Race for banks and asset managers are vying with Europe’s stock exchanges to develop a technology that can deepen the pool of investors in the continent’s capital markets and better compete with Wall Street. A consolidated tape, which aggregates stock and bond prices from competing trading platforms, has long been in place in the United States, providing investors with a comprehensive view of market activity. The European Union and the United Kingdom are now racing to develop their own versions, with the goal of creating a more transparent and efficient market.
Why Europe Needs a Consolidated Trade Tape
A consolidated tape has the potential to democratize access to market data
providing all investors with a real-time snapshot of stock and bond prices. In the United States, the consolidated tape has been operational for decades
overseen by the Consolidated Tape Association, which includes major players like the New York Stock Exchange and Nasdaq. In Europe, however
the current market data system is fragmented, making it challenging for investors to get a complete picture of the market. A consolidated tape would address this issue and facilitate cross-border trading.
Current State of European Capital Markets
The fragmented nature of European capital markets has been a barrier to attracting more investors. The existing system requires investors to access multiple sources of market data, discouraging broader participation. A consolidated tape would provide a unified source of information
enabling investors to spot the best deals and make more informed trading decisions. Natan Tiefenbrun, president of North American and European equities at Cboe Global Markets
emphasized the importance of a tape in democratizing access to market data.
Emerging Contenders for Europe’s Stock Tape
Several key players have emerged in the race for Europe’s first stock tape
highlighting the tensions between exchanges, banks, and asset managers over the price of market data. EuroCTP, backed by 14 exchanges including Deutsche Boerse and Euronext, has invested millions of euros to start building a stocks tape
even before any regulatory approval. Meanwhile, French consultancy Adamantia has launched a feasibility study for a stocks tape
with support from major banks and asset managers like Barclays and BNP Paribas.
European Central Bank and Regulatory Developments
The European Central Bank (ECB) plays a critical role in setting criteria for selecting the winning bidders to run the consolidated tape. The EU’s mandated exchange contributions to the tape aim to bring exchanges on board, despite initial resistance. The ECB’s regulatory framework will influence the development of the tape and ensure that it serves all market participants fairly.
Race for the EU Stocks Tape
EuroCTP’s early investment in building a stocks tape demonstrates the competitive nature of this race. The group has committed to full autonomy to serve all market participants. Adamantia, with support from banks and asset managers, is preparing to bid for the upcoming European Securities and Markets Authority (ESMA) tender
highlighting the broad interest in developing a consolidated tape for stocks.
The Challenge of Building a Stocks Tape
Building a consolidated tape for Europe is a complex endeavor. It requires integrating over 300 trading and trade reporting platforms across Europe, posing significant technical and logistical challenges. An Oliver Wyman report for European exchanges industry body FESE estimated that it would cost up to 98 million euros ($105.09 million) to build a stocks tape. EuroCTP CEO Eglantine Desautel noted that the operational phase is underway
with the first elements for testing expected by early 2025.
Plans for a UK Consolidated Tape
Britain is also developing its own consolidated tape, overseen by the Financial Conduct Authority (FCA). The UK’s approach might differ from the EU’s, with a focus on completed transactions rather than indicative pre-trade prices. The London Stock Exchange Group (LSEG) suggested that a UK stocks tape should be limited to prices of completed transactions
indicating a narrower scope compared to the EU’s version.
Conclusion
The race for Europe’s first “real-time” stock trade tape is intensifying, with banks, asset managers, and exchanges vying for dominance. The development of a consolidated tape has the potential to transform European capital markets, making them more accessible and competitive. However, building a consolidated tape is a complex and costly endeavor, with significant technical and regulatory challenges ahead. As the race continues, the outcome will shape the future of Europe’s capital markets and their ability to compete on a global scale.
FAQs
Q1: What is a consolidated tape, and why is it important? A1: A consolidated tape aggregates stock and bond prices from competing trading platforms
providing investors with a comprehensive view of market activity. It is important because it democratizes access to market data, allowing investors to make more informed trading decisions and facilitating cross-border trading.
Q2: What are the challenges in building a consolidated tape for Europe? A2: Building a consolidated tape for Europe requires integrating over 300 trading and trade reporting platforms, posing significant technical and logistical challenges. The cost of building the tape is estimated to be up to 98 million euros ($105.09 million), making it a complex and costly endeavor.
Q3: Who are the key players in the race for Europe’s first stock tape? A3: EuroCTP
backed by 14 exchanges including Deutsche Boerse and Euronext
is investing in building a stocks tape. French consultancy Adamantia is conducting a feasibility study with support from major banks and asset managers like Barclays and BNP Paribas. These players represent the competing interests of exchanges, banks, and asset managers.
Q4: How does the European Central Bank (ECB) influence the development of the tape? A4: The ECB plays a critical role in setting criteria for selecting the winning bidders to run the consolidated tape. The ECB’s regulatory framework will guide the development of the tape
ensuring it serves all market participants fairly and brings exchanges on board.
Q5: What is the anticipated timeline for the development of the EU and UK tapes? A5: EuroCTP expects to have the first elements for testing by early 2025
indicating that the operational phase is underway. Britain’s Financial Conduct Authority (FCA) is also making plans for its own tape
with a focus on completed transactions rather than indicative pre-trade prices.