Exchanges raise concerns over consolidated tape proposals
The stock exchanges, which are a part of the FESE, stressed that a holistic approach is required in this important debate, especially considering the revamped Capital Markets Union. The study published by Market Structure Partners (MSP) outlining the proposals to consolidate European market data paints a bleak picture of the EU financial markets, said FESE. It does not sufficiently recognise the link between high quality data and a functioning, fair and competitive market structure and does not substantiate a valid business case for the consolidated tape.
These proposals do not focus on the low-quality market data provided by SI and OTC reporting and the lack of trading access to all execution venues for end-investors. It overlooks the fact that Exchanges minimise costs for clients including on data, as they compete with other venues. Exchange market data fees account for less than 0.5% of buy-side and 10% of the sell-side market data spend only, stated FESE.
MSP’s approach misses the fundamental objective that policymakers should have, which is to set rules that ensure a transparent, stable and fair and competitive equity market structure to deliver efficient price formation and transparency for equity instruments in the EU.
A well-functioning equity market structure, which incentivises transparency and provides a robust price formation process, is beneficial to companies (to get better valuations) and investors alike (to get a fairer and safer outcome), said FESE. “However, ESMA’s recent statistical report on EU securities markets shows that reality is at odds with these objectives. An increasing amount of trading is not transparent, not available to all investors and large investment banks dominate the EU equity trading landscape,” added the association of stock exchanges.
FESE also stated that a consolidated tape on its own will not improve EU market transparency unless market structure rules and improved trade flagging with proper regulatory enforcement are tackled simultaneously. Terming MSP’s study as a ‘piecemeal' approach, the association stated that it would only increase complexity and confusion, benefitting only some large non-EU firms, while end investors will continue to be denied equal access to liquidity and best execution. It added that MSP’s proposals pose a risk to smaller exchanges and may thwart the development of their often-nascent capital markets. Therefore, the consolidated tape debate cannot be separated from the market structure debate, said FESE.
As an alternative, the FESE suggested that the exchanges propose a post-trade tape of record covering 100% of transactions in the market (including Sis and OTC), to address the need for a consolidated view of EU markets. Such a post-trade tape of record would be easier, less costly to build and would avoid latency and arbitrage issues while delivering value to market participants.