Opposing sides of the consolidated tape discussion have published open letters making their views known to policymakers just days before EU bodies debate what form the crucial trading infrastructure should take.
Last Thursday, the Federation of European Securities Exchanges (FESE) – which represents exchanges including the 14 planning to submit a joint bid to operate the tape – called on trialogue members to consider the European Council position favouring real-time post-trade data, with pre-trade information disclosed at the time of execution.
It added the US iteration has shown a consolidated tape will not be “a magical solution” to the EU’s unlevel playing field, dark trading and fragmentation – and including real-time pre-trade data would “further distort market structure”.
The body also called for a formal ban on Payment For Order Flow to address trading transparency and “careful framing” of the Systematic Internaliser Regime to minimise midpoint trading away from displayed prices.
Rainer Riess, director of FESE, commented: “Policymakers have a last chance under the current mandate to improve the regulatory environment in capital markets with coherence, so Europe enhances its competitiveness and resilience.
“Market structure rules and the consolidated tape must go hand in hand; they need to be well synchronised and calibrated, an aspect so far not discussed by policymakers.”
Opposing FESE was a letter published last Friday by the European Funds and Asset Management Association (EFAMA), co-signed by 18 asset managers including Invesco, Legal & General, Schroders and Baillie Gifford, arguing the only commercially viable tape would follow the European Parliament proposal.
This includes real-time data delivery including five layers of best bid and offer pre-trade data, covering both equities and ETFs, provided on a “reasonable commercial basis”.
The letter highlighted the uncompetitive nature of EU capital markets with trading volumes down over 25% since 2013, whereas turnover has grown 7% in Asia and 25% in the US over the same period.
It argued Asian and Latin American investors unable to access real-time volume data efficiently are overlooking European-listed ETFs. Between 10% and 20% of US-listed ETF assets are held by non-US clients, equating to around $1trn. A real-time equities-ETF tape could see “a good portion” migrate to EU-listed products, EFAMA said.
The industry body added those responsible for trading strategy and liquidity risk management at fund issuing houses require real-time data and anything else would be “stale and inaccurate”. It also said pre-trade data are vital for trading and portfolio management which drive investor behaviour and, in turn, volumes.
Natan Tiefenbrun, president of Cboe Europe, an exchange provider not part of the bid by the consortium of exchanges, argued the tape proposed by FESE member “does not meet investors’ needs” and is a “mix of hubris and self-interest”.
“FESE members want to restrict trading flexibility for institutional investors, forcing all flow into lit orderbooks and making the EU the only jurisdiction in the world to actively undermine the pursuit of best execution,” he continued.
Susan Yavari, senior regulatory policy adviser at EFAMA, added: “No-one ultimately wins with an EU that is unable to deliver real-time consolidated data including pre-trade.
“We slam the door today on an ambitious tape and we only widen the gap with the US where trading conditions are vastly superior.”
Industry participants have told ETF Stream individual exchange providers are lobbying countries’ ministers of finance to accept the European Council’s proposal despite risking a tape for which there is no demand and no political appetite to try again if it fails.
Yavari previously suggested exchanges only formulated their vision for a consolidated tape once it seemed as if the creation of some form of tape was inevitable. Their proposal needs to be viewed “with a healthy dose of scepticism”, she said.