19 September 2006

Investment banks to establish pan-European trade reporting system

A group of nine leading investment banks have signed a letter of intent to pool their trade transparency data and create a pan-European platform for the collection and sale of trading data that will bypass those operated by exchanges.

The members of the consortium are ABN Amro, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, Merrill Lynch, Morgan Stanley and UBS. All members will have equal shares in the new platform and the group will retain control of the planned entity.

It was initally reported in August that leading investment banks were working together to establish a trade reporting system that would take advantage of the changes introduced by the EU's Markets in Financial Instruments Directive (MiFID) and provide an alternative to the current systems operated by European exchanges such as the LSE.

At present, all trades must be reported to the LSE or a recognised exchange, regardless of whether an exchange's systems were used for the transaction. The exchanges then charge brokers for this service and also for access to the trading data they then provide.

But under MiFID banks will no longer be required to report all trades through exchanges and will instead be able to report trades to any registered entity.

In response to this, the consortium is establishing a single pre- and post-trade reporting and market data platform on a pan-European basis. The service will aim to improve transparency, yield significant cost benefits and enable participants to comply with the relevant requirements of MiFID.

The group is in the process of appointing a service provider to supply the new user-led platform. In its first phase, the system will capture, aggregate, distribute and display pre-trade quotes and post-trade reports for over-the-counter European equity deals. A Request for Proposal was sent out to vendors in July 2006 and a decision is expected to be made in October 2006.

The consortium intends to complete development and implementation of the first phase of functionality, to incorporate equity pre-trade quotes and post-trade reporting, ready for parallel operation by participating firms by 1 August 2007.

While the project is being championed by the consortium, any qualified market participant will be able to use the system to achieve MiFID compliance. Non-consortium institutions will also be encouraged to contirbute data to the platform.

Although the initial focus is on the European equity market, the platform will be developed to meet new regulatory requirements and future market demand. This includes opportunities for expanding across the product range, says the group.

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