FESE Preps Post-Trade Data Changes to Appease Consolidated Tape Supporters

Members of the Federation of European Securities Exchanges have outlined a series of initiatives to improve access to European equity trade data and simplify the process of consolidating that data, in an apparent bid to quell suggestions for a mandated consolidated tape (MCT) detailed in a recent consultation paper issued by the Committee of European Securities Regulators (IMD, May 28).

FESE issued a statement last week containing a promise from its members - which include NYSE Euronext, Deutsche Börse, Nasdaq OMX and the SIX Swiss Exchange - to provide real-time feeds of post-trade data by the end of 2010, separate from their existing pre-trade datafeeds and at a "reasonable cost" to end-users.

In addition, members agreed to harmonize data-usage policies by waiving end-user fees for data delayed by 15 minutes, and agreed to support standardized trade identifiers by establishing a mapping table for users to cross-reference trade tags from individual exchanges with an industry defined standard - both by the fourth quarter of 2010.

The commitments by FESE members are in line with recommendations from a whitepaper published by Thomson Reuters earlier this year (IMD, Jan. 25). Andrew Allwright, business manager for MiFID solutions at Thomson Reuters, who authored the whitepaper, says the European Commission must now choose between three options as it seeks to improve data quality and ease the consolidation of fragmented European equities data.

The first would be to establish a MCT, which Allwright says would result in "undue cost" to the industry without delivering any clear benefits; the second would be to mandate the use of a common protocol or standard for trade reporting, requiring all exchanges, multilateral trading facilities and Approved Publication Arrangements (APAs) to produce feeds using that standard; while the third would be for exchanges to establish mapping tables to promote standardization through cross-referencing, as suggested by FESE.

"The third option would be less disruptive and easier to implement, but we can also see the attraction of a single protocol as in the long-term it would certainly strip out some cost from the data consolidation process, but would incur more costs for all sources and direct users of the data in the short-term," Allwright says.

The London Stock Exchange Group - one of the only European exchanges that is not a member of FESE - also agrees with the FESE proposals.

"In a recent submission to CESR ahead of the MiFID review, we ourselves recommended that all venues should be encouraged to comply with an industry practice of publishing post-trade data free of data charges after a standard delay period of 15 minutes - something the London Stock Exchange has had in place for over a decade," says Jarod Hillman, head of real-time data at the LSE. "We also believe all venues should be encouraged to comply with an industry practice of making available real-time, post-trade data-order-book prints combined with off-book trade reports-as separate modules from core Level 1 services, [and] are committed to delivering such services to our clients in the near future," he adds.

Too Little, Too Late?

However, not all vendors side with FESE on its proposals. Gordon Bloor, chief executive of Morningstar's Real-Time business, says some of FESE's proposals - such as freely available delayed data - are already considered common practice.

"FESE's commitment to making 15-minute delayed data free of all exchange fees is not really going to change the status quo, as virtually all equity markets in Europe have provided delayed data free of charge for some time," Bloor says. "The key element of this debate is the cost of real-time data.... For many smaller professional firms, the total cost of exchange fees for accessing real-time data on pan-European equities is a significant issue, and often greater than the total cost of the other elements of the service."

And while the measures being taken by European exchanges will certainly help to make consolidated post-trade data available at a lower cost, some participants suggest that more must still be done to satisfy end-user demands.

"This is a step in the right direction, but I would say that it does not go far enough. We definitely still want a consolidated tape in Europe, which would have to be mandated by regulators because of the commercial interests at stake - namely that exchanges and data vendors are driven more by their own revenue than by market requirements," says an executive from UK market data user group Ipug.

Furthermore, FESE's commitment to provide post-trade data leaves room for interpretation around what constitutes "reasonable" cost. The Ipug executive notes that post-trade data tends to have "a broader user base," as it is of interest to "a lot more parties in the trade lifecycle" and helps to support a wide range of functions, such as transaction cost analysis, whereas pre-trade data is primarily needed by dealers, market makers and traders. Because of its wider user base, post-trade data should therefore be "considerably cheaper than a pre-trade feed," and should be priced in line with its share of liquidity based on the transactions in each exchange, MTF or APA feed, the Ipug executive says.

Morningstar's Bloor says any fears that a consolidated tape containing data from MTFs would undermine regulated exchanges and give MTFs a revenue advantage are wide of the mark. "Given the fragmentation of liquidity in Europe, where large percentages of trading volume have shifted to newer markets... [exchanges] are already being undermined by alternative markets," Bloor says, adding that MTFs typically do not charge for data.

Pan-European MTF Chi-X Europe, which does not charge end-user fees for its data, also welcomes efforts to improve the quality and affordability of European market data beyond the commitments already made by FESE members.

"Improved data quality and reduced cost could be achievable through market forces, but it is by no means assured and it hasn't happened yet, so a mandated consolidated tape is a very real option, which could solve problems around data quality, comprehensiveness and cost... so I'm not surprised that policymakers are considering it very seriously," says Denzil Jenkins, director of regulation at Chi-X Europe. "Our view is that it should be given serious consideration, and at the very least, serve as a backup alternative if the industry cannot get its act together," he adds.