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Let’s Try Again for a European Consolidated Tape

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Before there was Turquoise, there was Boat. And Boat, you’ll recall, was the industry’s answer to the then-incoming regulation designed to ensure that pan-European equity trades were reported to a mechanism available to all in a standardized way. This was required because Europe’s markets were about to fragment, due to the introduction of multilateral trading facilities (MTFs) and the disassembling of the prior (anticompetitive) practice of reporting trades through domestic exchanges.

Fast forward four years and Turquoise is owned by the London Stock Exchange, Boat is owned by Markit, and the mechanisms for reporting European equity trades are as fragmented as the trading venues themselves. Well, almost.

And so, this week the Federation of European Stock Exchanges (FESE) has announced Market Model Typology (MMT), the latest attempt by the former CESR – now trading, if you’ll excuse the pun, as ESMA – to get the European equity markets on a level playing field as far as trade reporting is concerned.

Specifically, MMT brings together various groups of market practitioners – exchanges, MTFs, market data vendors – to address longstanding marketplace gripes about the absence of a post-trade consolidated tape for European trade reporting along the lines of the US’s Consolidated Tape Associate (CTA).

Such a tape, of course, wasn’t mandated by MiFID – the wide-ranging, incoming regulation of the day back in 2007. MMT – developed under the auspices of an ESMA joint working group – appears to be aimed at plugging the gap in the trade-reporting puzzle that the industry couldn’t quite get it together to fill under its own steam.

As such, MMT aims to provide a framework through which exchanges, MTFs and market data vendors can standardize their post-trade information in order to make it easy for market practitioners to get a consolidated view of post-trade European equities trade data. In other words, a framework for creating a pan-European consolidated tape.

How does it work?

The MMT 1.0 mapping release, announce this week, “provides a translation between legacy trade reporting flags to a newly defined single market standard. The translation is being adopted by MMT participating vendors”: Thomson Reuters, Bloomberg, Fidessa, NYSE Technologies and SIX Telekurs. This “comprehensive translation (facility)” – which has been developed and is being maintained by MMT exchanges and trade reporting venues until these standards are adopted by each venue – will allow swift adoption of standardised trade data by the vendors. Participating venues and reporting facilities include: the London Stock Exchange Group (presumably including Turquoise), Markit Boat (natch) and BATS Chi-X Europe.

This approach, says FESE in a release, offers a practical solution to the challenge of monitoring market activity across fragmented markets ahead of the implementation of MiFID II, marking a major step toward creating “an efficient and, comprehensive tape of record for users of the EU Single Market.”

Says FESE: “The MMT initiative provides an immediate solution for users of consolidated data from the participating Regulated Markets and MTFs through the various applications provided by the participating data vendors. This is a significant step forward in the efforts to standardise trade data and allows investors to accurately monitor market activity. The clarity provided will also help inform users on the on-going efforts and prove the benefits of standardisation.”

Next up is an effort to get European exchanges to adopt MMT natively within their datafeeds, which would appear to alleviate the need for the mapping step. Stand by for more news on this.

And there’s more. FESE: “Perhaps the most significant remaining work involves the definition and implementation of trade reporting requirements for OTC market participants. Cited by the CESR Joint Industry Working group as necessary work which was not accomplished by the working group within the mandated timeframes, this effort requires the industry and regulators to work together to ensure that the standards for trade data are consistently applied during trade reporting by OTC market participants and validated by trade reporting venues.”

FESE says it will participate actively in these efforts and that FESE members who operate trade reporting platforms will also support these efforts and develop the necessary validation capabilities.

Can the industry finally get its act together on European equity trade-reporting? Only time will tell.

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