ESMA’s proposed regulatory technical standards for the consolidated tape provider are insufficient, according to the European Commission’s expert stakeholder group on equity and non-equity market data quality and transmission protocols (DEG).
Despite having been proposed by the European Commission almost 15 years ago, Europe still does not have a consolidated tape (CT). It has been considered as part of the Markets in Financial Instruments Directive(MiFID), the Markets in Financial Instruments Regulation (MiFIR) and the as-yet unrealised Capital Markets Union (CMU), but still remains an elusive goal for the EU.
The European Securities and Markets Authority (ESMA) released its MiFIR Review consultation package in May, including regulatory technical standards regarding CT providers (CTPs). Five months on, the European Commission’s expert stakeholder group on equity and non-equity market data quality and transmission protocols (DEG) has highlighted a number of areas as needing greater clarity and overall improvement.
Data
An effective data quality framework is a key priority of the stakeholder group: “As the single source of truth, the integrity of the data regarding accuracy, completeness, and timeliness are foundational and a required dependency for the information quality and success of the CT,” it affirmed.
To ensure adequate information quality, data must be standardised, coherent and relevant, the report said, with users able to access liquidity, market events and price formations across the market and filter out information that is not relevant to them.
In order to maintain these standards, market participants must be held accountable for their responsibilities and be subject to the enforcement of transparency rules. This will require the coordination of European and national competent authorities, the report stated, adding that the group does not believe the proposed revenue distribution exclusions will be enough to maintain data quality control. It advises the introduction of clear and enforceable sanctions, regular audits, and an approach of continuous improvement.
It advises the introduction of uniform instrument identification, as ESMA outlined in its RTS proposals, and the adoption and consistent application of trade flags.
If inaccurate information does make its way to upstream layers, the CT should request a correction from the body that has inputted the data. Mechanisms should then be in place to ensure that incoming data quality improved, in coordination with action from the supervising NCA.
Trade Reporting
Currently, issues of duplication, ambiguity, inconsistency and non-reporting limit the integrity of trade reporting, the group stated, recommending the adoption of a comprehensive handbook including guidance for each specific trade reporting scenario and calling for more timely interventions from national competent authorities in the arbitration and interpretation of trade reporting procedures.
The role of the approved publication arrangement (APA) was considered extensively by the DEG, the report said, with the group conclusion that it should be held accountable for data quality monitoring and controls along with the reporting firms. Additionally, it said, unique transaction identifiers for trades reported to APAs – APA transaction identifier codes (APATIC) – should be introduced to prevent duplicate trade reporting.
The availability and quality of the CT is ultimately the task of the consolidated tape provider (CTP), however this also relies on the contributions of trading venues (TVs), APAs, designated publishing entities (DPEs) and investment firms (IFs). As such, the responsibilities of these parties “must be clearly specified and delineated to avoid any misunderstandings or accountability failures”, the report affirmed.
The report advises the adoption of standardised inputs to reduce the operational burden on the CTP, lower the risk of inconsistencies and allow for greater agility. Minimum requirements should be introduced to strengthen accessibility, performance, reliability, data security, compatibility and stability.
Publications
Enhancements to what the CTP must publish under the regulatory technical standards, outlined in ESMAs proposals, are required for better information management and data quality measures, the DEG said. These include information value metrics such as reference price waivers and the European Best Bid Offer (EBBO) average size and spread by security, the addition of amended trade reports to improve data integrity, and the introduction of capacity and performance metrics by contributor.
EBBO publication should be as close to real-time as possible, have a precise timestamp and be transparent, the group stated. A minimum quote size must be established for TVs, who will provide best bid and offer quotations from each market. A common methodology should be defined to determine how often quotations are published by each TV as the underlying order book changes.
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