As the European Union forges ahead with its ambitious plan for a consolidated tape (CT), key market data user groups have raised concerns, identifying “important gaps” in the current framework. In a joint letter to the European Securities and Markets Authority (ESMA) and the European Commission, EFAMA, EPTA, and Protiviti have outlined a series of critical recommendations to ensure the tape is effective and truly serves the goals of the Savings and Investment Union (SIU).
The creation of an EU consolidated tape for equities and ETFs is widely seen as a crucial step toward unifying Europe’s fragmented capital markets. The goal is to enhance transparency and provide a comprehensive view of market activity. However, the success of this landmark project hinges on getting the details right.The recommendations from the user groups focus on enriching the data content and establishing a fair and robust governance structure. Key demands include:
- Expanded Pre-Trade Depth: The letter calls for the inclusion of five layers of pre-trade prices and volumes. This would provide users with deeper insights into market supply and demand, enabling better-informed execution decisions and fostering tighter spreads.
- Venue Identification: To increase user confidence and improve order routing, the groups are pushing for the identification of the trading venue on pre-trade data. This measure would also reduce information asymmetry and enhance competition among trading venues.
- Inclusion of ETCs and ETNs: The associations argue for the inclusion of Exchange-Traded Commodities (ETCs) and Exchange-Traded Notes (ETNs) on the tape. Since these products trade on the same venues as ETFs, excluding them would create an incomplete market view and add unnecessary complexity.
- Encouraging Participation: The letter stresses the importance of encouraging smaller venues, which have the option to opt out, to contribute their data. Their participation is vital for visibility into niche liquidity pools and unique order types.
- Robust Governance: A central demand is the establishment of a strong governance framework that includes representation from the data user community in key decisions regarding pricing, data content, and access.
In reaction to the recommendations from the industry bodies, Mark Montgomery, Chief Commercial Officer at xyt, told TradingTech Insight: “Granular data is the foundation of true transparency. Without it, investors will struggle to fully understand the dynamics of fragmented markets.”
The recommendations come as the operational groundwork for the tape is already being laid. In a significant recent move, EuroCTP, the joint venture of 15 exchanges likely to be selected to build and operate the CT for equities and ETFs, appointed DataBP to create a ‘digital-first’ administrative framework for the service.
While the industry has been focused on the selection of the tape provider, the recommendations from EFAMA, EPTA, and Protiviti serve as a critical reminder that the content and governance of the tape are paramount to its success. Policymakers are expected to address these concerns in the upcoming SIU legislative package. The decisions made in the coming months will determine whether the consolidated tape becomes a powerful tool for investors or a missed opportunity.
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