01 July 2022
Why Consolidated Tape should encompass the full range of Fixed Income products, post-trade and real-time.
Since the European Commission (EC) announced its MiFiR Review in November 2021, the introduction of a Consolidated Tape1 (CT) has become a hot topic, popping up at both conferences and webinars, as well as in news articles.
At Flow Traders, we believe that, specifically for bonds, CT should encompass the full range of Fixed Income products – corporate, sovereign, and municipal – irrespective of maturity, credit rating, liquidity profile, transaction method or relevant and applicable deferral. Adding a calibrated deferral regime would help the EU Fixed Income market grow by introducing near real-time public dissemination for certain trades more progressively and accurately.
“At Flow Traders, we believe a real-time, post trade CT will contribute to creating a level playing field and increase opportunities for monitoring execution quality for both market participants and investors. Ultimately, a CT should effectuate the integration of national EU capital markets into one large EU liquidity pool, to strengthen EU capital markets as a whole and make them more attractive for the end-investor, both EU-based and globally.” says Ramon Baljé, Head of Fixed Income EMEA Flow Traders
Our view is that building and operating a CT provider (CTP) is operationally both feasible and straightforward for current commercial market data providers. CT and CTP should therefore be built around existing data streams and formats. And we see no reason why CT cannot be (near) real-time given the technological sophistication of the market as a whole, and the low technological burden of republishing trade events.
This is also one of the reasons why we committed ourselves to the AFM Stakeholder Group on the Bond Consolidated Tape, where we were able to champion the position that CT will provide EU markets with the necessary level of transparency through price consolidation and transaction information.
Yet this approach is not commonly shared, with others promoting different interests and various ways to waive or defer transparency. We continue to see debates about data quality, reference data, benchmarking, governance, and ambiguity around reporting instructions for pre- and post-trade data. These are, of course, important topics, particularly because of the choice made by the EC to have a commercial CTP. But data is an increasingly valuable commodity, and market participants contributing to a CTP should at least result in a strong, independent governance structure and a rebate for consuming the CTP. And using distributed ledger technology (DLT) to run the CT would make creative use of a new technology and ensure the CT would be future proof.
However, with these varying preconditions, issues, and interests at play, it is possible we may jeopardize an effective solution coming to market. We strive for perfection within the EU, both in market practices, legislation and regulation, which often comes with delays. And while a lot can be said about the functioning and added value of the US’ TRACE for trading, that market has at least made a start and the situation is gradually improving. This incremental approach to new regulation and innovation might not make all market participants comfortable at first, but success only comes by acting. The initiative by the AFM is to be applauded because it demonstrates that collaboration between market participants and their regulators can lead to new ideas and the testing of innovative constructs.
The EC proposed to set up a Market Data Expert Group (MDEG). Within the AFM Stakeholder Group there is already an international group of professionals ready to play a role and contribute to the successful introduction of a CT. At Flow Traders, we have no doubt this will provide greater transparency and are ready to seize the opportunity. Hopefully, they will have the same notion in Brussels and Paris.