Consolidated Tape

Time is running out for the EU Equity Consolidated Tape

Interview with Thomas Richter, Chief Executive of the German Investment Funds Association BVI

The EU Commission has proposed a Consolidated Tape (CT) for equities, ETFs, bonds and derivatives. Discussions are now underway in the EU Commission and Council on the design of an Equity Consolidated Tape. For fund companies, a tape for bonds is additionally important. In the meantime, the clock is ticking.

Mr. Richter, are you satisfied with the EU Commission's proposal for a real-time Equity Consolidated Tape?

Yes, it is finally time to introduce an tape for equities. The USA has had one since the 1970s. For the financial sector and its customers it would provide greater independence from data providers. It would lead to more transparency and significant cost savings. All investors would have immediate access to market prices and a uniform overview of all share prices in the EU at a low cost. Access to shares would thus be facilitated. Moreover, a CT is important for the European Capital Markets Union, which aims to create an EU-wide single market for capital. The transparency of the EU stock market would also be significantly increased by a low-cost EU stock index family covering all companies by way of the Equity Consolidated Tape.

So much for the ideal picture. Unfortunately, politics has not got so far. As currently proposed, the CT for equities is initially to offer only post-trade data, but hardly any pre-trade stock quotes. Stock exchanges have proposed a one minute delay in the publication of market data, which is not acceptable. Such an CT for equities would be worthless for institutional investors. A consolidated tape for stocks and ETFs needs to report data every second so that portfolio managers can have a view of the actul market for the share. This is a reasonable compromise - fast enough for a view of the market, but still much too slow for brokers and high-frequency traders operating at millisecond speeds or faster. So there remains business potential for the stock exchanges. But even more than a consolidated tape for equities, fund companies need a CT for bonds.

Why is a CT for bonds even more important?

Transparency about prices and transactions is very poor in the bond market compared to equities, because trading takes place mainly bilaterally and not via the exchanges. In addition, MiFID provides for long publication periods for bond transactions, sometimes of more than four weeks. This combines with a lack of standardized data. Therefore a CT for bonds is essential for more efficiency and transparency. And unlike the equity consolidated tape post-trade data with a delay of one minute would be fully sufficient here. What is important, however, is improved data quality, shortened publication deadlines and the inclusion of all corporate and government bonds traded in the EU.

When will the EU commit to the Consolidated Tape?

Hopefully still in the first quarter of 2023. Then there would be enough time for EU legislators to adopt the necessary rules before the 2024 EU parliamentary elections. Were this not to be the case, the introduction of an EU Consolidated Tape would be postponed for several years, to the detriment of the financial markets and especially investors.

The questions were asked by Christiane Lang, Internet Editor.

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