The European Fund and Asset Management Association (EFAMA), European Principal Traders Association (EPTA), and consultancy firm Protiviti, have jointly published a letter identifying gaps in the current framework for EU’s consolidated tape for shares and exchange-traded funds (ETFs). Addressed to the European Securities and Markets Authority (ESMA) and the European Commission, the letter shares five recommendations for the effective implementation of a well-functioning tape.
The recommendations were made based on feedback from the ongoing consultations of the Savings and Investments Union (SIU). They include:
• Expand the depth of pre-trade quotes.
• Include venue identifiers on pre-trade data.
• Incorporate the instrument data of exchange-traded commodities (ETCs) and exchange-traded notes (ETNs).
• Encourage smaller venues to contribute data.
• Set up an appropriate governance framework.
Nothing to hide
Regarding the first point, the letter highlights a flaw in the Markets in Financial Instruments Regulation (MiFIR). The regulation’s pre-trade transparency obligations require only top-of-book quotes, which “severely limits price discovery and potential growth of EU’s lit markets by concealing available liquidity”. The recommendation suggests making amendments to MiFIR to increase order book depth to cover at least five layers of prices and volumes. This should result in better insights into supply and demand, better execution decisions, and tigher spreads.
To the second recommendation, the letter states, “Tracing pre-trade quotes to their contributing venues in real-time is essential for making informed decisions on order routing, seeking best execution, and understanding market dynamics.” Such transprency will fuel cross-border participation, supporting a single market for EU capital.
Inclusivity matters
The third recommendation is based on the belief that including ETCs and ETNs on the tape would “would enhance investor access by providing a standardised and comprehensive view of all exchange-traded financial instruments”. The current exclusion of these products from the tape “risks fragmenting the market data landscape and complicating comparative analysis”.
The current lack of mandate for smaller venues could create an incomplete or distorted view of market activity for the tape’s users, hinder cross-border integration, and reduce incentives for these venues. Participation on the tape, on the other hand, can create more visibility for the niche liquidity pools, local investor bases, and unique order types on these venues.
Finally on governance, the letter recommends giving stakeholders from the data user community a say in decision making, especially regarding pricing and fee structures, data content, as well as latency and access. “broad representation in the governance structure, including decision-making powers will help guide the creation of a commercially viable tape that is future proof”.
Follow our coverage of the EU’s consolidated tape here.
