Esma: Mifid II has failed to reduce cost of market data

Europe’s financial regulator wants to create a single electronic system to collate real-time stock prices and help drive down the cost of trading for investors, something it says the region’s flagship trading rules have failed to do.

The European Securities and Markets Authority made its recommendation on December 5, just months after it launched a consultation on the cost of market data and the creation of a so-called consolidated tape.

A consolidated tape would provide dealers with live information on the price and size of stock trades taking place on European exchanges and other venues. The creation of one was mandated under the EU’s revised Markets in Financial Instruments Directive, which came into force in January 2018.

But a tape has failed to materialise and high-frequency traders, banks and asset managers continue to pay exchanges for this data, with many complaining the charges are too high and continuing to rise.

Esma said in a statement: “Mifid II has not delivered on its objective to reduce the cost of market data charged by trading venues and Approved Publication Arrangements (APAs)…  Esma recommends the establishment of a European Union wide real-time consolidated tape for equity instruments.”

Steven Maijoor, chair of the regulator, said: “Transparency is important to ensure that markets are fair, sound and efficient. However, after nearly two years of operating under Mifid II, we are still lacking a reliable view of liquidity across the EU.

“Access to market data is becoming increasingly important for securities markets and it is important that data users know what they are paying for.”

Esma set out four prerequisites for the creation of a tape but warned that it will require substantial investment. These are: a high level of data quality, in particular for over-the-counter data; the mandatory contribution of data by trading venues and APAs to the consolidated tape; the consolidated tape sharing revenues with contributing entities; and a strong governance framework.

Exchanges have disputed charging too much for market data. Financial News reported in June that European competition regulators had investigated Nasdaq, the US-based exchange, and Spain’s Bolsas y Mercados Españoles over the issue.

Esma noted the main reason why a consolidated tape had not emerged was because of the “limited commercial rewards” on offer to the institutions that would provide it.

The regulator’s recommendations will now feed into the European Commission’s review of Mifid II, for which the EU’s executive arm is preparing amendments.

To contact the author of this story with feedback or news, email Samuel Agini

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