In FESE view, the Mandatory Consolidate Tape proposal will not serve the objectives of improving transparency or lowering costs, and by contrast pose serious threats to the competitive framework that MiFID has enabled.
A number of commentators have put forward the idea of implementing a US style Mandatory Consolidated Tape (MCT) or introducing price regulation, with the hope that these proposals would lower the cost of consolidation and improve transparency. In FESE view, these proposals will not serve the objectives of improving transparency or lowering costs, and by contrast pose serious threats to the competitive framework that MiFID has enabled.
Why FESE opposes a Mandatory Consolidated Tape:
• A MCT means that RMs (and indeed other trading venues) are not able to compete on the basis of quality because their prices are treated as equal value components of the proposed CT.
• A MCT will be expensive to build and operate and will likely require a complex revenue allocation model for the participating markets. It is hard to see how any revenue allocation could account for the issue of quality or provide choice to investors.
• Potential MCT revenues could be one reason why certain trading venues with no or little price formation of their own are in favour of a MCT, as it would allow them to earn revenue from market data and would elevate their prices to the same level of value as the prices of the price‐forming venues.
• Most critically, MCT revenues will spoil the information value of the tape as they have in the US because they create economic incentives to conduct trades solely for the sake of that market data revenue.
• A MCT will not solve the main problems faced by market participants and supervisors. The introduction of Approved Publication Arrangements to publish OTC post‐trade transparency information would go much further in addressing the quality, availability and consistency of OTC data.
• Finally, US‐style MCT would introduce additional problems to Europe. In addition to taking away the competition, it is more than likely that it will also change the market microstructure due to gaming for data revenues, a serious and inevitable problem with a central system that has kept the US authorities busy. This is a significant problem with largely unpredictable consequences for the micro and macrostructure of European markets. Gaming would likely become a fixture of the market and, instead of venues competing on the basis of their execution quality; they would compete in terms of their gaming. This is not a good outcome for Europe.
© FESE
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