There’s a battle raging just out of view on Europe’s financial markets. The dispute is between owners and users of trading data and is over who gets to profit from it. The battle lines have been drawn between the data originators – largely but not only the stock exchanges – and the data users – who could be anyone active on the markets – over the proposed “consolidated tape” which aims to improve access to trading data.
“It’s just so much more apparent now,” said Susan Yavari at European asset management assocation Efama. “They want to defend existing income streams.” She explained that in the past 10 to 15 years, for stock markets and other data originators, selling access has become “probably one of their biggest cash cows.”
While the originators see limitations and question the tape’s value – see our previous article featuring the views of the Federation of European Stock Exchanges – the users claim they’re suffering because of the lack of the tape, which could also be key to further develop European capital markets, among other benefits, they argue.
The tape could help attract overseas investors interested in European financial products. “But if we can’t give them the tape, they don’t have the assurance to trade in those securities and in those funds,” said Yavari, a senior regulatory policy adviser at Efama, which advocates for the consolidated tape. “They don’t understand the liquidity, so they don’t have the assurance to say ‘okay, I can get out of this easily’.”
The EU is actively considering regulation to support a consolidated tape – a kind of ticker tape that displays prices offered and paid for say equities or bonds. A recently announced European stock exchange consortium is proposing to operate one.
Comprehensive view
Efama represents the views of other organisations, including Germany’s Competence Centre for the German Funds Industry, known by the acronym BVI. It supports European Parliament economic affairs committee’s position on the tape, calling it “a step in the right direction for the consolidated tape to provide significant value in supporting the Capital Markets Union, thereby providing all investors with a comprehensive and standardised view of the EU trading,” according to Frank Bock, the BVI’s head of communication.
While stock exchange representative Fese has explicitly argued for market reform as a necessary first step before a consolidated tape could be effective, Efama sees this as a side issue. “I like to keep them kind of separate, because it kind of confuses the issue and the big picture in terms of the Capital Markets Union,” Yavari said.
Yavari pointed to Europe’s highly developed trading landscape. “This kind of diversity in trading venues is, I think, a welcome thing.” But to support this, she argued, “we need to be able to understand pricing and liquidity across the piece, and this is very difficult to do in the absence of a tape.”
Not for everyone’s pocketbook
She conceded there are alternative routes to the data. “They’re expensive and they’re not for everybody’s pocketbook.” Even providers such as Bloomberg or Reuters can’t give you the full picture, she said.
Those who argue the tape is an inadequate solution are representing business interests, Yavari said.
There are secondary arguments over the pricing and quality of the data, with users arguing for higher quality data delivered faster at a low cost and owners resisting. In the US, there is a tape, but it was created with stock exchange interests in mind, featuring a fairly high price for lesser quality data, with the US Securities and Exchange Commission issuing a plan to rebalance the situation.
A bit of a U-turn
Yavari described the announcement by a group of 14 exchanges seeking to become a consolidated tape operator as “a little bit of a U-turn.” Investment Officer’s email to a group of public affairs officers representing the initiative has gone without a response.
She characterised stock exchanges dragging their feet on consolidated tape or trying to suggest it was an inadequate solution as them “defending an old business model”.
She portrayed the tape effort as “more about growing the pie”, and said that the exchanges will also benefit.