It might seem like it’s dragged on for years, but progress is gradually being made – if slowly. Yesterday, ESMA held a workshop on the potential for a consolidated tape in Europe – with participation from multiple industry stakeholders on where they hope to see the project go over the coming years – while a new industry consultation is expected to launch in May. BEST EXECUTION outlines the MiFIR proposals to date, and the expected future timeline for a tape.
The consolidated tape proposal has changed significantly since its initial inception, as has the landscape in which it is set to operate. With both an equities and a bond tape being considered, but slow progress being made on each, some players (such as the Tradeweb/Bloomberg/MarketAxess consortium for a bond tape) have withdrawn from the provider race, while others, such as the European exchange-led EuroCTP group on the equities side, have emerged.
The background
A final agreement on the ongoing review of MiFIR and MiFID II was reached by EU policymakers from both the European Parliament and Council in September 2023. This was then approved by the Council and the ECON Committee (European Parliament) in October 2023. The agreement contains a number of key elements: including an update of the transparency regime, an outline of the different consolidated tapes, and a ban on payment for order flow (PFOF), as well as addressing a number of other elements including the share trading obligation, the systematic internaliser (SI) regime, and a review of the open access requirement.
The agreement
While there were mixed responses to the final agreement, with some concerned that the proposals had been ‘watered down’ from their original intention, the proposals are at least now moving forward. The next areas of focus are expected to be the consolidated tapes for equities and bonds, an exploration of the deferral regime (with potential reductions in deferral periods for bonds), an assessment of the recent lit and dark market reforms, a review of the cost of market data, and an assessment of retail distribution.
The European Parliament voted to approve the amendments on 16 January 2024, agreeing on elements including an enhancement of market data transparency, optimisation of orderly trading and a prohibition on PFOF. However, there was dissatisfaction in some quarters that the consolidated tape had not taken greater priority, with players such as the Association for Financial Markets in Europe (AFME) urging more immediate action to turn around the constrained liquidity and underdeveloped capital markets in Europe.
READ MORE: European Parliament votes on MiFIR overhaul
Current status
The EU has agreed on three consolidated tapes: bonds, equities and ETFs, and derivatives (including OTC). The bond and derivatives tape will include post-trade data “as close to real time as technically possible,” while the equities tape will require trading venues and APAs to share post-trade data as well as real-time best bid and offer (EBBO) prices and sales volumes. The inclusion of pre-trade data is an ongoing and controversial discussion – ESMA plans to assess the effectiveness of pre-trade data on the EBBO, with a deadline of June 2026.
What next?
A workshop took place on 15 February, organised by ESMA, to discuss next steps for the consolidated tape. A further workshop is planned for March, BEST EXECUTION understands, while a new industry consultation on the tape is expected to launch in May.
“We were thrilled to participate in yesterday’s workshop which marked the beginning of a new stage of the development of a consolidated tape,” said Eglantine Desautel, CEO of EuroCTP, speaking to BEST EXECUTION.
“Our objective… was to exchange directly with ESMA and participate in a lively discussion on how ESMA views the development of a consolidated tape. We are committed to aligning our future products and services with ESMA’s vision and the revised MiFiR, recently agreed by the European Parliament and Council.”
Baby steps
Moving forwards, the MiFIR changes are expected to be published in the Official Journal of the European Union (OJEU) in March/April 2024, entering into force 20 days later. Member states then have 18 months to implement the changes (i.e., by September 2025), with a grandfathering clause for PFOF meaning a complete ban on the practice by 30 June 2026.
When it comes to the consolidated tape, however, change in Europe may take a little longer. ESMA expects to launch the selection process for a bond tape provider in January 2025, with a decision made by July 2025. The selection for an equities tape will start in July 2025, with a decision made by January 2026, at which point the derivatives tape provider tender will launch.
The draft reporting obligations for the CTP will be published by September 2025, and in June 2026 ESMA will submit a report to the European Commission on whether any additional features should be added to the consolidated tape. A full assessment of CT performance is planned for June 2028, three years after the (planned) first approval.
The UK is also proceeding with its plans for a consolidated tape, and earlier this month outlined plans for both an equity and bond offering – with a bond tape expected to launch in the second half of 2025.
READ MORE: FCA mulls inclusion of pre-trade data in equities consolidated tape plans
Everything to play for
While progress has been made and agreement reached, there is still room to manoeuvre, and controversy remains around some areas.
“This is the first time that the EU is implementing an equities consolidated tape. As a result, there are considerable yet surmountable challenges to overcome,” said Desautel. “The consolidation and harmonisation of data from different trading venues is one of the biggest challenges. This is due to the fact that the data provided by trading venues are in different formats.”
To address these issues, an EU expert group on data quality is set to launch in June 2024.
Another concern is the identity of the provider itself. EuroCTP is a strong frontrunner, founded in August 2023 as a joint venture between 14 leading exchanges including Deutsche Börse, Euronext, Nasdaq Nordics and SIX. But some market participants have raised concerns around the impact of giving a group composed of the status quo of exchange data providers sole control over exchange data provision. When asked how this might impact the economics of data provision in Europe, Desautel responded:
“The consolidated tape will simplify access to market data for numerous users, including retail. Not only will future users not need to connect to multiple sources, but they also will have a feed of reference, including all European data. More importantly the consolidated tape will be provided to retail investors for free; education will be critical to explain how the tape is working. The harmonisation and increased participation in the market should also lead to greater data use and better investment opportunities available across EU markets.”
Another player in the running is the Adamantia consortium, which has strong buy- and sell-side support with members including BlackRock, Vanguard, Allianz, Amundi, AXA, Invesco and more. The group ran a feasibility study on an equities tape in 2022 which argued that that the inclusion of real-time pre-trade data was essential for it to be economically viable.
“Now that we have the final shape of the tape, we need to revise our initial assumptions because obviously, as we won’t have full depth of pre-trade information, the addressable use cases will be much more limited. In our view, that means that there will be less demand for this tape, which means that it may not generate sufficient revenues to recoup costs,” said Adamantia co-founder Antoine Pertriaux, speaking to BEST EXECUTION last year.
READ MORE: Antoine Pertriaux on whether a consolidated tape is really viable without pre-trade data?
The group is currently currently conducting a survey to market participants to gauge their appetite on the subject, before engaging further.
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