The European Securities and Markets Authority said it shares concerns that have been raisedover the increase in fees for market data in the region and intends to take a closer look at recent developments.
ESMA included the comments on market data in a report clarifying the quoting obligations for systematic internalisers. MiFID II, the regulations which went into force in the European Union in January, banned broker crossing networks and firms are required to set up systematic internalisers in order to provide risk capital that facilitates trades.
Systematic internalisers are meant to quote prices reflecting prevailing market conditions but this led to concerns that they might have an unfair advantage by being able to quote inside the minimum tick sizes requires on exchanges.
On 9 November 2017, ESMA therefore published a Consultation Paper proposing to amend RTS 1 in order to clarify that SIs quotes would only adequately reflect prevailing market conditions where such quotes mirror the minimum price increment applicable to on-venue trading, added the report.
In the report ESMA clarified that SI quotes should reflect the minimum price increments applicable to EU trading venues for equity instruments subject to the minimum tick size regime.
Several respondents raised concerns about the fact that the ESMA proposal might encourage trading venues to (further) increase the fees charged to SIs for market data, thereby resulting in additional costs, said the report. ESMA is monitoring developments in this area but believes that this issue should be tackled independently from the amendment at hand and from a broader perspective.
MiFID II also strengthened the requirements to evidence best execution but there is no EU consolidated tape. Therefore traders have to monitor prices across individual venues which increases fragmentation and cost. MiFID II said market data should be provided “on a reasonable commercial basis.”
Panelists at the AFME European Trading & Market Liquid Conference in London last week called for a consolidated tape in fixed income.
Christoph Hock, head of multi-asset trading at Union Investments, said: We need a consolidated tape as soon as possible. Getting real-time data from APAs (Approved Publication Arrangements) is costly and we should learn lessons from equities where market data costs have exploded.
Zoeb Sachee, head of Euro government and SSA trading at Citi, said the MiFID II data being reported is poor quality. Our clients feel request for quotes give them more transparency than the MiFID II obligations, he added.
Ashlin Kohler, fixed income market structure at Citi, agreed that the MiFID II data is not useful in its current state and the industry need to significantly invest in data analytics. She said: Commercial solutions for a consolidated tape will evolve and more innovative vendors will emerge.
A previous commercial venture to launch a European consolidated tape, the Coba Project, failed in 2013 due to insufficient support from banks, fund managers, data providers and stock exchanges.
ESMA submitted the final report on SI quotes to the European Commission yesterday and the Commission has three months to decide whether to endorse the proposed amendments. The report said the vast majority of respondents to the consultation, representing a broad range of trading venues, savings banks, the buy-side as well as high-frequency traders and market makers, supported ESMAs proposal.
In particular, respondents highlighted that the proposal would contribute to a level playing field between SIs and trading venues and avoid further market fragmentation by artificially directing order flow for execution to SIs offering non-significant price improvements, added ESMA. Only one respondent did not support the proposal to amend Article 10 based on legal and procedural arguments.
ESMA continued that some respondents feared that by requiring SI quotes to mirror prices displayed by trading venues, the proposed amendment might result in further increases of fees for market data.
In addition, a number of respondents raised concerns that liquidity might move to third country trading venues, especially after the UK leaves the European Union in a post-Brexit market, which do not have the same tick size regime.
The report said: ESMA agrees that the specific case of instruments for which the main pool of liquidity is located outside the EU (third-country instruments) may require further investigation.
