Until the introduction of the first Markets in Financial Instruments Directive (Mifid) in 2007, European stocks usually traded on domestic exchanges. If a firm didn’t trade any French stocks, it didn’t need to connect to Euronext Paris. But while Mifid allowed all markets to trade stocks listed elsewhere, one significant hurdle remained: Pan-European trading required a pan-European consolidated tape of price activity, yet the regulation did not mandate one.

More than a decade later, provisions for a consolidated tape now exist, but are far from concrete, with financial firms growing increasingly frustrated by the lack of progress. The rollout of Mifid II in 2018 further transformed the trading landscape in Europe, placing more reporting requirements on buy-side firms than ever before. This, coupled with the explosive growth in data over recent years, has given greater urgency to the buy side’s calls for a consolidated view of the market.

Neil Bond, head of trading at Ardevora Asset Management, which has £5 billion ($6.5 billion) in assets under management, says the firm currently can’t afford the amount of data needed to create its own consolidated tape internally. “We get data from multiple venues, but not all venues. And while we would like a more complete set of data, it is not worth paying the extra for the small amount that we are missing,” he says.

According to Bond, trends such as increased automation and the use of artificial intelligence (AI) are driving even greater demand for data. “It is important that the data we use is correct, and the focus on getting the correct data reported is very apparent in the industry lately,” he says, adding that a consolidated tape would improve transparency in a complex market where trading is fragmented across multiple trading venues, rather than trading in a stock being consolidated around a single venue, as in the past.

‘Incomplete Information’

One challenge of not having a comprehensive, mandated consolidated tape is that firms may be missing market information and simply not be aware of what they are missing. “I am not saying we certainly have incomplete information, but without knowing whether you do, you can only guess that you may have incomplete information,” says Keshava Shastry, head of capital markets at DWS Investments, part of Deutsche Bank’s asset management division. 

“For example, Bloomberg started showing a consolidated volume for many of the ETFs,” he says. “But initially they start with a few venues, and then we ourselves knew certain venues were not there. We encouraged them to add those venues, and we built that partnership. So, on an ongoing basis they are adding more and more venues. It came as a surprise to them that they were missing some venues that we knew about, so it’s important for them to work with people in the market to get the full picture.”

Having the complete data would be beneficial for activities like transaction-cost analysis (TCA) or pre-trade analysis, or looking at overall volume, Shastry adds. 

Between a consolidated tape and currently available datasets, all data should be accounted for, says John Mason, global head of middle- and back-office enterprise solutions at Refinitiv, adding that the buy side’s appetite for data has increased overall—especially in response to innovations like AI and machine learning. 

“That extends from alternative data to the other end of the spectrum of consuming tick data, and consuming real-time feeds so that they can run their algorithms and their quants can do what their quants need to do,” he says, adding that he believes a consolidated tape is a low priority for many firms in the context of their overall data acquisition strategy. 

Also skeptical is Christian Voigt, senior regulatory advisor at Ion, who likens being a consolidated tape provider (CTP) to holding a special kind of driver’s license. He says the reason there have been no takers wanting to become CTPs is because the way Mifid II and the obligations of a CTP are structured is overly complicated and provides little incentive for potential CTPs.   

Nevertheless, financial firms on the buy and sell side have been pushing hard for a consolidated tape in recent years, says Richard Semark, head of UBS MTF. 

For example, Mifid II requires the reporting of all European ETF trades, whether executed on- or off-exchange. This was welcomed by the industry as it improves price and volume transparency, but—given the venue fragmentation of European ETF trading—has resulted in a large volume of post-trade ETF data. Jason Warr, EMEA head of iShares global markets at BlackRock, estimates that the universe of more than 3,000 ETFs in Europe has created more than 250,000 reporting line items. “Consolidation of this data is vital to make it useful and provide an effective means of improving transparency of the European ETF market,” Warr says.

Semark says there is “disappointment” among market participants that Mifid II didn’t simply mandate a consolidated tape as a core part of its market infrastructure reforms, instead of first encouraging the industry to collectively agree on a solution. He adds that while the European Securities and Markets Authority (Esma)—having created this situation—is now obliged to address this itself, it seems “fearful” of getting involved in operating a commercial entity. 

Reluctant Regulator?

Indeed, some feel Esma has been too slow in pushing for the consolidated tape, or to ensure pan-European data is made available in an affordable manner. 

“We have seen no effort by the regulators to enforce the concept of fair and reasonable pricing,” Semark says. 

Many on the buy side say Esma should be pushing harder for a tape because they believe it could support regulatory compliance.

“We believe it could present a significant improvement for both the buy and sell side on themes like best execution benchmarking,” says a spokesperson at DNB Asset Management. “We also believe a CTP would offer greater visibility for the market as a whole if pre- and post-trade data were to be aggregated and distributed freely.”  

Paul Squires, former co-chair of industry standards body FIX Trading Community’s EMEA Buy-Side Committee, concurs, saying the consolidated tape “will probably be number one on my list of preferred outcomes through all the regulatory changes since 2012.”  

However, despite the demand, there have been no takers for the role of CTP. “Esma understands that market participants do not consider there to be a sufficient business case for operating a consolidated tape right now,” an Esma spokesperson says. “The idea was for market participants to have a consolidated overview of post-trade data at a reasonable cost. The consolidated tape only concerns trade reporting and has nothing to do with transaction reporting to regulators.”

Data vendors who already collect market data are best placed to perform the role of a CTP, but remain reluctant. Some, such as Refinitiv’s Mason,  believe they are already fulfilling the requirements. He notes that the existence of consolidated tapes in the US market only satisfies a small part of firms’ data requirements, while others say becoming a CTP warrants careful consideration. 

“We know we have that capability and we still can see it is not something that we would want to jump into without some very careful consideration,” says Mark Montgomery, head of strategy and business development at web services data provider Big XYT, which has looked into starting a CTP. “We have spoken to some industry bodies as well, and at a high level they have said, ‘You seem to be an independent provider of data analysis, and you seem to have this consolidated view of the market on T+1. Would you be able to help?’ Certainly theoretically and practically, it is possible. But I am not sure whether it would compromise our ability to provide a lot of other services if we had to focus all of our time and energy on this one single regulated provision.”

So, if there are so many obstacles, why bother building a consolidated tape? 

“When somebody asks what volume traded in a particular stock on a particular day, there needs to be an answer to that question, rather than 10 answers to that question,” says UBS’ Semark. “Having a tape of record that is governed, a decision made as to which venues are included, a decision made as to which of the off-exchange volumes are included … which shows you the volume and the prices that were traded on a particular day—I think that is what is missing.”  

How Much? And Who Pays?

Having these requirements mandated by the regulator at reasonable cost is key, sources say. A constant complaint among buy-side firms is that it is too hard to obtain a proper view across the European market, says Ion’s Voigt. 

“The problem, if we were to do this, is that it would be very pricey, and most buy sides simply can’t afford this,” he says. “Whether you put a legal label of consolidated tape on it or not, I would say it is secondary. Because, as you can see, the industry works quite well today without having one. Therefore what we
need to distinguish between is: Are you interested in the actual data, or are you interested in having this legal label put on it?” 

Esma recently launched a data-collection exercise to gather information on the application of data provision
obligations—including price developments following the application of Mifid II—by trading venues and Approved Publication Arrangements (APAs). “Based on the feedback received, Esma has already provided guidance to ensure a convergent application of the Mifid II/Mifir provisions and to contribute to ensuring that all market participants can access market data on a reasonable commercial basis,” the Esma spokesperson says. 

Aside from reasonable subscription fees for the data, a further challenge is how a regulator-appointed CTP would be funded to get the project off the ground. For example, the DNB spokesperson says that depending on Esma’s mandate, there will be need for some sort of funding mechanism to get the project started, adding that direct budgetary contributions or a cost-sharing scheme could be considered next. “It’s imperative for the market that the principle of ‘data democratization’ still stands and that the CTP does not end up monopolizing and re-selling data,” the spokesperson says.

To expedite the process, Warr says BlackRock is encouraging regulators to consider “a solution that involves designating a central body to implement a consolidated tape, similar to the Securities and Exchange Commission appointment of a Securities Information Processor (SIP) in the US.”

FIX’s Squires says that with all the data that trading firms are obliged to report to Esma, the regulator is “very well positioned to support a utility, taking all of that data and providing it into a format that becomes something that looks like a consolidated tape,” at a fraction of the cost that primary exchanges currently charge for market data—though he questions whether the regulator will have the appetite to prioritize the initiative. “It is also unfortunate that the regulators seem to be so reluctant to clamp down on the cost of market data [charged by most exchanges]. How can that go unchallenged when it is
so clearly at the detriment of market transparency?” he adds.

Esma Dilemma

Others agree that the regulator should be the body charged with providing the consolidated tape. 

“I think that would be ultimately the right one to do it because it is a regulated entity. That is why people want it. There are a lot of data providers out there, and a lot of data available where people can do similar things to what we are doing. People can look at this data, examine it and benchmark against it,” says Big XYT’s Montgomery. “There will be information that the regulator sees that other organizations or data providers would not have access to,” and therefore need to make calculations and assumptions based on the data available to them.

But while Esma might have the governance chops to complete such a project, the infrastructure required to consume all of the data across all of the venues in Europe cannot be underestimated, and the prospect of building that from scratch carries significant time and technical risks, says Refinitiv’s Mason—not to mention the risk that the industry may reassess its support for a consolidated tape if Esma expects market participants to fund the initiative. 

“I think the regulator would be taking on a real technical challenge to do that,” Mason says. “Organizations that are in the business of consuming data from venues, aggregating it and publishing it have built up that infrastructure, that skill set, that capability, over decades. And that is not something that can spring up overnight.” 

Technology challenges aside, there are many in the industry who would welcome a consolidated tape provided or enforced by the regulator. “Given that we have waited so long for a commercial organization to do that, and it hasn’t happened, yes, I think we have definitely reached a point where the regulator needs to own this problem and solve it, either directly or by outsourcing that and controlling that. That would include capping the price,” says UBS’s Semark. 

But when asked directly whether Esma would provide the consolidated tape, the spokesperson says this is “not in our legal mandate,” highlighting the review clause that allows Esma to appoint “a single consolidated tape provider if current arrangements are assessed as being inadequate.” 

When asked to clarify whether this meant appointing a CTP, and what the timeframe for such a move could be, the regulator did not respond. But if no independent CTP emerges, assuming that Esma does not want to agree usurious terms with a reluctant provider, the regulator may have to build the tape itself—or at least threaten to, if it wants to spur others to action. 

“The current charges for market data are at least excessive, if not egregious. And so I think it is definitely within the regulator’s remit to make sure that there is reasonably priced, clear, transparent market data available,” says Semark.  

With overwhelming support for a tape to support transparency, compliance, and lower data costs, the ball is in the regulator’s court. And at the end of the day, if Esma wants a consolidated tape, it needs to be prepared to build it itself.