Europe is making a fresh push for a deal to create a single stream of trading data for all of its stock markets, with some officials hoping that at least one major stumbling block could be overcome by keeping some of its most-valuable information anonymous.
Talks to agree on the so-called consolidated tape — seen as a key step to reviving moribund equity markets across the region — resume Wednesday between European Union member states after earlier discussions in June ended without agreement. Their goal is to reach a compromise that can be taken to the next phase of negotiations, which would be with the European Parliament and European Commission.
One of the key areas of deadlock is exactly what information the tape should carry. Many exchanges are resisting the inclusion of real-time pre-trade data, which would undermine a lucrative business for them. Proponents argue a post-trade only model would have limited value.
That division is reflected within member states. In a bid to reach a compromise, Sweden, which currently holds the EU’s rotating presidency, is focusing on an option where pre-trade data would be included in the tape, but without naming which trading venues supplied it. Such a move could give investors “an updated view of buying and selling interests, without unduly harming data providers,” Sweden said in a document seen by Bloomberg News ahead of the talks.
The chances of a deal being reached are unclear. The states remain split overall, though the plan was the most popular of four options discussed at the last meeting. Some members are cautiously optimistic about the likelihood of an agreement, according to people familiar with the matter who asked not to be identified because the negotiations are private.
Fragmented Market
A consolidated tape has long been viewed as a vital development if European markets want to compete with the US, but the region’s fragmented investor base, differing regulatory regimes and multiple operators make both agreement and execution a challenge.
The latest negotiations are part of a broader effort to review existing regulations like the Markets in Financial Instruments Directive, or MiFID II, and find fixes to reinvigorate European finance. Creating the tape has become a central plank of those discussions, part of Europe’s drive toward a capital markets union that breaks down barriers between the financial markets of its 27 members.
Read more: Europe Pushes Ahead on Long-Awaited Capital Markets Union
“Europe wants to improve the capital market system and try to encourage more inflows of capital,” said Nicholas Phillips, a market-structure analyst at Bloomberg Intelligence. “When non-European investors look at Europe, it’s quite hard to find out where liquidity actually is because there is no tape.”
The proposed compromise would not provide full pre-trade transparency, he noted, as investors would know what the best price was across Europe, but not where it was. But it would be better than having no tape at all, which is the current situation, Phillips said.
There are many other issues to iron out in what will probably be a long journey to creating the tape. These include everything from addressing technical challenges and agreeing methods of price calculation to resolving debates about who would run it. But the inclusion of pre-trade data is arguably the biggest immediate hurdle, and any agreement this week would be significant.
Alongside the consolidated-tape plan, member states will also consider a deal for introducing a Europe-level ban on payments for order flow, and new rules around trading commodity derivatives.
Once an agreement is reached, EU states would negotiate with parliament and the commission.
Bloomberg LP, the parent of Bloomberg News, competes with firms to aggregate and distribute market and trading data throughout Europe.
--With assistance from Justina Lee and Alice Gledhill.
Author: Sam Potter, Jorge Valero and Alberto Nardelli