First published in in Tabb Forum, October 2020
The industry has been debating the need for and merits of a consolidated tape for some time but - unsurprisingly - without consensus on whether or not this should be real-time or on a T+1, post-trade basis. So much so that we are expecting the regulators to step in and propose the “creation of a post-trade consolidated tape of volume and prices data for equity and equity-like financial instruments”.
What’s more, in early October Market Structure Partners published a report entitled “Study On The Creation Of An EU Consolidated Tape” which was undertaken on behalf of the European Commission and recommends that “the Commission moves ahead with the creation of a post-trade tape for both equity and debt markets”.
Having led e-Commerce at an investment bank and a brokerage, and having sat in the CEO position at a European exchange, I fully understand the complexities of reaching consensus when it comes to a European consolidated tape of record. Both pre & post trade have their merit and use cases in the industry. Achieving any tape at “a commercially reasonable cost” is no mean feat and the technical lift required in both cases is significant, especially when collecting, parsing and normalising the billions of orders, trades and cancellations that occur across Europe every day.
But what do we actually want from a consolidated tape?
Industry participants say they want a consolidated tape so they draw insights from it on market activity and behaviour, analyse how a stock is behaving across multiple exchanges, and be able to replay and rebuild the order book.
This does not come not come from a real-time consolidated tape. This level of insight can only be derived from a historic tape that consolidates all venues and - crucially - tells you what liquidity was addressable to you. Understanding that addressable liquidity is pretty much the ‘holy grail’ for capital markets participants, and only last month the FIX EMEA Trading Conference panel on the consolidated tape discussed the work carried out by the FIX working group on the definitions of addressable liquidity.
For example, if you don’t have a bilateral trading agreement with Goldmans, seeing their liquidity in a consolidated feed is not useful to you; it is not addressable to you. Or, if you want to direct your Vodafone trades to the exchange with the highest fill probability, you will not get that from a real time consolidated tape. You only get that from the most granular consolidated tape based on historic Level 3 data. This is the kind of data that systematic traders need and use. They need Level 3 data because it contains the full order book, with full transparency on all individual orders and order behaviour, including fill probability, resting time and queue dynamics. In other words, they need the predictive power of historical data.
Industry organisations including the World Federation of Exchanges as well as Euronext have made a great case for a post-trade tape, which I agree with. A post-trade consolidated tape of record represents the only consolidated tape which has a clear use case and would be likely to be viable in terms of costs and benefits.
A post-trade tape that provides all of these attributes already exists
At this point I feel compelled to say that this tape already exists. We built it in collaboration with the Plato Partnership last year - it’s called Platometrics and is free to use for all market participants.
For Platometrics, the 35 members of the Plato Partnership - representing the buy and sell side as well as leading infrastructure providers, have already contributed ideas on what information should be available, while ensuring that highest data quality is maintained.
This capability provides a T+1 consolidated view of European Liquidity across Lit, Dark/Grey, Bilateral and Non-Addressable trades, based on the most granular Level 3 data. Users can view consolidated data from across Europe or drill down to explore up to 30 metrics by market, venue or specific security and crucially, the liquidity addressable to them.
If it’s insights on market behaviour and addressable liquidity that we want from a consolidated tape, the answer is post-trade. And the answer is already there in visual format, via Platometrics. Clearly, the next step is an API to systematically query the data.
BMLL offers the only granular historic consolidated view across Europe via an API, enabling systematic visibility and analysis of the fragmented European landscape.