As the Financial Conduct Authority (FCA) hashes out a structure for the equities consolidated tape, expected to launch in 2027, speed and cost of delivery are superseding quality when it comes to how much pre-trade data will be on show.
In its consultation paper on the UK equity consolidated tape framework (CP25/31), the Financial Conduct Authority (FCA) states that pre-trade data depth would be beneficial to the market – but proposes that only top-of-book pre-trade offers from lit UK venues be included in the tape.
In its consultation paper on the UK equity consolidated tape framework (CP25/31), the Financial Conduct Authority (FCA) considered four options for the tape’s structure. ‘Scenario four’, in which post-trade data with the attributed top three pre-trade bids and offers from lit venues and systematic internalisers would be distributed at a 20-40 millisecond latency, “appears to provide the highest net benefits by far”, the regulator stated. This was also the most well-received model by the market, and was projected to be the most in demand and the most cost-effective – generating £14 to £27 million annually.
However, the delivery risk of such a model is too high for the FCA to adopt.
“There is significant uncertainty regarding whether Scenario 4 would be a viable business model with which to deliver an equity CT over the proposed 5-year contract period,” it said. “Incremental benefits may not justify their increased delivery risk, particularly given the importance of introducing an equity CT quickly.”
The structure it has proposed “seems more likely to deliver more moderate net benefits in a wider variety of circumstances,” it added – “albeit not to the extent of scenario four”.
Market participants are not happy about the slimmed-down tape proposal.
Speaking for the sell side, UK Finance argued that the proposed depth would be insufficient.
“Members strongly disagree with the FCA’s preferred design to include only post-trade data and the attributed pre-trade best bid and offer,” its response said. Instead, it suggested, pre- and post-trade data with three to five levels of depth and venue attribution should be shown on the tape in order to provide meaningful data to investors and illustrate the liquidity of UK markets.
Other respondents also argued the benefits of deeper pre-trade data.
“A post-trade only CT would struggle to attract a wide user base due to its limited use cases,” stated the Investment Association, which has more than 200 investment management members. The group added that the inclusion of more pre-trade data would promote trading on public venues, improve investor protection and widen market access.
Similarly to UK Finance, the association called for “ideally five layers of best bids and offers in both price and volume with full venue attribution” to be included in the tape.
Hayley McDowell, head of European market structure at RBC Capital Markets, explained to Global Trading that limited pre-trade data could increase the risk of the CT being underused and failing commercially.
“Investors have voiced clear support for the inclusion of meaningful pricing data. Every effort should be made to prioritise delivering a CT that meets the needs of its users,” she added.
The regulator itself sees the benefits of greater depth. Providing a real-time view of orders at multiple price points “could help demonstrate UK liquidity beyond the top of book”, it said, adding that deeper pre-trade data would be an important way to monitor large trader, which are more likely to execute at non-top of book prices.
It could also help to boost the UK’s competitiveness, a key priority for the FCA.
Scenarios with three to five layers of pre-trade bids and offers “would provide more data than the current US equity CT and planned EU equity CT,” it said, adding that more data could improve UK market liquidity visibility globally and broaden access to equity trade data.
While BlackRock “strongly supported” the FCA’s proposal and called the CT structure “comprehensive”, it acknowledged that “aggregated pre‑trade information improves the visibility of public markets and showcases the resilience and regulatory safeguards underpinning them”.
In light of the EU framework considering a shift to five levels of attributed order-book depth, the investment management giant urged the FCA to consider deepening its own tape.
“We believe that establishing a UK tape that reflects more depth of trading interest is essential to meeting the FCA’s objectives of enhancing market resilience, competitiveness, and overall market quality,” it concluded.
McDowell noted that general alignment across jurisdictions should be encouraged, as this will support market participants operating across regions.
“Functional consistency will reduce potential frictions for firms integrating both data feeds and alignment of frameworks could produce richer insights to investors. Focusing on delivering value for all users of the CT will increase the likelihood of its success,” she noted.
From a European perspective, the Association for Financial Markets in Europe (AFME) advocated for five levels of pre-trade order book depth and for “an aligned scope and functionality between the EU and UK tapes”.
Europe is facing its own issues with cross-jurisdictional consistency. A recent consultation on the EU’s Market Integration and Supervision Package saw market participants generally support the idea of ESMA taking a more centralised regulatory role in the region.
READ MORE: Centralised European regulation gets tentative thumbs up from market
Respondents to the paper were also opposed to the inclusion of trading book depth in the consolidated tape, warning that this could give systematic internalisers and dark pools access to advantageous information.
READ MORE: Exchanges back Euronext’s call to defend lit markets
The European Principal Traders Association (EPTA) took a more measured view, recognising the FCA’s concerns around delivery. “The design proposed by the FCA for the equity CT strikes the appropriate balance between what is achievable now at a predictable price point and serving a reasonable range of use cases,” it stated.
“If it were achievable to deliver a CT with greater depth of pre-trade data in a timely way, EPTA members would be very supportive, but if it is too difficult then we are in favour of moving ahead with a reasonable compromise in the interests of delivering a tape sooner rather than later.”
