Response to the ESMA consultation on the cost of market data and consolidated tape

FESE welcomes the opportunity to provide input to ESMA on the development in prices-for pre-and post-trade data and the consolidated tape (CT) for equity instruments.

A well-functioning market structure supports a robust price formation process and delivers market data to the benefit of investors. Above all, market data is the outcome of a dynamic price formation process and is a joint product with trade execution — i.e. it is not possible to generate one without the other, and most activities undertaken by a stock exchange deliver both trading and price formation. Market data has to be priced reasonably to ensure competition can exist, which the current high number of trading venues and execution mechanisms proves. However, price controls on market data or mandating exchanges to contribute their data to a consolidated tape without reasonable compensation threatens to severely handicap Exchanges. This would disturb the role of Exchanges as a source of finance to the economy. Regulators may be tempted to believe that a consolidated tape, by increasing transparency, will fix the current market structure issues, but this is unlikely because transparency is only as good as the data submitted by those executing transactions in SIs and OTC. A consolidated tape is no substitute for adequate market structure and rigorous enforcement of rules.

  1. With regards to RCB price regulation is not justified as there is neither a market failure, nor would we expect any positive impact on investors, if Exchanges become further regulated.
  2. With regards to the CTP and in the absence of a regulatory use case similar to the one in the US (with mandatory use as well as mandatory funding by users), the current proposals resemble an indirect price regulation, which is questionable. Guaranteeing high quality, reliable and consistent flagging of SI and OTC trades is key to delivering a CT that can be considered meaningful. FESE’s response stresses that all trading mechanisms (including SIs and OTC) should be required to use the MMT model, among other measures. Provided that there is a strong use case and adequate compensation to Exchanges for the use of their data, FESE believes that a “Tape of Record” which would be a significantly less complex and costly technical set-up, providing a comprehensive overview of overall liquidity within the EU on an instrument level. In either case, a pre-condition for a reliable CT is an improvement of off-venue data quality, covering all execution venues which would best meet the needs of users and the market.