fact that fintechs are typically lightly capitalized, the challenge for regulators may be to ensure that they get enough bidders to make the tender process competitive.

Speaking at an industry conference, an expert on UK regulatory matters said the number of bidders was unlikely to reach the double figures. But they added that it is hard to anticipate the precise number before the tender is fully defined.

“It might put quite a lot of pressure on the FCA to let fintechs through to the second phase even if they’re quite borderline on the first phase. If their balance sheet strength isn’t quite right, or if they’re not quite comfortable with the technology, that’s a problem because the UK will have to make sure enough vendors get through. It seems to me, politically, there will be pressure to do that,” says Etrading Software’s Danesh.

Another factor that could restrict the number of viable bidders is the fact that there is no mandate for market participants to consume the tape. Depending on the usefulness of the final product, it could take a year or more before the consolidated tape data gains reasonable levels of uptake from the industry. CTP bidders would therefore need to have a strong enough balance sheet to carry the initial losses before they would be likely to recoup their costs.

Speaking at a conference hosted by the Association of Financial Markets in Europe, John Relleen, the FCA’s director of infrastructure and exchanges, supervision policy, and competition, urged caution in trying to anticipate the number of bidders who would come forward. “We’re very hopeful that we’ll get some decent bidders. We’re also very mindful that we’re going into this trying to judge the incentives,” he said. “And I’d be lying if I said there wasn’t some residual uncertainty as we go through that process as to exactly how it’s going to work out.”