EU Agreement on Cash Equities & ETFs Consolidated Tape

Who's running the record?

European capital markets could be about to unlock their full potential.

Finally, a consolidated tape (CT) for equities and exchange-traded funds is arriving to the EU.

In simple terms, a CT is a real-time or near-real time electronic system that reports the latest traded pricing and volume data on sales of selected exchange-listed securities. Since a security may trade on multiple stock exchanges, the CT reports the security’s activity on all the exchanges it is traded on, allowing retail and institutional investors to use that post-trade data to make more informed trading decisions.

An EU CT has been 10 years in the making — ever since the proliferation of trading venues in Europe’s cash equities markets following the MiFID I and MiFID II regulations.

Although the increasing number of trading venues led to greater competition between brokerage venue and exchange operators for client market share, for example, and it provided accessibility to a wider array of investment products for European investors, it also led to a fragmentation of liquidity in numerous asset classes, with trade data scattered across multiple platforms, exchanges and investment bank broker-dealer platforms. This fragmentation effect made it difficult for retail or institutional investors to access information such as the price of instruments and the volume and time of transactions in an aggregated or consolidated fashion. In fact, due to the lack of a cash equities CT specifically, transparency is only available to those firms or institutions with the technical ability to aggregate the data. A CT would solve this issue by enabling both retail and institutional investors to have a reliable and transparent view of prices and liquidity in one centralised place, improving their ability to assess whether they have achieved best execution outcomes.

In particular, according to BlackRock’s Head of Market Structure, iShares Winnie Khattar, an EU CT could support adoption of UCITS ETFs, where visible liquidity is a key factor in trade decision making.

One would question, then, why a CT hasn’t yet been put in place.

The main roadblock to the adoption of a CT has been the costs associated involved with consolidating market data. According to capital market consultancy Adamantia, there would be an upfront cost of about €7.5 million to build the tech and set up the company to run the tape, with €6 million annual running costs for the tape once it’s in operation.

However, with markets suffering from historically low liquidity levels, and with liquidity and pricing confidence at an all time-low, the benefits of introducing a CT arguably go well beyond the costs of introducing one.

As such, it has been in the best interests of market participants to launch a CT, with declarations of support being given by financial intermediaries across the EU.

On August 23, 2023, a joint venture called EuroCTP was officially incorporated, through which the participants will bid to become the EU’s equities and ETF CT provider.

The JV includes participants found across the EU capital markets industry, including Deutsche Boerse Group, BME, Euronext and NASDAQ.

The company will operate under its board of directors, with representatives from all participating exchanges on its supervisory board. The intention is for the company to participate autonomously in the upcoming selection process for the provision of a consolidated tape in the EU.

In it’s own words, EuroCTP will “aim to offer a clear, consistent overview of the EU trading environment and ensure the consolidated tape adheres to the necessary legal and regulatory guidelines.”

However, Nathan Tiefenbrun, president of Cboe Europe, noted that only a CT that can “fairly reward all data contributors and lower barriers to participation” will support growth among European capital markets. Given the members of the consortium this may not be easily achievable.

Nevertheless, the inception of EuroCTP is a watershed for the EU capital markets landscape. It should go a long way in improving market inclusivity, efficiency and liquidity, which is what EU capital markets have been lacking for some time.