Market Analysis
Financial institutions in Europe, including banks, asset managers, and exchanges, are in a race to develop technology that can enhance the continent's capital markets and compete more effectively with Wall Street. Modeled after the long-standing "consolidated tape" in the United States, which aggregates stock and bond prices from various trading platforms, the European Union and Britain aim to establish similar systems within the next three years.
The purpose of these tapes is to democratize access to market data, providing investors with a comprehensive view of market activity. Currently, the fragmented nature of market data delivery discourages investors. The European Securities and Markets Authority (ESMA) plans to establish criteria for selecting providers to operate these tapes, beginning with bonds and then expanding to stocks.
Exchanges initially resisted the idea of a consolidated tape to protect their lucrative data, but they are now required to contribute to it by EU regulations. EuroCTP, backed by major exchanges like Deutsche Boerse and Euronext, is already investing in building a stocks tape. Adamantia, supported by banks such as Barclays and BNP Paribas, is also making progress in this area.
The estimated cost of building a stocks tape is substantial, but proponents argue that it would simplify cross-border trading and attract more investors. In the United States, the consolidated tape has been operational for decades, overseen by industry associations like the Consolidated Tape Association.
In addition to the EU initiative, Britain is also planning its own tapes under the oversight of the Financial Conduct Authority (FCA). These initiatives aim to strengthen the respective regions' positions in the global financial markets.
EuroCTP and other stakeholders emphasize the need to move forward with establishing the tapes, considering the complexity of integrating numerous trading platforms across Europe. However, concerns remain about the autonomy of tape operators and the potential impact on existing market data revenues.
The operational phase for the EU tape is set to begin soon, with testing expected to commence in early 2025. Cboe Global Markets expresses interest in participating in both EU and UK tapes, while the London Stock Exchange Group emphasizes the importance of operational robustness and cost-effectiveness.
On the bond side, challenges persist, with some contenders withdrawing due to complexity. Etrading Software remains a key player, emphasizing its neutrality and focus on technology rather than profiting from data.
Overall, the establishment of consolidated tapes in Europe represents a significant step towards enhancing market transparency and competitiveness, albeit with challenges and complexities to overcome along the way.
Paraphrasing text from "Reuters" all rights reserved by the original author.