Investors have been calling for a consolidated tape in Europe, which gives them aggregated data on trading volumes and prices throughout the region in one place, for more than a decade without success.
However, there is now optimism that a useful consolidated tape will be developed in the coming years as regulators have been pushing for increased transparency and legislators want to grow the European equity market ecosystem and attract investment by reducing trading costs.
Jim Kaye, executive director at FIX Trading Community, told Markets Media there has historically been some skepticism about the value of a consolidated tape but market participants now appear to be more comfortable with the concept and see how it can be genuinely useful.
“There are frictions to efficient trading in equities and fixed income due to the difficulty of getting data in one place,” Kaye added. “We have seen in the past that when you take those frictions away, the markets get bigger.”
TRACE was introduced in 2002 as a consolidated tape for fixed income securities in the USA, and academic research has shown it led to substantial reductions in implicit transaction costs for investors.
The need for a consolidated tape in Europe has been discussed since the MiFID regulations in 2007 fragmented market structure and trading away from national exchanges. Investors could no longer just rely on market data feeds from national exchanges to get an aggregated view of liquidity but a commercially viable consolidated tape has not materialized.
However in February this year 14 European exchange groups, who are present in 26 EU member states, announced a joint initiative to participate in the future selection process for the provision of a consolidated tape for equities in the region. In the same month FINBOURNE Technology said it had won the tender to become the technology infrastructure provider for the Bloomberg, MarketAxess and Tradeweb initiative to build a consolidated tape for fixed income in Europe.
Sassan Danesh, chief executive of Etrading Software, has also said the firm has a proposition for creating a consolidated tape in the region. There has also been action by regulators. Jeremy Hunt, Chancellor of the Exchequer, said in December last year that the UK government is committed to having a regulatory regime in place by 2024 to support a consolidated tape for market data.
A committee in the European Parliament voted in March this year in favor of MEP Danuta Hübner’s draft report on Mifid/Mifid which included the implementation of a consolidated tape. Kaye continued there is recognition that bolting together existing data feeds will not be effective if there are any data quality issues.
FIX Trading’s role has been trying to clean up the data standards, and to talk to the regulators about what they can do to help the industry improve data quality. “As a result, we have had dialogue with the EU and UK and they have ended up in similar places in terms of data quality, which is a big step forward,” he added. Investors have repeatedly told FIX that they need to identify addressable liquidity.
FIX Trading has been trying to pin down what that really means, as it represents different things to different people. The organization has come up with a number of different flavors of addressable liquidity by finding agreement on a fairly small set of definitions, each of which has their own logical use case.
“I think the industry will probably coalesce on these multiple definitions which will be extremely valuable as long as the data needed to identify them is available, added Kaye. “Our work means that in theory, it would be possible to slice and dice the consolidated tape in various ways.” In addition, FIX Trading is also making some recommendations which are not necessarily going to make it into regulation but the industry may adopt on a voluntary basis. For example, how cross-border duplicate trade reporting is handled. FIX Trading’s role is to encourage the industry to coalesce on these standards as far as possible and improve the usability of the data.
“Regulators are also focusing on improving other areas of transparency such as the designated reporting regime, and we are doing work to make sure that we understand how that would work in practice,” said Kaye.
Search for liquidity
The importance of accessible liquidity was highlighted by recent research which found that buy-side equity traders are spending increasing amounts of time searching for liquidity in fragmented markets, while also facing the pressures of constrained budgets and smaller teams. Consultancy Coalition Greenwich’s survey, The Globalization of Algorithmic Equity Trading: A Buy-Side View, found that top concerns for EU respondents were a lack of liquidity and venue fragmentation, along with the consolidated tape and war in Ukraine. In the UK the top concerns were around Brexit and a consolidated tape, as well as lack of liquidity and transparency.
Jesse Forster, senior analyst at Coalition Greenwich market structure & technology, said in the report: “Although different views of the proposed European consolidated tape are prevalent, overall, 44% of traders in EU/UK are willing to subscribe to it once available. Almost one-quarter are waiting for more details around quality and costs, while one-third are not planning on doing so at all.” 
