Preparing for MiFID II
Will a European Consolidated Tape really reduce costs for trading and research and how will exchanges replace this revenue stream?
The term European Consolidated Tape (ECT) has taken on a variety of different meanings. In terms of a pre-trade European Best Bid and Offer feed, this issue has been fixed for sometime by the vendor community. Most vendors provide customisable feeds that allow traders to see a ‘virtual’ market that reflects only those venues that are part of its best execution policy. This is obviously different from the US situation where a National Best Bid and Offer is mandatory for the venue-centric Reg NMS system to function properly.
The real issue concerns post-trade and this is critical for demonstrating best execution and finding effective answers to Transaction Cost Analysis. The reason this is tricky is that each venue has developed its own syntax for describing different trade types and so often you see one code meaning different things and vice versa. On top of this is the fact that the current OTC reporting regime leads to a certain level of duplication with trading that has already been reported on lit markets.
So, in summary, some form of ECT would definitely reduce research/analysis costs and, more importantly, increase transparency. The other issue concerns the impact of an ECT on reducing the cost of market data for the industry as a whole. Currently there is a huge discrepancy in market data fees ranging from the MTFs, which make it available at no charge, to the primary exchanges which some people feel charge too high a fee. As the market share of the primaries reduces it seems unlikely that they will still be able to justify their current pricing policies. A number of market participants have argued that if they are only getting 50 or 60% of the true picture from a particular exchange then why should they still pay 100% of the market data fee.
Finally it would be great if the media as a whole adopted some form of ECT as this would prevent potential misreporting of actual volumes as often only the primary market centres are referenced.