Hugh Jones
LONDON (Reuters) – Banks and asset managers are vying with European exchanges to develop technology that can expand the pool of investors in the continent’s capital markets and better compete with Wall Street.
The United States has long had a “consolidated feed” that aggregates stock and bond prices from competing trading platforms to allow investors to find the best deals, and the European Union and Britain are aiming to replicate it in the next three years.
“The goal of recording is to democratize access to market data and ensure that everyone sees the breadth and depth of the market,” said Nathan Tiefenbrun, president of North American and European equities at Cboe Global Markets (NYSE:). , a pan-European stock exchange.
The current “cluttered” and fragmented market data system is scaring off investors, Tiefenbrun added.
EU securities watchdog ESMA said it would consult by the end of May on criteria for selecting winning bidders to initially launch the tape on bonds and then on shares.
The two contenders that have now emerged for the right to run the EU stock feed highlight tensions between exchanges, banks and asset managers over the price of market data.
Exchanges have opposed the taping to protect their lucrative data, while asset managers and banks say the data would not exist without their trades. To ensure the possibility of exchange, the EU mandated that exchange messages be recorded on tape.
EuroCTP, backed by 14 exchanges including Deutsche Boerse (ETR:) and Euronext, is proactive, investing millions of euros to start building the equity feed now, ahead of any regulatory approval.
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A little later, French consultancy Adamantia launched a feasibility study for the equity tape in 2021 with support from Barclays, BNP Paribas (OTC:), Credit Agricole (OTC:), Deutsche Bank, Societe Generale (OTC:) and UniCredit.
Adamantia said it is developing an investment plan and selecting a technology company for entry with the support of 10 buying and selling entities.
“Once we have completed this step, our goal is to formulate a joint nomination… and prepare for the upcoming ESMA tender,” Adamantia partner Antoine Pertriot said.
ESMA is expected to invite bidders to the bond strip by early next year, followed by the shares strip.
A report by Oliver Wyman for the European stock industry body FESE estimated that creating a stock feed would cost up to €98 million ($105.09 million), but proponents say a single real-time snapshot of prices would facilitate cross-border trading in Europe and attract more investors. Only large market participants with deep pockets can usually afford to obtain prices from the numerous trading platforms scattered throughout the EU.
In the United States, a consolidated electronic tape system has existed for several decades under the control of the Consolidated Tape Association, a group of exchange participants that includes the New York Stock Exchange and Nasdaq.
OPERATION STAGE
Britain is also making plans to create its own records under the supervision of the Financial Conduct Authority (FCA).
“By creating a more complete picture of the market, the feed will strengthen the UK’s position as a leading center for bond listing and trading,” said Sarah Pritchard, FCA executive director for markets.
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European securities industry body EFAMA says the feed should serve market participants and “in no way be used to make European exchanges’ own channels more attractive.”
EuroCTP CEO Eglantine Desautels told Reuters it needed to start building the EU feed as it needed to connect 300 trading and trade reporting platforms across Europe.
“We are moving into the operational phase right now, and we will have the first elements for testing in early 2025,” Desautels said.
Tiefenbrun said Cboe was potentially interested in participating in the exchange feed in the EU and UK, adding that there was “nervousness” about EuroCTP.
“Will EuroCTP shareholders be able to deliver what the industry wants, or will their long-term interests be better served by a tape that protects their existing revenues from market data?”
EuroCTP said it will operate with “full autonomy”, serving all market participants.
The UK FCA is due to provide more information on what the UK tape will look like, starting with the bonds.
London Stock Exchange Group (LON:) said the UK stock tape should be limited to completed transaction prices and be narrower than the EU tape, which would also include indicative “pre-trade” prices. Tape “cannot be both operationally reliable and inexpensive,” LSEG said in a paper published last month.
On the bond side, the main EU and UK contender, the trio of Bloomberg, MarketAxess and Tradeweb, gave up earlier this year, citing difficulty.
For now, Etrading Software has been left alone, with CEO Sassan Danesh saying the company plans to apply for both EU and UK bonds, citing its neutrality.
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“We’re a technology company and we’re happy to make money from technology and operations, we’re not looking to make money from data,” Danesh said.
($1 = 0.9326 euros)