The Czechia presidency of the Council of the European Union proposed amending the Markets in Financial Instrument Regulation (MiFIR) on 16 December 2022, with a view to enhancing market data transparency, removing obstacles to the emergence of a consolidated tape and optimising trading obligations.
MiFIR provides a legislative framework for ‘consolidated tape providers’ (CTPs) for equity and non-equity instruments who can consolidate data into a continuous electronic live data stream of market data for financial instruments.
However, the latest proposal has included revenue sharing with data sources, which is proving controversial.
It says CTPs for non-equity market data will need to “redistribute part of their revenue fairly for the purpose of covering the costs, including loss of revenue, related to mandatory contribution, and of ensuring a fair level of participation for trading venues in the revenue generated by the consolidated tape.”
Rudolf Siebel, managing director at the German investment fund association, BVI, wrote “All users of a bond CT need to unite to get a deletion on the proposed revenue sharing mechanism into the final MiFIR text. This is important because in effect approved publication arrangements (APAs) and the trading venues who own them, can dictate the price of CT data through their view of ‘loss of revenue’ relating to basic raw data. They can make sure the CT data pricing is artificially high.”
Previously revenue sharing had been considered in order to prevent revenue loss at Europe’s smaller national stock exchanges. CTPs will be asked to redistribute “part of their revenues for the purposes of covering the cost related to mandatory contribution and of ensuring a fair level of participation for trading venues, and in particular smaller regulated markets, SME Growth Markets and others trading venues providing initial admission to trading of shares and trading venues providing the best bid and offers available.”
Not a single firm has applied for authorisation to act as a CTP according to the current proposal. The reluctance to become a CTP stems from three obstacles, according to the European Securities and Markets Authority (ESMA): a lack of clarity as to how the CTP is to procure market data from trading venues and reporting service providers; insufficient quality of data harmonisation; and a lack of commercial incentives to apply for authorisation as a CTP.
The Czechia presidency’s proposal is intended to help overcome some of these barriers by providing financial incentive to data providers.
At present, national discretion in the delivery of the rules has allowed deferral of data publication to differ between countries. The proposal is to harmonise the deferral regime at the level of the European Union, remove discretion at national level and facilitate market data consolidation, with the exact calibration of deferrals being left to ESMA due to the technical expertise required to specify the calibration according to appropriate criteria.
The requirements for the quality of data will be specified by the Commission in a Delegated Act and consider the advice of a dedicated consultative group composed of experts from the industry and from public authorities. ESMA will be closely involved in this consultative group.
ESMA will be responsible for drafting technical standards and calibrating the mechanism for revenue redistribution to trading venues and data providers.
The proposals prefaced an announcement on 20 December 2022 by the Presidency, that it had agreed a mandate for negotiations with the European Parliament on the proposed regulation reviewing the Markets in Financial Instruments Regulation (MIFIR) and the second Markets in Financial Instruments Directive (MiFID II).
©Markets Media Europe 2022
