The European Securities and Markets Authority (ESMA) has bitten the bullet on a real-time consolidated ticker tape for European equities, following the failure of an industry-led solution to emerge. In a review of market data pricing published today, the regulator warns that market data costs under MiFID II are still too high, confirming plans to step in with the creation of a mandatory EU-wide solution.
“Transparency is important to ensure that markets are fair, sound and efficient. However, after nearly two years of operating under MIFID II, we are still lacking a reliable view of liquidity across the EU,” notes ESMA Chair Steven Maijoor. “Therefore, we need to establish a real-time consolidated tape for equity instruments to remedy the fragmentation of EU markets, create a real single market and so contribute to the establishment of the Capital Markets Union.”
MiFID II requires venues and data providers to publish market data on a reasonable commercial basis, provide market data in a disaggregated format, and to make market data available free of charge 15 minutes after publication with the objective to lower the cost for market data. However, implementation has not been entirely successful and although most trading venues claim that data prices have been overall stable, data users and vendors have complained about excessive fees, complex market data policies and overall higher costs for data.
In response to these concerns, earlier this year ESMA conducted a consultation on the need for a consolidated tape, to which responses were varied. Broadly, financial services firms and data users are largely in favour – with organisations such as the International Securities Market Association (ISMA) coming out in support. Exchanges and some data vendors, however, responded with significantly less enthusiasm – the World Federation of Exchanges, for example, objecting that: “Price-setting by the official sector is an extreme policy tool that can only be justified in extraordinary circumstances.”
Despite the mixed industry feedback, it looks as if the ayes have it. “Access to market data is becoming increasingly important for securities markets and it is important that data users know what they are paying for,” says Maijoor. “ESMA will therefore provide further guidance on the cost of market data.”
According to ESMA, a market-led initiative failed to thrive due to the limited commercial rewards available to potential providers within the current regulatory framework, as well as possible competition by non-regulated entities such as data vendors. It therefore recommends the mandatory contribution of data by trading venues and APAs, as well as a revenue-sharing model between contributing entities. To succeed where the industry has failed, it proposes a mix of both legislative changes and supervisory guidance to improve transparency and to ensure that market data is provided on a reasonable commercial basis.
However, there are no illusions as to the mammoth size of the task ahead, and ESMA admits that the process is likely to be both time-consuming and technically demanding, requiring a “substantial investment” of both time and resources by all parties involved.