Friday, July 9, 2010

European exchanges fight rearguard action against consolidated tape

From Finextra this morning.    I had to read this a few times to understand this.   I suspect I still don't.  As in the US, there is becoming a proliferation of execution venues across Europe.    Market data is the blood of the beast and without it, investors are unable to feed their machines with the information necessary to find the the best places to trade.

What does the consolidated tape provide?   Why would the regulated exchanges be opposed to it?  Why are some exchanges forfeiting one of their largest revenue sources; market data?

The  conclusions I draw are:

  1. As the name suggests, a consolidated tape is the requirement that all exchanges and execution venues report to a central authority/database the critical information about filled orders that occurred on their venues.   Is other information such as depth of book, bid/ask, size also part of the requirement?
  2. A consolidated tape may show investors and traders that best execution quality may not really exist on the regulated exchanges.   The machines will begin to see that the dark pools are really the places to trade and slowly market share will start migrating to the newer venues.  Notice NYSE volumes over the last few years.    
  3. Is the 'give away' of market data the exchanges attempt to 'buy' business.   Potentially equated  to a rebate.   If you want access to the whole universe of liquidity, you will have to pay for the market data that drives your machines.   If you trade strictly on the exchange, you may be able to do it cheaper because of the subsidized market data.    
  4. I suspect some investors will look at their volumes, opportunity costs, commissions, and other trade cost parameters and see that best execution may cost more than just playing in the familiar exchange playground.   Or maybe not.  

08 July, 2010 - 10:23

European exchanges fight rearguard action against consolidated tape

European stock exchanges are promising to eliminate fees on 15-minute delayed data by the end of the year as they step up their campaign against the introduction of a mandatory consolidated tape for EU market data.

Representing the views of regulated market venues, the Federation of European Stock Exchanges says the introduction of a consolidated tape would neither improve transparency nor lower costs, but would instead "pose serious threats to the competitive framework that MiFID has enabled".

The exchanges are wary of giving up control of a valuable source of revenue at a time when their income and market share is being squeezed by a host of new competitors.

In its statement, the FESE promised to eliminate fees on 15-minute delayed data, support for trade identifier and to make post-trade data available separately from pre‐trade information "at a reasonable cost".

The exchange lobby group also warned of the "unpredictable consequences" for the structure of European markets under a consolidated tape. "Gaming would likely become a fixture of the market and, instead of venues competing on the basis of their execution quality; they would compete in terms of their gaming," says the FESE. "This is not a good outcome for Europe."

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