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Coba Proposes Commercial Framework for European Consolidated Tape

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The Coba Project, an organisation set up to propose a commercial framework for an industry-led pan-European consolidated tape, reports positive feedback from a letter outlining its plans that it sent to key industry stakeholders earlier this week.

Coba’s proposal wraps up the standards recommended ahead of the letter by FIX Protocol Ltd. (FPL) for the consolidation of trade reports and market data in European equity markets, and the work of the Market Model Typology data standards initiative. As a package, the proposal could meet the MiFID mandate for a European consolidated tape, meet the regulator’s call for a commercial industry-led solution, and avoid the imposition of a regulator dictated solution.

Coba was founded in May 2012 by Graham Dick, former head of business development at Chi-X Europe, and Mark Schaedel, the former global head of market data at NYSE Euronext, who was previously involved in the administration of the US consolidated tape.

Dick and Schaedel registered The Coba Project as a UK company with the sole objective of establishing a pan-European consolidated tape that could restore and support market transparency. The company spent six months consulting with European and domestic regulatory bodies, regulated markets, multilateral trading facilities (MTFs), data vendors and buy-side and sell-side institutions.

It has now decided to send an open letter (see below) to industry participants with a view to achieving collective acceptance for its proposed framework and a commitment to implementation. The next step is to negotiate terms of reference that will support a consolidated tape with industry participants such as those to which the letter was distributed.

According to Schaedel, “We realised that without the work of an independent party an industry-led commercial solution would not advance, so we decided to use our experience and independence to make it happen. We funded Coba ourselves, but it is a collaborative organisation as a consolidated tape solution must be enabled by industry. Response to the letter is already pretty positive, but we anticipated that from the outcome of the consultations.”

The proposal set out in the letter suggests a European consolidated tape system that is much like the system that has been operational in the US since the late 1970s, although there are a couple of major distinctions.

One is that development of the US tape was not industry-led but based on a mandate from the Securities and Exchange Commission, another is that the US tape is distributed by only one provider while the European tape is expected to be distributed by multiple providers.

Coba’s proposal for a European consolidated tape puts the organisation at the heart of the system acting as the Consolidated Tape Administrator. The administrator would act as an agent for exchanges and have responsibility for licensing the consolidated tape to market data vendors and end users, and administering a revenue allocation model that would leave data vendors with a margin from integrating the data into applications and distribute data revenue back to the exchanges. COBA would be funded with a small deduction from the revenue pool.

Schaedel says: “We will offer market data vendors a packaged price for a consolidated tape of European equities. This will be a lower cost product for data vendors to offer to their clients on a fixed fee per user basis than they could achieve by paying fees to exchanges and consolidating the data. In return, they must agree to conform to a uniform specification for the tape.”

As well as exchanges, MTFs and over the counter (OTC) trade reporting venues will be able to report to the consolidate tape system, although Schaedel points out that standardising OTC trade reporting is the hardest piece of the puzzle and is unlikely to be resolved until the industry or MiFID sets down a mechanism for standardisation.

In the meantime, Coba intends to push forward with the project and suggests delivery of Phase 1 covering the most fragmented equities towards the end of the second quarter of 2013. Phase 2, covering all 67 European Union markets and including equity and equity-like securities is scheduled to follow in early 2014. Fixed income and other asset classes will then be included, leading Schaedel to suggest that a complete consolidated tape could be available in a couple of years. MiFID regulation, including a requirement for a consolidated tape, is expected to become effective in late 2014 or 2015.

“This is the first time we have reached some consensus on a commercial solution for a European consolidated tape and we will need further consensus for every step of the way, otherwise it won’t work. But we do have agreement on the model from exchanges and the commercial model should attract participants,” Schaedel concludes.

The COBA Project’s open letter to industry:

Open Letter: European Consolidated Tape Delivery Plan

Dear Key Stakeholder,

Almost immediately after the launch of MiFID in November 2007 and the subsequent fragmentation of liquidity in equity markets, investors across Europe were calling for the introduction of a pan-European Consolidated Tape.

The financial services industry has recognised the need for a pan-European Consolidated Tape as a means to:

1. Restore market transparency

2. Enable execution performance attribution & compliance monitoring (best execution, TCA, benchmarks, market abuse monitoring, circuit breakers, etc.)

3. Facilitate broad availability of consolidated pan-European data at a reasonable cost

Whilst significant progress has been made in harmonising technical standards, conflicting commercial interests have resulted in a level of inertia which has stifled our industry’s progress in addressing its own needs.

The COBA Project was established six months ago with the sole focus of applying our experience in an independent capacity to coordinate the implementation of an industry-led pan-European Consolidated Tape. Although complete consensus cannot be expected, our extensive consultations with legislative and regulatory leaders at EU and local levels, Regulated Exchanges, MTFs, key buyside & sellside institutions and data vendors have allowed us to establish a framework which now has sufficient support to move forward.

The plan outlined below provides a summary of the collaborative efforts required to achieve the initial phase of implementation, currently targeted for late Q2 2013. We request written confirmation of your support, upon receipt of which, we will provide the non-binding terms of reference for participation going forward.

We look forward to your participation.

Yours sincerely,

Graham Dick Mark Schaedel

Managing Partner Managing Partner

Distribution: ABN Amro, ABP, Allianz AM, AXA IM, Baader, Banco Santander, BAML, BarCap, BATS/Chi-x, BBVA, Blackrock, Bloomberg, BNP AM, BME, Cheuvreux, Citi, Commerz, Crédit Agricole, Credit Suisse, Danske Bank, Deutsche Bank, Deutsche Börse, DNB Nor, ESMA, European Commission, Fidelity, Goldman Sachs, Handelsbanken, IDC, IMC, ING, ITG Posit, JP Morgan/JPM Asset Management, LiquidNet, LSEG, Markit BOAT, Monte di Pasci, Morgan Stanley, Nasdaq OMX, Nomura, Norges Bank, NYSE Euronext, Schroder IM, SEB, SIX Swiss Exchange, Société Générale, State Street, Thomson Reuters, UBS/UBS MTF, Unicredit.

Appendices to the letter, which can be found at www.thecobaproject.com, describe the proposal, next steps and expectations, roles and responsibilities.

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