A recent Bloomberg Intelligence survey has found that 71 per cent of asset managers and brokers have backed a move toward pooled trade data tape in relation to the EU's Markets in Financial Instruments Directive (MiFID) II, despite fears that accompanying data bills are unlikely to go down and exchanges could see a data revenue drop.
The survey, carried out by Bloomberg Intelligence (BI), asked asset managers and brokers their thoughts on long-considered plans to create an electronic system that collates trade data from trading venues and data aggregators, known as consolidated tape (CT), before the end of proposals for the directive at the end of Q3.
In a report accompanying the survey, BI said that while the introduction of CT could lead to deeper market transparency, firms were concerned that trading costs could rise if regulators make consumption mandatory and force asset managers to pay for a bulk of data they do not need and will not use.
When BI’s survey data results were divided between large firms and small firms, only 58 per cent of small firms were in support of the move, while 89 per cent of larger firms with heavier cross-border business backed the move towards CT.
BI said that regulators are likely to widen their preliminary proposal beyond just equities to cover bonds, exchange traded funds as well as certain derivatives. But the diversity of the EU bloc's markets will “make data-tape creation a much trickier task” than in the US, BI said.
In addition to this, BI added that a bloc-wide real-time data tape is unlikely to be market ready by 2025.
The MiFID II changes on the horizon could spur the creation of a CT provider, added BI.
While the rule sought to establish a regulatory environment for competing CT providers, not one materialised, it added, chiefly because it provides little commercial incentive.
Looking ahead, regulators, in the interest of costs, look likely to appoint a single, exclusive CT provider on a limited contract, subject to evaluation every five to seven years, BI said.
However BI added that without a strong governance framework and robust regulatory oversight, there is a risk that a sole-source CT provider might charge monopoly rents or be unresponsive to market needs.
“While this monopolistic approach would mirror the US set-up, it should be highlighted that the US Securities and Exchange Commission recently ruled to open it up to competition”, BI said.
In the event no CT provider emerges under MiFID II, the rule permits regulators to appoint a company to operate a CT via public tender.
Sarah Jane Mahmud, senior government analyst at BI, said: “With formal proposals due by the end of Q3 and plans to launch a beta version for testing in 2023, a bloc-wide real-time data tape is unlikely to be market ready by 2025.”
“Extensive legislative changes would be necessary to make CT-provision commercially viable, including new rules on data quality and pricing. UK policy makers, meanwhile, are pressing ahead with plans to create a national post-Brexit CT with a 1 July consultation.”
Sarah Jane Mahmud adds: “First, MiFID II provides no recourse over poor-quality data submissions. Second, it doesn't tame the cost of negotiating, purchasing and integrating data from dozens of trading venues and off-venue post-data aggregators. Third, a CT provider may have added latency due to aggregation, with data published more than 15 minutes late having no commercial value.”
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