ETF issuers unanimous on vision for EU consolidated tape

‘I have been in this industry for 20 years and we have always talked about a consolidated tape. It feels more real than ever before.’

Jamie Gordon

Capital markets - Jim Goldie, Marcus Miholich, Paul Young

Vanguard, State Street Global Advisors (SSGA) and Invesco have told ETF Stream they are in one mind about an EU consolidated tape needing to offer real-time pre and post-trade data covering equities and ETFs.

Last week, the European Parliament, European Commission and European Council started discussions to define a guiding framework for a consolidated tape across the European block.

This is an issue that has been the subject of much controversy in recent weeks after a joint venture of European exchanges proposed to operate a version of the consolidated tape which has been described as a “brick wall” by corners of the ETF industry.

Jim Goldie (pictured right), head of ETF capital markets and indexed strategies, EMEA, at Invesco, said pre-trade data is essential to extract the potential of having a tape in the first place.

“All the benefits around added market surveillance, better market structure, greater transparency and more safeguards for clients require pre-trade transparency,” he stressed.

Goldie added an equity-ETF tape would make sense rather than a standalone ETF tape or inclusion alongside bonds.

“ETFs should be included on an equity tape because of the way they are traded. ETFs tend to sit with equity dealing desks and their data points are similar to equities.”

Responding to discussions over feasibility, Paul Young (pictured left), head of ETF capital markets for Europe at Vanguard, stated asset managers’ vision for a consolidated tape is deliverable.

“This is something be delivered from a technical perspective. It is a commercial discussion around who can do it and can it be on the terms that people are able to consume it.

“I have been in this industry for 20 years and we have always talked about a consolidated tape,” he said. “It feels more real than ever before and we need to get down to discussing the details of what will make it successful.”

Issuers in the political fray 

ETF issuers have also been active about advocating for their vision of a consolidated tape to be realised.

“Asset managers have done a lot of joint, direct lobbying with policymakers – ourselves, BlackRock, DWS, Vanguard and SPDR,” Goldie explained. “There is also a lot of direct engagement with and through EFAMA and conversations directly with finance cabinets across Europe.” 

Echoing his thoughts, Young said there has been “a lot of noise” over the years with advocates against a consolidated tape much louder than those for it.

“The buyside does not jump up and down about what it needs until you get to a point like this where this a very important discussion that will dictate the future of an issue,” he said.

Marcus Miholich (pictured centre), head of capital markets EMEA and APAC at State Street Global Advisors (SSGA), suggested the mood of the conversation has changed over the past 12-18 months, with some negotiation at a member state level on the adoption of the tape as well as some “fairly significant changes in stance from some entities”.

He added the outlook for the final version of a consolidated tape remains unclear, however, failure to realise the desired tape would likely see the issue slip down the EU’s political agenda.

“If we do not get it right in the first instance, it is going to be a difficult one to revisit,” he said. “If the EU decide to adopt post-trade only, we go back to square one in terms of trying to get the type of tape we are looking for.

“It would not be a disaster but it would not be very useful. I remain cautiously optimistic on a consolidated tape.” 

Exchanges’ change of heart 

ETF issuers have also taken note of the role of exchange providers, which went from advocating against a consolidated tape, to offering to bid to operate a tape and supporting the European Council’s vision for the infrastructure offering pre-trade data on a post-trade basis.

“The exchanges feel like a bit of a delay tactic,” Goldie continued. “They have been outspoken against an equity and ETF tape and now they want to come and be a tape provider.

“The exchanges’ proposal to have pre-trade data on a post-trade basis is just pointless. It does not add any benefits and takes away from the benefits of having pre-trade data to begin with. From a client perspective – such as ourselves – we would not pay to access the data on that basis. It would not add value.”

Young said he was glad the exchanges are now advocating for a consolidated tape and that the buyside had started being more vocal with the wider industry about their tape wish list. 

“From our ETF enclave, we have been pushing for a real-time pre and post-trade tape for as long as I can remember,” Young continued. “It is good that the broader buyside and consumers are also behind that. The exchanges have made it more urgent that everybody voices what they want from the tape.”

Benefitting Europe’s CMU

The issuers were also unambiguous about the positive impact a consolidated tape would have in realising the EU’s Capital Markets Union (CMU) ambitions.

Goldie quoted recent data from EFAMA which found trading volumes in Europe have declined 25% over the past decade while rising by 25% in the US over the same time span. 

“We have ETFs tracking stocks listed on these smaller exchanges and if we have more volume going through the stocks on these venues, there is a chance they can be captured more in some of the indices that ETFs and mutual funds track,” he said.

“This creates the self-fulfilling volume-begets-volume cycle that could drive growth for smaller venues.”

Miholich added a successful consolidated tape being realised would increase the appeal of the UCITS wrapper as a global standard for investment vehicles while democratising access to data for individual investors.

“Retail has increasingly become a point of interest – the current lack of liquidity may be putting retail investors at a competitive disadvantage,” Miholich argued.

Agreeing, Young noted the challenges of distributing a new ETF across Europe to offer access to individual investors.

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