In trade data utopia, investors would have access to a stream of information on equity, bond and derivative transactions that is up-to-the-second, standardized and doesn’t cost much.

The idea is not yet reality in Europe. But the European Union’s long-held ambition to create a consolidated tape of exchange-listed trade data moves one step closer on November 23 when lawmakers release details of their wider project to create a single capital market across the region. A consolidated tape is one of the core parts of this initiative.

As the EU’s plans take shape, technology vendors are jockeying to become the go-to consolidated tape provider, or CTP. So far, three firms have announced their intentions to offer the service: Finbourne, Ediphy and Propellant. Others—including Etrading Software—are known to be considering doing so.

But problems over data quality are giving candidates pause for thought. A lack of standards and gaps in the data have impeded efforts to develop workable prototypes for a consolidated tape.

“You can have the best piece of kit in the world but if you’re looking to put unrefined petrol into a Formula One car, it’s just not going to work. If the right information is not put in the right way, then it must be cleaned up,” says Neil Ryan, a consultant at Finbourne, a UK-based tech company.

Some firms are wary of entering the race until they know whether lawmakers at the European Commission will offer commercial incentives to become a CTP and address the lack of standards in reported data.

“Everyone is waiting for the Commission to lay down the ground rules,” says Sassan Danesh, managing partner at Etrading Software. “Could there be bigger names, or could there be other small specialist vendors that want to be involved? Yes, quite likely. Could Etrading Software be interested? Quite likely.”

For tech firms, the appeal of the venture is becoming the gatekeeper to a treasure trove of data. Vendors could bundle up the trade data with analytics and sell it to clients. Even if they provided the tape at low cost, the name recognition from the service could provide a lucrative boost to related products.

Tale of the tape

European politicians are concerned that the lack of a consolidated tape may cause Europe to lose market share to rival financial centers in the UK or US, which are pressing on with plans to create or improve similar services. The EU proposed to introduce a consolidated tape as part of its 2018 update to the Markets in Financial Instruments Directive, or Mifid II.

Since Mifid II came into force, though, no CTP has come forward. EU lawmakers have pointed to several reasons for this. A European Commission report published on October 20 said that a CTP had failed to emerge due to a lack of financial incentives, insufficient data quality, competition from data vendors, and a restrictive regulatory environment. It is expected that lawmakers will address some or all these issues in a series of proposals to be published over the next several months as part of a wider review of Mifid.

The venues have made the data publicly available as required. They haven’t necessarily made it easy, but they’ve made it publicly available if you know what to do with it.

Neil Ryan, Finbourne

Creating a consolidated tape is also one of the 16 action points in the EC’s latest Capital Markets Union Action Plan, a five-year program that was first put forward in 2020.

Pauli Mortensen, head of rates at Norges Bank Investment, says it is challenging to build a consolidated tape under the current legislative framework due to the cost it would take to clean and aggregate unstandardized reported data, while also ensuring the data covers a high enough percentage of the market to make it valuable for users to purchase the data. For instance, regulators will only approve a fixed income or derivatives consolidated tape if it covers 80% of the market.  

At the root of these issues, Mortensen says, is the lack of standards in the reported data via APAs and trading venues. APAs, or approved publication arrangements, are responsible for publishing trade reports on behalf of investment firms and are required to make this information publicly available, free of charge, 15 minutes after publication. But they are not mandated to publish reports in a specific format.

Today, APAs make the trade information publicly available as a CSV file or in JavaScript Object Notation (Json). The challenge is to configure the different formats and data fields into a single consolidated view.

“The venues have made the data publicly available as required. They haven’t necessarily made it easy, but they’ve made it publicly available if you know what to do with it,” Finbourne’s Ryan says.

An additional problem stems from the deferral regime in Europe. Under EU rules, investment firms trading non-equity instruments can choose to defer the publication of their post-trade data for several weeks under certain scenarios, for example, in large-scale trades or in instances of illiquidity in the market. This leads to gaps in the reported data. Once the information is made available, it’s too old and unusable for a near real-time or real-time post-trade consolidated tape.

Susan Yavari, regulatory policy advisor at the European Fund and Asset Management Association, says: “By the time it is published, it’s stale data. It’s nothing that the market is particularly interested in because they can’t react to it or it doesn’t enhance their understanding—certainly, as a buy-side firm—of the liquidity in the market.”

In September 2020, the European Securities and Markets Authority published recommendations to simplify the current deferral regime for non-equities instruments by limiting the percentage of transactions that can be deferred and for a much shorter period.

Last October, John Berrigan, director-general of the financial stability services and capital markets union at the EC, said an EU CT should be near real-time, rather than one that is delayed by several minutes.

“We’re not talking about nanosecond tapes,” he said. “We’re talking about tapes that deliver within seconds, not within minutes.”

Lifting the hood

Finbourne began exploring the idea of becoming a CTP over a year and a half ago, but it wasn’t until February 2021, when Ryan joined as a consultant, that the firm examined how the project could be implemented using Finbourne’s flagship data aggregation platform, Lusid. Ryan says the journey over the last several months took a logical order. First, the firm assessed whether Lusid was able to aggregate the data. Once that was confirmed, Finbourne started pulling in the data from trading venues and APAs.

Over the last seven months, the vendor has been ingesting equities, fixed income, and derivatives data from three major venues—it declines to name them. In the first six months, the Lusid platform consumed 36 million transactions. During the consolidation phase, the firm has identified various data inconsistencies. Examples include reports submitted in mismatched formats or data conventions, or trade fields that are filled out in differing sequences.

“In the case of fixed income and bonds, there are up to 24 data fields, and the way that they’re configured in the CSV and the Json are different. And if you drop it into one place, you’ll have to move one column over here and there, but in Json it is impossible to do,” Ryan says.

Other issues emerge when converting large quantities of data from CSV files to Microsoft Excel. Ryan says, working on this project, he quickly learned the practical limitations of the software, as the default version of Excel only displays just over a million rows, or 1,048,576 to be precise. In other words, for a portfolio manager or data analyst using Excel, millions of trades would need to be spread across multiple spreadsheets.

As part of its bid to become a CTP, Finbourne intends to establish a Design Council that will address some of the data and technical challenges associated with building a reliable and coherent tape. The project is in its infancy, and has yet to attract external participants. But Ryan hopes the council will allow stakeholders from across the industry to use the Finbourne prototype to analyze data quality issues, and help resolve them.

Any issues will be addressed and reviewed anonymously, so that individual APAs will not be identified, Ryan says.

“We’re not in the business of naming and shaming; we’re in the business of trying to work out what exactly the data problems are, what exactly the patterns are, and start the remediation process to address them,” he adds.

Ediphy, a second CTP hopeful, began aggregating the 15-minute-delayed trade data from APAs and trading venues over three years ago to build out its execution services businesses and analytics products.

We see pretty broad misreporting of cancel and amends, and that makes it impossible for you to strip out the original trades that have been canceled because people are not following the exact specifications.

Chris Murphy, Ediphy

Chris Murphy, founder and CEO of Ediphy, says the vendor is pulling in data from 50 different sources and normalizing it according to technical standards under Mifid II. The vendor’s focus, for now, is on a fixed income consolidated tape and the first phase of the project will be to create a bond tape.

The candidate is engaging with EU regulators and member state authorities—such as the Dutch Authority for the Financial Markets—on the project to help resolve some of the problems with reported data.

Murphy says that while the upcoming EC proposals might “tweak some of the technical standards and recalibrate some of the deferral frameworks”, he says regulators need to take to a deeper look at examples of misreported data to understand why they are happening in the first place before they can be stamped out.

“Unless you get very granular around understanding why people are not publishing things correctly, you’re not going to be able to make sense of the tape that results,” he says.

Misreported data includes trades that are published with the wrong timestamp: for example, the publication time of the trade is prior to the transaction time.

“We see pretty broad misreporting of cancel and amends,” Murphy adds, “and that makes it impossible for you to strip out the original trades that have been canceled because people are not following the exact specifications.”

Interpreting the data

Propellant, a start-up based out of Amsterdam, has only just started developing plans for a consolidated tape service. It intends to combine public data from a fixed income consolidated tape with the client’s internal proprietary data to offer bespoke analytics. The service will be cloud-hosted.

Vincent Grandjean, founder and CEO of Propellant, says the vendor is developing “a decentralized CTP” that will allow users to access and customize the information on-demand via the Propellant platform.

The vendor will not only be looking to target Wall Street consumers, but retail traders and academics. Grandjean says one of the biggest data challenges for non-professional traders is understanding what the data is telling you. He says that a market data consolidated tape on its own can be unusable to consumers like retail investors or academics unless they have the necessary reference data to identify the traded instrument.

The CTP gives you the Isin of the instrument, but you don’t know what it is. So, if you don’t have the reference data, if we can’t figure it out, we will not know what instrument it is. So how useful is that for smaller players and universities if they need to go back to a data vendor to get the reference data to be able to decrypt it?

Vincent Grandjean, Propellant

For example, a post-trade consolidated tape will include data points such as price, volume, notional value, and an international securities identification number (Isin), a 12-digit alphanumeric code used to identify securities. However, users typically need to use reference data to identify the exact instrument associated with the Isin.

“The CTP gives you the Isin of the instrument, but you don’t know what it is. So, if you don’t have the reference data, if we can’t figure it out, we will not know what instrument it is,” Grandjean says. “So how useful is that for smaller players and universities if they need to go back to a data vendor to get the reference data to be able to decrypt it?”

Propellant intends to combine the data from its consolidated tape with other public data sets such as the Financial Instruments Reference Data System. Firds is a reference database published by the European Securities and Markets Authority, covering a wide range of instruments.

Waiting game

All candidates are awaiting the first set of EC proposals on November 23 to see how the legislative changes will shake out.

Despite not knowing the outcome of the changes and how the regulators will address the data challenges, all three say they are planning to complete their consolidated tape offerings by early 2023—in line with the timeframe that EU lawmakers expect to have a beta version of the tape ready for testing.  

The three named candidates agree that for a consolidated tape to work it will require multiple stakeholder participation and that the tech provider alone should not be responsible for governing the solution and the quality of the data.

“We think this should be an industry utility and the right governance model should have stakeholders from all parts of the industry contributing to it so that it does what it says on the tin, it just consolidates the data that is mandated to be published,” says Murphy.