A consolidated tape (CT) is a mechanism that aggregates data on the price and sales volume of securities from a number of trading venues. Access to this data allows investors to monitor market liquidity and make informed investment decisions. A CT also acts as a valuable risk and control benchmark.

First introduced in the US in 1976, to disseminate data from all of the public US securities exchanges.

According to the Securities and Exchange Commission (SEC), the CT has not kept pace with technological developments and does not provide adequate data quickly enough to market participants.

This puts market participants who can’t afford the more advanced proprietary data feeds directly from the securities exchanges at a marked disadvantage to those who can afford to pay.

Tiered access

What has, in effect, become a tiered access model detracts from fair and efficient markets and is deemed detrimental to overall market confidence.

Independent improvements to the CT were deemed unlikely by the SEC because the securities exchanges offering the proprietary feeds are also responsible for the governance of the Consolidated Tape Association (CTA), which delivers the CT to market participants. There was no reason for the securities exchanges to make the CT better because it would become a rival to their own data products from which they derive significant revenue.

In response to this, in late 2020, the SEC published a rule to reform the CT. This new rule requires the securities exchanges to supply more information into the consolidated feed. More importantly, it opens up the CT to competition by requiring the securities exchanges to make the expanded data available to all competing consolidators and aggregators who have registered with and been approved by the SEC.

The securities exchanges challenged the new rule in court even before it was finalised and it is currently unclear whether they will be able to hinder or force changes to the SEC’s planned reforms.

The CT in the EU

No CT currently exists in the EU. The European Securities and Markets Authority (ESMA) has been consulting on the subject since 2016 and the vast majority of market participants agree that it would be a good thing. The market rationale for a CT is clear and is most closely connected with market efficiency and, importantly, with making the fragmented EU securities market a more attractive place for listing and investment.  

Most recently, in November 2021, the European Commission (EC), as part of its MiFIR and MiFID II review, published a proposal to remove “obstacles to the emergence of a consolidated tape”. The EC’s proposal is for all exchanges to contribute data to a single, ESMA-appointed, consolidated tape provider for each asset class at “as close to real time as is technically possible”.

Although the response to the proposed rule has been broadly positive, two potentially serious flaws with the EC proposal have been identified by industry participants.  

The first, and probably the most serious, is the CT revenue model. The EC notes that one of the primary reasons why a CT does not yet exist in the EU is the absence in MiFID II of any requirements for the trading venues to provide data on ”fair and reasonable terms”. But it is not clear what such terms might be, given the relatively high cost of the individual data feeds and the market expectation that the CT would be a cheaper alternative to current aggregated options. In other words, a CTP contender is unlikely to emerge unless a commercially viable model exists and a profit can be made from the operation, and it is not clear whether the new rules make such a model any more achievable than it is now.

Checking, normalising, and cleansing data can be a complex and expensive process, particularly in scenarios where the data is of mixed quality.

In addition the proposed commercial model redistributes CTP revenues to regulated markets only. This means that pan-European venues, which are required to supply their data as well, are not compensated for their contribution. The Chicago Board Options Exchange (CBOE) in particular has been scathing in its criticism of this point. There is an intrinsic friction here between the overarching objective of a CT, which is making the European market a more competitive place for securities listing and investing globally, and member states’ need to ensure that their sovereign exchanges remain viable and profitable.

The second is the issue of data quality and latency. The proposed rule stipulates the provision of data in a “harmonised” way, transferred using a “high quality transmission protocol” and “as close to real-time as is technically possible”. But it does not make clear who will ensure that the data is of a high enough quality – despite the fact that aggregating and normalising “bad quality data” is one of the reasons for existing data providers “charging high fees for their data feeds”. Checking, normalising, and cleansing data can be a complex and expensive process, particularly in scenarios where the data is of mixed quality. 

Brexit, legislative process and the future

Another issue, one that is more specifically connected to liquidity, is also worth mentioning. This is the fact that, following Brexit, the key UK market is outside of the EU. The UK is making its own CT a priority. This is potentially a competitor to an EU CT, which makes the latter even more critical if liquidity in EU-listed instruments is to remain on EU venues.

Given the length of the EC’s ordinary legislative procedure, as well as the fact that ESMA will be required to organise and run a selection procedure for appointing the CT provider(s) and also create technical standards for CT contributors’ reporting obligations (which will also require approval by the EC), it is unlikely that a CT will be available in the EU before 2024. It will be interesting to see whether the UK, with its focus on reducing red tape, can make swifter progress. Much depends on the Financial Conduct Authority, which has been tasked by the government with setting the requirements for future consolidated tape providers.   

One thing remains clear though: with the CT and market microstructure more generally a focus in the EU, UK, and US, this will be an area well worth watching in the near future – particularly as any changes to or the creation of a new CT have repercussions for many involved in the financial ecosystem.