As part of its response to the European Commission’s proposals under the second iteration of MiFID, the Association for Financial Markets in Europe (AFME) has championed the cause of a consolidated tape for post-trade equity data in the region. However, although it acknowledges the need for greater transparency in the non-equity markets, the industry association reckons a different data tack should be taken for fixed income, FX, commodities and derivatives.
In its recent briefing note on MiFID II, AFME states: “We fully support the establishment of a European consolidated tape (ECT) in response to the increased fragmentation of data sources since MiFID was introduced. We believe that the ECT should be run by a commercial provider and are actively involved in the cross industry group tasked with its development.”
The ECT industry working group has been supported by various exchanges and data providers such as Thomson Reuters and the London Stock Exchange (LSE) in its endeavours to establish data standards for a consolidated tape. The aim is therefore to enable access for everyone to real-time post-trade information about all EU listed equities, although there has been some debate about whether such a solution or solutions should be an industry run utility or provided by a commercially run entity or entities.
On the subject of data infrastructure, AFME is also supportive of the data sharing goals of regulators with regards to tracking systemic risk and has been heavily involved in providing feedback to the US Office of Financial Research on the subject of legal entity ID standards, for example. In its recent MiFID II briefing, AFME therefore notes: “Sharing market information and knowledge among authorities: key to improve understanding of securities markets, and to deliver a truly efficient regulatory response to systemic risk.”
In the context of post-trade data transparency within the non-equity markets, AFME is therefore also fully supportive of regulatory access to this data: “regulators should have unfettered access to all relevant transaction and position data across all asset classes, the resources to analyse such data, and the ability to share information between them.” To this end, the European regulatory community is keen to introduce a transaction-based post-trade transparency regime for these markets that would include the gathering of data on transactions in terms of price, volume, time of trade and the main reference characteristics of the traded instrument, rather than aggregate data.
However, the association sounds a note of caution with regards to the public availability of the post-trade data for the fixed income, FX, commodities and derivatives markets and recommends that a one size fits all approach is not desirable. It explains in its recent briefing that MiFID’s current public transparency regime cannot be simply replicated for these markets: “To do so, could drain the liquidity in a significant portion of these markets.”
The association reckons that introducing mandatory post-trade price transparency without the right calibration would have damaging effects similar to those that would result from pre-trade transparency requirements. “AFME acknowledges that constructing a well calibrated regime that protects liquidity is a difficult task for any regulator, as the fixed income market is complex with many different types of participants. Therefore, AFME considers it important that the industry itself attempts to develop and build a framework that balances the interest of transparency and liquidity for all participants. AFME is currently taking the initiative to develop such a regime. To that end, it is reaching out to key stakeholders to gather their input,” it states.
On the subject of a post-trade price transparency regime for the fixed income markets in particular, the association is keen for market data related to the price, volume and time of trades to be made freely available to the public for non-commercial use via a website. To this end, AFME is gathering data about how such a regime could be implemented and is planning to announce its findings in the third quarter of this year. After which point, it says: “We will then continue to work on the calibration of the regime and evaluate the requirements and feasibility of an IT/data infrastructure to deliver the framework. A request for proposal based on that feasibility study will then be launched to select a data provider, which would be designated in the fourth quarter of 2011. The framework should then be in operation in the first half of 2012.”