Capital markets consultancy, Adamantia, has worked together with institutions including Barclays, BNP Paribas, Crédit Agricole CIB, Deutsche Bank Group, Natixis CIB and Société Générale to develop a joint feasibility study to assess the viability of the European Consolidated Tape (CT), a post-trade tape of bond pricing data, mandated by the European Commission.
While the study has been broadly welcomed, Tim Whipman, head of business development at TransFICC, which has stated it can provide the CT technology, believes that the numbers in the study are actually higher than would be needed to develop the tape.
“Some firms are suggesting there’s an upfront cost of about €7.5 million to build the tech and set up the company to run the tape, with €6 million annual running cost for the tape once it’s up,” he says. “They reckon it’ll take five years for this CTP to reach breakeven, and the initial investment would have to be around €14 million euros to cover the losses in the first few years. We think those figures have got quite a bit of fat in them. We think the upfront technology costs are significantly lower; we’d be looking at €1.7 million. We’ve got a lot of the infrastructure in place already. We’re aggregating post trade APA’s today. It’s a pretty easy lift for us to do it and we’re probably not the only ones.”
Published on 13 January 2023, the study assesses the business case for developing a taps and found that, based on a formal request for quote issued to the technology firms engaged in developing technology solutions for the CTP, it is technically feasible.
“The following points are the result of extensive workshops with key subject matter experts and represent a strong consensus among the participating institutions,” wrote Antoine Pertriaux, partner at Adamantia Advisory. “All surveys and data collection were done based on confidentiality and in compliance with laws including adherence to antitrust principles.”
Neil Ryan, regulatory lead at FINBOURNE Technology, which has been named as a potential CT provider, says, “The Adamantia report is a genuinely thoughtful, detailed and comprehensively researched piece of work that moves the debate forward. They highlight, in a structured framework, the benefits that any bond CTP will have for the industry, while outlining the significant challenges that any potential providers will have to consider. As they outline, their business case is based on certain key assumptions – on which there may be different views – however, many believe their underlying pricing assumptions are ‘in the ballpark’.”
The study estimates that the bond CT will represent a one-off build cost of around €7.5 million and annual running cost of €6 million. Based on its scenario developed by participants, the total initial investment to cover the build and the first years of run of the CTP would represent a peak of €14 million in Year 2, before being progressively recouped by revenues and fully reimbursed at the end of Year 5.
“Given what we know right now, it’s a reasonable ballpark,” says Chris Murphy, CEO of Ediphy, which is also a potential CT developer. “But obviously, we don’t quite know what requirements specified will end up being. Further requirements could ask to provide additional support, additional data quality analysis, that type of thing. We also don’t know if the tape will just be a real-time stream, or have a requirement to maintain a historical record, which then starts to incorporate any trade cancellations and amends that are published on the tape.”
Steve Toland, co-founder at TransFICC, says, “We believe the tech can be built for a really simple cost; the regulators want a utility and because of newer technology, in terms of hosting, you need fewer servers, while the messaging technology that we’re using is more efficient. I’ve heard from the buy-side in every meeting that it needs to be at a right price point to be a success.”
Whipman says, “It’s not just about the price, this can be delivered quickly if you’ve got the right setup to begin with. We think the annual tech cost would probably be around half of what they’re saying, €3 million. With admin, legal operations it would not be a push to say €4 million.”
Toland adds, “We’ve already built a pilot and a CT won’t look very different than our normalised data stream. The regulator might want different fields but that’s about a day’s work. What takes time is onboarding venues and banks. But the faster this is up and running, and the test environment is available, the quicker you’ll get people on board. We think from signing the contract, it should be three months until the first trade is going through.”
©Markets Media Europe 2023
