Memo #
31857

ESMA Consultation on the Development of Market Data Prices and an EU Consolidated Tape - Member Call on 26 July 2019 at 3pm BST/10am ET
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[31857]

July 17, 2019 TO: Equity Markets Advisory Committee
ICI Global EU Capital Markets Union Task Force
ICI Global Exchange Traded Funds Committee
ICI Global Regulated Funds Committee
ICI Global Trading & Markets Committee RE: ESMA Consultation on the Development of Market Data Prices and an EU Consolidated Tape - Member Call on 26 July 2019 at 3pm BST/10am ET

 

On 12 July 2019, the European Securities and Markets Authority (ESMA) published a consultation paper (CP)[1] concerning the development of prices for pre- and post-trade data (“market data”) in the EU and the development of an EU consolidated tape (CT) for equity instruments. ESMA is inviting comments on the CP by 6 September 2019. A list of questions contained in the CP is in the annex.

We have previously called for investors to be able to obtain trading data at a reasonable price and supported ESMA’s efforts to achieve this aim. We will hold a member call to discuss the CP on Friday 26 July 2019 at 3pm BST/10am ET. Dial-in details for the member call are below:

UK: 0330 336 0036
US: +1 917 793 0005
PIN: 066875

Other telephone numbers: https://static.powwownow.co.uk/media/pdf/Powwownow-Dial-in-Numbers.pdf

Background

MIFID II[2] and MiFIR[3] require the European Commission (“the Commission”), after consulting ESMA, to report on:

  • the development of prices for market data from certain categories of trading venues (TVs),[4] consolidated tape providers (CTPs) and approved publication arrangements (APAs);[5]
  • the functioning of a CT for equity instruments.[6]

ESMA has agreed to provide the Commission with a report on the above by December 2019. The objective of the report is to: (i) identify ways of improving the quality and availability of market data and reduce costs for market participants when purchasing data; and (ii) consider the factors that are relevant for the successful establishment of an equity CT. ESMA is seeking stakeholders’ views on its initial assessment on the development in prices for market data and the equity CT and will take account of the responses and feedback received when preparing its final report to the Commission.

Developments in prices for market data (Section 3)

ESMA highlights the controversy that has surrounded market data discussions over many years, including the opposing views of buyers and sellers of data. ESMA recalls the concerns expressed by the Commission in 2010 during the MiFID I review, that prices for trading data were too high, particularly in comparison with the US. We concurred with this assessment in our response[7] to questions concerning the provision of data on a reasonable commercial basis (RCB) in ESMA’s 2015 MiFID II/MiFIR consultation.[8] 

ESMA has undertaken an initial assessment of MiFID II provisions concerning:

  • the requirement to provide market data on an RCB, including the possibility of replacing the current transparency plus approach by an alternative approach such as price regulation;
  • the requirement to provide disaggregated data; and
  • the provision to make market data available free of charge 15 minutes after publication.

Overall developments (Section 3.1)

ESMA considers developments in the cost of market data since the entry into force of MiFID II/MIFIR. ESMA reports the feedback from buyers and sellers of data that technological development is increasing the demand and value for market data. ESMA also notes that buyers and sellers continue to disagree as to whether the current price for market data is reasonable. ESMA notes the differences in view as to whether MIFID II has resulted in price increases across the board – some market data users highlight the emergence of new market data fees, whereas trading venues, while acknowledging price increases for some users, believe there have also been price decreases (e.g. for private investors).

ESMA raises several questions in the CP (Q1-Q4) concerning price adjustments for market data resulting from MiFID II/MiFIR.

Reasonable Commercial Basis (Section 3.2)

ESMA highlights the previous technical advice it submitted to the Commission in December 2014[9] concerning: (i) the development of provisions to ensure market data is published on a Reasonable Commercial Basis (RCB); and (ii) the criteria that could be used to ensure data charges are fair, reasonable and non-discriminatory. ESMA’s 2014 recommendation to the Commission for a “transparency plus” approach was intended to provide more information on the pricing of market data to enable data users and supervisors to effectively compare the offerings from different vendors, spot best practices and monitor compliance. In the CP, ESMA raises questions (Q5-Q7) about the availability and quality of RCB information, including:

  • the obligation to provide market data on a non-discriminatory basis;
  • per user fees;
  • disclosure of current price lists;
  • advance disclosure with a minimum of 90 days’ notice of future price changes;
  • information on the content of market data;
  • information on revenue from market data; and
  • information on how the price for data is set.

ESMA also outlines possible alternative approaches in section 3.2.4 of the CP including implementing a revenue share limitation or limiting data charges by reference to costs. ESMA requests feedback on the merits of these approaches compared to the transparency plus approach (Q8, Q9).

Data Disaggregation (Section 3.3)

ESMA highlights the MiFIR provisions on data disaggregation which aim at ensuring that users of market data only pay for data they are interested in rather than being forced to buy bundled data. ESMA reports feedback from TVs that they have received few requests for disaggregated data. Feedback that ESMA has received from data users suggest that data disaggregation has resulted ultimately in higher prices. This appears to be the cases as while disaggregation has led to more granular data offerings, it has also resulted in a higher level of fee overall as more data packages have to be brought to get the same overview that was previously provided by one package. ESMA is seeking feedback on whether data disaggregation has resulted in lower costs for market data users and why there has been little demand (Q10 and Q11).

Delayed data publication (3.4)

ESMA highlights the MiFID II[10]/MiFIR[11] provisions requiring data to be made available to market participants free of charge 15 minutes after publication. Feedback received by ESMA so far suggests that a significant portion of TVs and APAs are not complying with these requirements. Furthermore, ESMA notes that the provision of machine-readable data may not be useful for some market users, such as retail investors, if they are not equipped to benefit from data in such a format. ESMA notes that machine-readable data may be used by third parties for commercial purposes and that TVs and APAs may consider any use of market data as an added-value service and therefore charge for providing related data. ESMA is seeking feedback on compliance with the delayed data publication requirements and areas for further supervisory guidance (Q12 and Q13).

Functioning of the equity CT (Section 4, CP)

ESMA highlights the MiFID II framework that is applicable to “voluntarily established CTPs”.[12] ESMA notes that this framework does not mandate the establishment of a CT but highlights the desire of the MiFID II co-legislators to provide for a CT through a public procurement process if an effective and comprehensive CT is not established in a timely manner. The co-legislators have requested that the Commission, after consulting with ESMA, assess the functioning of a CT against the following criteria:[13]

  • the availability and timeliness of post trade information in a consolidated format capturing all transactions irrespective of whether they are carried out on trading venues or not; and
  • the availability and timeliness of full and partial post trade information that is of a high quality, in formats that are easily accessible and usable for market participants, and available on a reasonable commercial basis.

ESMA sets out the main requirements applicable to CTPs, including:

  • the obligation to consolidate data from relevant venues and APAs[14] of all equity financial instruments;[15]
  • the need to have adequate policies and arrangements in place to collect and consolidate post-trade data into a continuous electronic data stream that is published as close to real time as is technically possible on an RCB;
  • efficiently and consistently disseminate information in a non-discriminatory manner that ensures fast access to it in a format(s) that is easily accessible and utilisable for market participants; and
  • the need to provide a minimum set of information to consolidate and make available to the public.

ESMA also sets out management requirements and organisational requirements for CTPs.

The reasons for the lack of a CTP for equity instruments

ESMA considers that the reasons why there is currently no authorised CTP in the EU include:

  • business case challenges;
  • scope of coverage, particularly the requirement to cover all equity financial instruments traded in the EU through connections to all existing TVs, and in the case of new TVs within 6 months of their establishment;
  • competition from non-regulated entities such as data vendors.

ESMA seeks feedback on its assessment of the reasons for the lack of a CT for equity instruments (Q14 and Q15) and what type of CTP would best meet market needs (Q16).

Post-trade information provided by existing commercial entities (Section 4.3)

ESMA has considered the following three aspects of the post-trade information currently provided by existing commercial entities:

  • Availability – ESMA concludes that post-trade information which is aggregated by data vendors replicates to some extent a CT but does not cover all the market – small and/or highly specialised equity trading venues and APAs may not be included due to high costs and limited demand. ESMA asks for feedback on the availability and coverage of real-time post-trade data (Q17);
  • Timeliness – ESMA highlights the MiFIR requirement to publish market data as close to real-time as technically possible and in some cases within one minute.[16] ESMA notes the feedback it has received which suggests that TVs and APAs do not make data available, including where a deferral applies, in a timely manner. ESMA asks for feedback on the timeliness with which post-trade data is provided (Q18);
  • Quality – ESMA notes the provisions in MIFIR that are designed to ensure the comparability of published data, including the details and format of information on each transaction.[17] ESMA has been made aware of shortcomings in the quality of market data and is seeking feedback from stakeholders through the CP as to the extent of these shortcomings (Q19 and Q20). ESMA lists the following shortcomings:
    • Inconsistent reference data;
    • Missing attributes for trades;
    • Erroneous information;
    • Duplicative trading reports for OTC transactions;
    • Inclusion of non-price forming trades;
    • Inconsistent use of the flags for the purpose of post-trade transparency;
    • Late publication of trade reports.

Assessment of the risks of having no CTP (Section 4.4)

ESMA cites the following two principal benefits of a CTP:

  • The provision of consolidated post-trade data that is available in a timely manner; and
  • Investment in improving the quality of data reported in order to provide meaningful information to market participants.

ESMA is seeking feedback on the risks of not having a CTP and the benefits of having one (Q21).

Assessment of key factors for the successful establishment of a CTP (Section 4.5)

ESMA discusses factors that it considers could render the operation of a CTP commercially viable and therefore positively impact the establishment of a CT in the EU. ESMA draws on the experience of establishing a CT in Canada and in the US and seeks stakeholder input through the CP on the relevant factors it has identified in the following areas:

  • Quality of data input – ESMA cites adequate data quality as a precondition for a CTP’s success, including through the standardisation of reporting and the use of mechanisms to reduce reporting errors. ESMA is seeking feedback on whether industry-led initiatives could be used to improve data quality or whether ESMA should produce guidelines (Q22). Furthermore, ESMA is seeking input on other data quality issues that should be considered for the successful establishment of a CTP (Q23).
  • Mandatory reporting – ESMA notes that MiFID II does not oblige TVs and APAs to submit dataflows to CTPs, but that CTPs are obliged to consolidate data from each and every TV and APA, thereby presenting business model challenges for CTPs. ESMA suggests two approaches for mandating reporting to CTPs by TVs and APAs and seeks feedback on these approaches (Q24 and Q25). ESMA suggest that reporting could be mandated by either:
    • requesting that TVs and APAs provide data to the CTP and cover the maintenance of the CTP (as is the case in the US); or
    • setting forth criteria to determine the price that CTPs should pay to TVs and APAs for the data.
  • Mandatory consumption – ESMA highlights the feedback that it has received from market participants that an additional success factor for the establishment of a CT could be the mandatory consumption of consolidated data by investment firms (as is the case in the US). Introducing such a requirement would guarantee the CTP a set level of subscribers, but ESMA underscores that it would be important to ensure that CTPs’ fees are charged on an RCB and access is offered on a non-discriminatory basis. ESMA is seeking feedback on introducing a mandatory consumption requirement (Q26) and the impact of this on other rules in MiFID II (Q27).
  • Coverage – ESMA recalls the requirements in MIFID II for CTPs to consolidate data from all TVs and APAs in the EU for relevant equity financial instruments. ESMA notes the business model challenges for a CTP from these requirements and seeks feedback on whether reducing the percentage of covered transactions and/or reducing the scope of covered financial instruments would alleviate or lessen the business model challenges (Q28).
  • Publication time – ESMA notes the MiFID II requirements for CTPs to make information available to the public as close to real-time as technically possible and, in any case, to provide data free of charge 15 minutes after publication. ESMA is seeking feedback on possible approaches to the timing of the consolidated data publication to support the successful establishment of a CTP (Q29 and Q30). ESMA notes that it is minded to recommend a CT providing real-time consolidated data, as currently envisaged by MIFID II, but has also considered the following two other approaches:
    • Delayed publication, whereby consolidation by a CTP would be limited to delayed data; and
    • A tape of record, whereby information would be published at the end of the trading day.
  • Number of CTPs and related competition – ESMA highlights that MiFID II does not limit the number of CTPs that could be established but acknowledges that the presence of numerous CTPs would diminish the number of users per CTP and thereby result in a commercially less interesting opportunity for providers. ESMA is seeking feedback on whether a CT should be operated on an exclusive basis and whether entities such as APAs or data vendors should be allowed to compete (Q31) and whether the contract duration of an appointed CTP should be limited and if so for how long (Q32).
  • CTPs’ fees – ESMA recalls the requirement in MiFID II for a CTP to provide services on an RCB. ESMA is seeking feedback on the level of fee that is considered fair (Q33) and on a possible model for the CTP to charge and redistribute revenues to contributing entities (Q34). ESMA suggests that a possible model for a CTP could consist of the following elements:
    • The CTP is allowed to recover the costs for consolidating and distributing the data plus an appropriate margin to be further specified; and
    • TVs and APAs contributing to the CT are entitled to a certain part oif the revenues of the CT.

The impact of Brexit on the establishment of an equity CT (Section 4.6)

ESMA notes the significant volume of trading in liquid instruments on Multilateral Trading Facilities (MTFs) established in the UK. ESMA acknowledges the uncertainty over any movement of trade flows from the UK to the EU27 post Brexit but notes the feedback from market participants that the value of the CT would be higher if it also included UK data. ESMA raises questions about the extent to which a CT might create an (un)level playing field between the UK and EU27. On the one hand, a CT introduced in the EU27 might create extra costs for EU27 market participants compared to UK ones and make the EU27 less attractive. On the other hand, it could be argued that an EU27 CT would enable market participants to obtain a full overview of trading activity, reducing fragmentation and making EU27 equity markets more attractive. ESMA is seeking feedback on the impact of Brexit on the establishment of a CT (Q35) including level playing field considerations between the EU27 and UK (Q36).

Next Steps

ESMA is inviting comments on the CP by 6 September 2019. Based on the responses and feedback received, ESMA will prepare a report for submission to the Commission by December 2019. The Commission will then present its report to the European Parliament and Council.

 

Giles Swan
Director of Global Funds Policy, ICI Global

 

Attachment

endnotes

[1] ESMA Consultation Paper: MiFID II/MiFIR review report on the development in prices for pre- and post- trade data and on the consolidated tape for equity instruments, 12 July 2019, available from https://www.esma.europa.eu/sites/default/files/library/esma70-156-1065_cp_mifid_review_report_cost_of_market_data_and_consolidated_tape_equity.pdf

[2] Directive 2014/65/EC on markets in financial instruments (MiFID II), available from https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A32014L0065

[3] Regulation 600/2014 on markets in financial instruments (MiFIR), available from https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32014R0600

[4] Multilateral Trading Facilities (MTFs) and Organised Trading Facilities (OTFs)

[5] Article 52(7), MiFIR and Article 90(1)(g), MiFID II

[6] Article 90(2), MiFID II

[7] See answer to Q154, p13, ICI Global Response to MiFID/MiFIR ESMA Consultation, available from https://www.ici.org/pdf/28294.pdf

[8] ESMA Consultation Paper: MiFID II/MiFIR, 22 May 2014, available from https://www.esma.europa.eu/sites/default/files/library/2015/11/2014-549_-_consultation_paper_mifid_ii_-_mifir.pdf

[9] Section 4.3, Final Report: ESMA’s Technical Advice to the Commission on MiFID II and MiFIR, 19 December 2014, available from https://www.esma.europa.eu/sites/default/files/library/2015/11/2014-1569_final_report_-_esmas_technical_advice_to_the_commission_on_mifid_ii_and_mifir.pdf

[10] Article 64 and Article 65, MiFID II

[11] Article 13, MiFIR

[12] Section 3, MiFID II

[13] Article 90(2), MiFID II

[14] Article 65(3), MiFID II

[15] Article 15, RTS 13, Commission Delegated Regulation 2017/571 with regard to regulatory technical standards on the authorisation, organisational requirements and the publication of transactions for data reporting services providers, available from https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.L_.2017.087.01.0126.01.ENG&toc=OJ:L:2017:087:TOC

[16] Article 14, Commission Delegated Regulation 2017/587 on markets in financial instruments with regard to regulatory technical standards on transparency requirements for trading venues and investment firms in respect of shares, depositary receipts, exchange-traded funds, certificates and other similar financial instruments and on transaction execution obligations in respect of certain shares on a trading venue or by a systematic internaliser (“RTS 1”), available from https://eur-lex.europa.eu/eli/reg_del/2017/587/oj

[17] Article 12(1) and Annex I, RTS 1