A group of Financial Institutions assesses the viability of a European Consolidated Tape on Equity
Key conclusions of Adamantia's feasibility study, the 18th of May 2022
In September 2021 a group of global European sell-side and buy-side institutions among which Barclays, BNP Paribas, Crédit Agricole CIB, Deutsche Bank Group, Société Générale and Unicredit signed up to a joint feasibility study to assess the viability of the European Consolidated Tape (CT) on Equity . They mandated the consultancy Adamantia to conduct an analysis of the functional and regulatory requirements, as well as the business case supporting the establishment of a successful and economically viable Equity CT, in line with the Capital Market Union objectives.
Adamantia's assessment has shown that there is a need for further consideration on how an Equity CT could be developed and run to ensure that it meets the needs of its users as well as being able to be operationally viable. To our knowledge, there is still no public candidate from any provider, as there are still uncertainties around the scope of the Equity CT. In this regard, Adamantia has worked together with the participating institutions in the study on looking at all aspects of the provision of an Equity CT, and is pleased to share the preliminary results of this analysis: specifically, the prerequisites for creating a CT which meets the financial industry needs and use cases, the technical feasibility and the business case.
The following points are the result of extensive workshops with key subject matter experts and represent a strong consensus among the participating institutions:
Pre-trade data is essential for the Equity CT and should be included at the outset, as it feeds critical use cases for all type of participants (sell side, buy side, but also retail/end users), as outlined in our assessment . This is a major limitation of the European Commission proposal to exclude pre-trade data from the scope of the CT at least for the first 5 years. On the contrary an Equity CT limited to post-trade data would not feed the needs of the industry, hence severely limiting industry interest for the CT and jeopardizing its chances of success.
The Equity CT must be accessible on a reasonable cost basis, otherwise it will not gain users’ support, whether from retail or institutional investors. Accordingly, the CTP selection criteria from ESMA should balance the needs of data contributors to be fairly compensated for their data with those of consumers.
2/ COST OF THE EQUITY CT (BUILD AND RUN)
Based on a formal request for quote issued to the leading technology firms specialising in venue connectivity and data distribution, the study confirms the technical feasibility and estimates that the Equity CT will represent a one-off build cost of c.17 M€ and annual running cost of c.16 M€ .
This is for a scope including pre- and post-trade data provided on a mandatory basis by all venues and APAs, on a near real time latency (≈ 100ms end-to-end dissemination considered appropriate).
3/ EQUITY CT BUSINESS CASE
The analysis of the financial scenarios shows positive outcomes for the pre- and post-trade Equity CT :
In increasing the access to pan-European market data within investment firms, buy-side and retail, thereby supporting the CMU objectives and noticeably increasing the visibility of smaller exchanges and their listed shares;
In achieving the goal of reasonable costs for users, and dramatically simplifying their contractual and technical arrangements for data acquisition, and
In generating sufficient returns to recoup the initial investments and fairly reward venues for their data contribution*. On this last point, various revenue allocation mechanisms are being considered, in particular to address the concerns raised by the small exchanges. In any case the members of the initiative consider that the revenue sharing mechanism shall be defined at the EU legislative level;
(*) It is important to remind that the CT is intended to support use cases that do not require low latency: thus, the CT will not replace existing direct feeds from the trading venues used by professionals for trading applications, or by other venues (e.g., for Reference Price Waiver trading).
In addition, an increased user base (especially for data from smaller exchanges) would increase the revenue to share between contributing venues.
In contrast, the scenario of a post-trade only Equity CT does not break even (similar cost base vs. significantly lower industry utilization), the study therefore considers the inclusion of pre-trade as a clear prerequisite for a viable Equity CT.
Based on the preliminary results of the study, it is clear that there is a viable case for the set-up and running of an Equity CT, provided that pre-trade data is included at the outset. This would provide for an Equity CT that both meets the needs of the industry and coexists with the business models of European regulated Exchanges in terms of market data.
The participating institutions thus encourage the authorities to ensure that the regulation will enable the viability of the Equity CT to improve, simplify and further harmonise capital markets’ transparency.
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“The key benefits of the CT will be to offer a comprehensive view of the liquidity, in aggregating pre- and post-trade data across the many different points of executions into a centralized, high quality and trustworthy data source. This would benefit the whole market, assist decision making and provide market insights to all investors, institutional and retail.”
Antoine Pertriaux, Partner at Adamantia Advisory
“We welcome Adamantia’s focus on identifying an Equity CT model that meets the need of consumers, and promotes the CMU, whilst appropriately rewarding those contributing market data. We are confident that this approach will enhance EU Capital Markets on the global stage, for the long term benefit of issuers, investors and the financial markets ecosystem including Exchanges.”
Quentin van Lidth, Regulatory and Public Affairs Specialist at BNP Paribas Global Markets
“Europe’s capital markets would benefit greatly from a consolidated tape. This is long overdue, and we welcome this initiative.”
Keshava Shastry, CFA, Managing Director, Global Head of Capital Markets at DWS
“We believe Adamantia’s report is a very valuable contribution to the current discussion on the establishment of a European Consolidated Tape for equities, as it confirms both the need for the CT to include pre-trade data to answer the needs of market participants, and the viability of such a pre & post-trade equity CT.”
Alexandre Fleury, co-head of Global Market activities at Société Générale
“We endorse the assessment conclusions on the necessity of including pre-trade data if the CT is to have any utility to the Capital Markets industry.”
Lionel Bignone, Head of Group Client Risk Management at UniCredit
 The study covers also the Fixed Income perimeter. The initial assessment has shown that there is broad industry support for a European Bond CT with a relatively mature view of requirements, and vendors currently working on practical CT solutions.
 50 use cases were screened across Front Office, Risk, Middle/Back Office, Regulatory, Audit and Control functions. Each individual use case was assessed and challenged in terms of i) type of data consumed (pre-trade data, post-trade data, end-of-day statistics, historical data, market event) and ii) time of use (real-time, near-real time, intraday delayed, end-of-day).
 The costs estimate include the overall build costs (development of the IT solution, legal, regulatory, licensing and set-up costs for the CTP entity) and running costs (IT run and maintenance, organisation & operating costs and continuous improvement), based on the assumptions of the EC proposal, typically connectivity costs to be borne by the data contributors.
 The financial scenarios are based on reasonable assumptions on the number of subscribers for the Equity tape and ramp-up over time.