NYSE, Chi-X Data Vets Lay Out Plans for EU Consolidated Tape

The COBA Project -- an independent organization dedicated to the development of a European consolidated tape, co-founded by Mark Schaedel, former global head of market data at NYSE Euronext, and Graham Dick, former head of business development at Chi-X Europe -- has announced plans to deliver an industry-led consolidated tape of pan-European quote and trade data.

Over the past six months, The COBA Project has carried out extensive consultations with European and domestic regulatory bodies, regulated markets, multilateral trading facilities, and buy-side and sell-side institutions, to establish a framework that will address the regulatory, technical and commercial issues surrounding an industry-led consolidated tape -- and today sent an open letter to key industry stakeholders to solicit commitment to the plan.

Under the proposal, the consolidated tape would comprise two post-trade tapes -- Tape A, which will include all on-exchange and over-the-counter trade activity, and Tape B, which will include other reportable trade-related information, such as give-up trades or ownership changes, to prevent duplicative trade reports -- based on the best practice recommendations recently proposed by standards group FIX Protocol, and a pre-trade tape of European Best Bid and Offer (EBBO) prices. The delivery of these tapes will be the responsibility of market data vendors that want to act as consolidated tape providers.

"This model is consumer-centric, as it corresponds to what sorts of events the end-user wants to see," Schaedel says. "A compliance officer may need to see every trade regardless of its type. However, someone trade routing may only need tape A."

Initially, COBA did not intend to include proposals for an EBBO -- as the European Commission's review of the Markets in Financial Instruments Directive (MiFID 2) does not contain any requirement for a pre-trade tape -- but decided to include the proposal following consultations with the market.

"We found that for there to be demand for a consolidated product, it would need to include an EBBO -- not just for trading and reference purposes, but also for mid-point calculations and a lot of transaction cost analysis methodologies," - Mark Schaedel, co-founder, The COBA Project

"We found that for there to be demand for a consolidated product, it would need to include an EBBO -- not just for trading and reference purposes, but also for mid-point calculations and a lot of transaction cost analysis methodologies," Schaedel adds.

In addition to proposals for tapes, COBA has combined feedback from its market consultations with quantitative analysis to recommend monthly per-user prices for the three tapes: €69 for Tape A, €39 for Tape B, and €99 for the EBBO feed.

"We've modeled the prices very extensively and shown those models to stakeholders, and we believe it's an economic model that works... [and] a fair price for the industry," Dick says, though he adds that these are only recommended prices, and will probably be discussed further.

To manage the allocation of revenues from the consolidated tape as well as the licensing agreements with trading venues for the distribution of their data, the COBA Project proposes establishing an independent Consolidated Tape Administrator (CTA), which would be set up and operated by COBA, and funded by a share of the tape revenues. Dick and Schaedel are targeting the second quarter of 2013 to establish the CTA.

Rather than adopt the US model, where exchanges receive a share of any revenue based on their level of contribution of quote and trade data, the model proposed by COBA uses the market model transparency (MMT) standardized trade flags -- developed by the Federation of European Securities Exchanges and others -- to identify trade types, and then weights revenue allocation based on how transparent the trade is, Dick says. "The most transparent events in the market are the trades which take place on a lit market and are price-forming, and they will have a greater weighting, for example, than an over-the-counter event."

The CTA will be responsible for administering these fees, and for coordinating underlying licensing agreements for each market contributing to the tapes. Going forward, COBA will coordinate participation from key stakeholders to discuss the proposals and to finalize the comprehensive implementation plans and timelines. "Overall, the industry has agreed that our concept is valid, but they want to understand the details and qualify the roles and responsibilities everyone will have. Then we can start on implementation," Schaedel says.