I cannot comprehend how the Europe Economics (EE) can omit Giovanni Cespa and Thierry Foucault’s empirical study in their Pre-trade equities consolidated tape (CT) final report that was commissioned by the UK Financial Conduct Authority (FCA). Stock exchanges optimally restricting access to price information exacerbated the latency gap between Proprietary Products (PPs) and SIP that caused data fragmentation. That final report does not even mention that the US Securities and Exchange Commission (SEC) has mandated the “same manner same methods” provision under the Market Data Infrastructure Rule that recognizes the US Securities Information Processors (SIPs) were not modernized alongside market evolution and technology developments. Instead, the final report undermines the issue and incorrectly paints the picture that its statement sounded like the Exchanges “The SIP has significantly improved its performance over the last 15 years…”
Experience from the US suggested that Investment Firms, including Self-Aggregators (SAs) and Alternative Trading Systems (ATSs), the equivalent of Multilateral Trading Facilities (MTFs) in Europe, use a mix of the US SIP / CT with selected [7.5 out of 11 most active] proprietary feeds to save costs, rather than connecting to every trading venue. The EE’s final report shied away from telling the audience, how an Economist has the authority to say “never” in an engineering topic?! Do they understand that by having a synchronized start-line using time-lock cryptography and CTP streaming a lighter feed (i.e. top-of-book or maybe top 5) can overcome the “hops” in data aggregation to match up with the direct feed that carry full-load of level 3 data with comparable speed? EE said, “The consolidated tape can never be fast enough for such use cases” is NOT objective. Low-latency CT is totally practical as proven by the High Frequency Trading firms, SAs, ATSs / MTFs.
Economists are supposed to understand that CT has to be a reasonable compromise, if not a close substitute, to PPs. It is the ONLY effective way to affect competitive pressures for existing sellers of market data to achieve one of the key regulatory goals. Statements from the EE’s final report, such as “Concerns remain about the commercial viability and quality of the consolidated tape, particularly whether it can serve as a substitute for current data. There are also technical issues…” sounds like people do not want to step out of their comfort zone to do any hard work or go along with LSEG’s view that we strongly disagree with. The premises or remarks in this Adamantia Research post that said "the CT is intended to support use cases that do not require low latency: thus, the CT will not replace existing direct feeds from the trading venues used by professionals for trading applications, or by other venues" is flawed. By fulfilling different needs, CTP business model can be viable, as well as being a non-profit to return any excess profits back to the investment communities.
On a separate note, we are glad that ESMA removed references to the CT Provider (CTP) from the table in Amendments to Table 4 of Annex I of RTS 1 and kept the “flags” applicable to trading venues and Approved Publication Arrangements (APAs). It is good that policy makers recognize the different roles played by CTP vs APAs, and reminded APAs of their operational resiliency, data quality and other compliance requirements. We believe “non-core” data, taxonomy flags, and other unnecessary nuances put a drag on speed and would make the equity CT unusable. We also welcome the other non-equity reports recently published by ESMA. They are largely in line with their original proposals. Simplifying and streamlining some of the nuances with trading venues perimeters and transparency regime should be welcomed by the industry. That being said, the UK FCA is working towards updating their strategy for trading venues in favor of international competitiveness and growth.
Market participants should also keep in mind the following:
(1) values of time sensitive data deteriorate substantially overtime thus requires proper security protection and in synch.
(2) contents (quotes and trades contributions) belong to the content creators (broker-dealers), see our whitepapers.
(3) the FCA’s Handbook Notice 117 in April 2024 stated that the UK would not require the bond CTP make payments to data providers. The EU is favoring Reasonable Commercial Basis (RCB) to address cost, fairness and other concerns. These include, ”(i) onerous administrative obligations on data users, for example through frequent and detailed requests on the use of data; (ii) ambiguous language in the agreement; (iii) frequent unilateral amendments to the agreement; (iv) general lack of transparency on terms and conditions; (iv) excessive fees; (v) increase of fees through penalties; and (iv) overly burdensome audits.”
(4) The EU decided to ban payment for order flow (PFOF) from 2026 onward. Experience from Singapore and Australia on their ban of PFOF resulted in substantial market shrinkage. The EU and the UK lack order protection rules and anonymity to NOT report which venue is setting or displaying the EBBO is perturbing. Opening and closing prices of the Primary Listing Market versus Most Relevant Market is a controversy. We are reminding the smaller exchanges to fight for their own rights, while we will respect the ESMA, FCA, and NCAs requirements to serve their respective region or countries.
(5) be mindful of lip service where governance control may merely be an advisory committee like the US CT Plan version two that the SEC recently approved amid everybody knows it is a “Toothless Tiger”. 2/3 trading venues and 1/3 industry representation in the proposed operating committee of the US CT Plan version one is worse than the 50/50 split in the music industry in the 1970S. Do investment firms in the EU and the UK want 100/0 and settle with an advisory committee that trading venues lead CT contenders may offer?!
(6) We believe crypto assets would attract money flow away from traditional asset classes globally under the new US Administration. The UK and the EU have an opportunity to use time-lock cryptography to improve trust, differentiate themselves from the US and grow their markets. It eliminates the problem of where the CT data center is located. In turn, CTP and market participants no longer need to be stuck at pricey overcrowded data centers, but move to cheaper cost locations.
Unfortunately, top data centers in Europe are mostly controlled by the US Elites, there are only a few options remain. Not willing to put up the money and reluctant to do the hard work makes the European markets look grim.
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By Kelvin To, Founder and President of Data Boiler Technologies Data Boiler is a Type C organization member of the European Commission’s Data Expert Group. Between my patented inventions in signal processing, analytics, machine learning, etc. and the wealth of experience of my partner, Peter Martyn, we are about Market Reform, Governance, Risk, Compliance, and FinTech Innovations to create viable paths toward sustainable economic growth. |
