The journey towards a consolidated European tape

Darren Sinden

The chair of ESMA, Steven Maijoor, has bemoaned the lack of such resources., famously saying in the past that: “After nearly 2 years of operating under MiFID II, we’re still lacking a reliable view of liquidity across the EU”

Eurozone

The European Commission has put forward plans to create a consolidated tape or ticker for the continents bond markets, in the wake of lobbying from market participants.

In the proposal, the commission said that it was to hold a review of MiFID and MiFIR regulations and that as part of that initiative it would include plans to design and create a consolidated tape for the bond markets. Which would likely include both primary and secondary trading.

Such a consolidated ticker would contain the details of transactions in fixed-income trades from across the continent and would facilitate a far more efficient price discovery process which would likely to engender more business. MiFID II called for the creation of centralised trade tickers but to date, they have not been implemented.

The commission indicated that it would start with the corporate bond market and look at ways that a central database could be established, which could then aggregate inputs and trade reports from various post-trade systems and data sources, into a single view.

The commission’s report said that: “A consolidated tape will ensure that more trading takes place on transparent regulated platforms, thereby increasing market depth and attractiveness of euro-denominated securities both for issuers and investors”

Fragmentation in Europe’s markets has lead to the creation of numerous trading venues, trade reporting, settlement and clearing systems, across the continent. Which together with a restrictive regulatory environment meant that the creation of a consolidated trading tape was seen as likely to be an expensive exercise, that didn’t offer many obvious commercial benefits.

However, opinions are changing and bond markets are increasingly moving onto electronic platforms and trading. Data of all kinds is now playing an increasingly important role in both trading and post-trade environments.

The European Fund and Asset Management Association (EFAMA) has previously called on regulators to legislate for the creation of such a ticker saying that: “We consider that the absence of enforcement of the ‘reasonable commercial costs’ principle constitutes a barrier to transparency, as the cost of data may lead some market participants to refrain from seeking quotes for some instruments”

Effectively saying that the lack of a consolidated ticker and the transparency and price discovery that it would create was a barrier to bond trading.

Its not just the fixed income market that would be likely to benefit from the creation of a consolidated tape. Equity trading and in particular the trading of ETFs would also function more efficiently if there were to be one source of truth for trade information in these markets.

Even the chair of ESMA, the pan-European super-regulator, Steven Maijoor, has bemoaned the lack of such resources famously saying in the past that: “After nearly 2 years of operating under MiFID II, we’re still lacking a reliable view of liquidity across the EU”

One major market continues to operate with very limited oversight of trades and trading volumes, and that is foreign exchange. This may change in the future as CLS bank has made its matched trade data available, albeit at a cost to end-users.

The CME Group which operates the IMM currency futures exchange and the FX MTF EBS has created a platform to allow users to explore and compare the pricing and liquidity across both venues and methods of trading. It also seems likely that moves towards centrally cleared FX trading could accelerate this process in future. Should that be the case then it would be most welcome indeed.

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