NYSE Technologies’ plans to develop a consolidated tape for European equity markets should come to fruition in the third quarter of 2011, when the company will deliver a service aimed at providing broad access to post-trade market data at a lower cost than today.
The tape is a response to the current MiFID debate on market data transparency and will be available as both a real-time consolidated data feed and as a 15 minute delayed tape of record. The tape of record will be free of charge with access via the internet and from market data vendors, while the real-time option will be commercialised by NYSE Technologies for professional users. NYSE Technologies claims the tape will contain complete coverage of post-trade equities data from all European regulated exchanges, multilateral trading facilities (MTFs) and OTC markets.
Dominique Cerutti, president and deputy CEO of NYSE Euronext, says: “A European tape of record will address the critical elements in the MiFID post-trade transparency debate relating to the quality and cost of consolidated equity post-trade data.”
Plans for the equities tape follow an agreement made by NYSE Euronext, parent of NYSE Technologies, and Markit in July 2010 to deliver a consolidated OTC post-trade data tape and may raise concerns that NYSE Technologies is attempting to hijack development and commercialisation of a consolidated tape for European equities ahead of regulation.
Mark Schaedel, global head of data products at NYSE Technologies, refutes such concerns saying: “We are trying to be clear and honest about our intention to solve the transparency problem. This initiative is about building on post-MiFID debate and the Committee of European Securities Regulators’ (CESR) recommendations on how trades should be reported to the market to develop a tape of record. If the regulator takes a utility approach to a consolidated tape it will take some time to build. During that time, we will build a tape and, if it satisfies customers’ needs, that may reduce the need for a utility. We have talked to the regulator and it says our development is interesting and that it would like to see it in action. The tape is still theory until we deliver it, but when we do the regulator will be able to see in practice the impact it has on transparency for customers.”
Rejecting the idea that NYSE Technologies is hijacking the consolidated tape by taking a lead in development, the company says it will invite other markets to partner in providing consolidated tape solutions – as it did with Markit – and will supply the technology to other providers and approved publication agents (APAs) to power their own tapes.
Schaedel views the NYSE Technologies’ development as a practical application of knowledge and technology that is already in the market, and one that will be refined as de facto industry standards for post-trade reporting emerge. He explains: “A tape of record is a very simple and practical application of the newly defined standards that address transparency issues. It is similar to what investors already know as ‘time and sales’. While there is no single source, such as a utility, for ‘time and sales’ data, it informs investors with a consistent view of the markets.”
Essentially, the tape will implement two CESR recommendations: identifying trades in categories and ascertaining whether or not they are price forming; and ensuring that trades are not reported more than once. Specific issues of OTC trade reporting transparency will be addressed by regulatory oversight proposed by CESR under the APA regime together with the recommended trade reporting standards.
The long wait until delivery of the tape in the third quarter of next year leaves time for exchanges to unbundle pre and post-trade data early in the year, which will significantly reduce the cost investors incur for real-time consolidated post-trade data, and for further work on issues around OTC trades. “We won’t necessarily wait for the changes and will keep going with our product,” says Schaedel. “We may have a beta version before the third quarter and can then go through an iterative improvement process using customer input before the tape goes live.”
NYSE Technologies envisages a consolidated tape framework for a number of solutions that can meet diverse customer needs. At one end of the spectrum there will be an internet solution offering market data to a broad audience at no cost, while at the other end there will be a real-time service for sophisticated users who will pay more for market data as they move up the value chain in search of low latency and unique delivery models. Here lies the commercial market that Schaedel expects to be populated by mid-tier banks and some buy side institutions. NYSE Technologies has yet to finalise a fee structure as that depends on exchanges’ pricing of unbundled post-trade data, but it does suggest prices for the real-time service will be a ‘fraction’ of what they are today.
While NYSE Technologies will be a pioneer of the post-MiFID consolidated tape, it doesn’t expect to be a lone traveller. It acknowledges Bloomberg and Thomson Reuters, which already offer consolidated tapes to smaller communities than NYSE Technologies expects to reach, as well as the addition of other newcomers. “There is plenty of room to differentiate in the market,” says Schaedel. “If others see a need and a void, standards will enable solutions and market data and technology suppliers will look to create value in consolidating and delivering post-trade market data.”