The EU plans to mandate a new financial market trade data service, promising transparency and investment – but others fear it’ll just create a new monopoly.
EU securities markets watchdog ESMA last week (28 August) closed a consultation on services that could be on the market by 2026, but some fear the move will give stock exchanges even more centralised power.
The EU has long hoped to develop its fledgling capital markets, and hopes a series of new consolidated tapes could help it unify a fragmented ecosystem.
Publishing details of the price and volume of securities trades – an electronic version of the stock price ticker tapes seen in old films – could bring transparency, competition, and modernity to markets that are surprisingly old-fashioned, proponents believe.
“A true single market cannot exist without a more integrated view of EU trading,” the European Commission said in a 2020 action plan for capital markets.
Letting financial market participants compare a stock or bond traded in Paris, Frankfurt or one of the bloc’s 300-odd regulated trading venues would attract much-needed capital, the Commission believes.
It would also keep pace with rivals: the US has had a consolidated tape for half a century, and the UK is introducing one soon.
EU laws from 2014 contained provisions for the service – but “nobody applied for it”, Eglantine Desautel told Euronews, citing the difficulties gathering and paying for data from across the EU ecosystem.
Now, under a legal refresh which took effect in March, the idea could be financially viable, believes Desautel, whose company EuroCTP will bid to run the equity tape.
“We are passionate about making it, and designing a product that will meet the needs of the clients,” Desautel told Euronews.
"The European market is quite hard to get a grip of ... there are a lot of execution venues,” Desautel said, saying that the lack of a comprehensive market view was “not making Europe very easy to enter” for investors.
Not a panacea
Others in finance share her positive view.
“Consolidated tape is not the panacea” to European savings drifting to the US, “but it certainly helps,” Susan Yavari, deputy director for capital markets and digital at the European Fund and Asset Management Association, told Euronews.
Financial intermediaries can only recommend what they know about – meaning your pension portfolio might be missing out, Yavari said.
"We've heard of cases where brokers have opted out or discontinued buying Italian data, Spanish data, and coverage of those stocks,” she said.
But she’s also worried about the new service effectively locking out competition, giving extra power to already mighty trading venues.
Financial market participants have long complained over the fees stock exchanges charge for access to data, an argument in which regulators have occasionally intervened – but the situation could be made still worse if asset managers are effectively required to use the new tape service, Yavari said.
“As to monopoly, I just think they need to be held to a very strict governance standard, including conflict of interest,” she said – and she’s worried ESMA’s supposedly competitive tender may just be a fig leaf.
“There's no one else competing” for the equity service apart from EuroCTP, she said. “Even from as early as the bidding process it's building in the risks.”
Yavari wants EuroCTP to have a board that gives voting rights to potential tape users, rather its current, purely advisory, structure.
Beside the point
For some, injecting competition would be beside the point; the whole idea is to have a unique service with a consolidated view.
Yet Desautel is keen to stress that her project is open, and not under the thumb of existing market players.
Though created in 2023 by a consortium of 15 European stock exchanges, EuroCTP is “operating totally independently” from its shareholders, doesn’t use their platforms or infrastructure, and shares ideas with other parts of the financial ecosystem, she says.
“It could be part of the model to be open to other parties,” she said. “It doesn’t have to be only stock exchanges.”
In a May statement, ESMA said its standards would “will contribute to enhancing market transparency and removing the obstacles” to an EU consolidated tape.
Contacted by Euronews, a spokesperson for the regulator said it was assessing responses received, but declined to comment further.
Bonds
The equity service is just one of many new tapes ESMA has planned.
For other securities, such as bonds, the tape could prove transformational, Euronews was told.
“We think ultimately it will drive further electronification of the market,” said Chris Murphy, CEO of Ediphy, which may bid for the bond tape when the tender opens early next year.
Far from the popular image of high-tech finance, “the bond market is the last bastion of the telephone and people chatting to each other,” he said. “It’s far from being fully automated.... it’s insane.”
The bond service may be less politically fraught than for stocks, but ESMA’s choices could still prove decisive, Murphy said.
“We haven’t seen the final rules,” he told Euronews. “We don’t know whether it’s going to be commercially viable for anyone to bid."
Squabbles over how to design financial market infrastructure are nothing new, nor unique to Europe.
A few years ago, the Securities and Exchange Commission unsuccessfully sought to force governance changes to the US Consolidated Tape Association, which, Yavari says, is also dominated by the major exchanges.
But, she adds, the stakes may be higher for Europe, whose reputation for attracting capital is far shakier.
“All investors want to be there [in the US],” Yavari said. “We have to make it as easy as possible.”