MiFID update may not have the desired results research suggests

News Team, 26/07/2021

Asset managers, brokers and market makers could get more market transparency as European Union regulators speed up long-considered plans to create an electronic system that collates trade data from trading venues and data aggregators - a consolidated tape - with MiFID III proposals due by end of Q3.

However, a report from Bloomberg Intelligence (BI) states that, despite this transparency, data bills for asset managers, brokers and market makers are unlikely to go down and exchanges could see data revenue drop.

Bowing to industry pressure, regulators will likely widen their preliminary proposal beyond just equities to cover bonds, ETFs and certain derivatives, marking a positive step forward. But while Brexit-induced liquidity shifts give added impetus, the diversity of the EU bloc's markets makes data-tape creation a much trickier task than in the U.S.

Sarah Jane Mahmud, senior government analyst at Bloomberg Intelligence, said: “With formal proposals due by the end of Q3 and plans to launch a beta version for testing in 2023, a bloc-wide real-time data tape is unlikely to be market ready by 2025. The proposals may now be wider in scope, encompassing bonds, ETFs and derivatives as well as equities. Extensive legislative changes would be necessary to make CT-provision commercially viable, including new rules on data quality and pricing. U.K. policy makers, meanwhile, are pressing ahead with plans to create a national post-Brexit CT with a 1 July consultation.”

Nearly three quarters (71 percent) of respondents to a Bloomberg Intelligence survey backed the move, with this rising to 89 percent among larger firms with heavier cross-border business. While the introduction of CT could lead to deeper market transparency, firms are also that trading costs could rise if regulators make consumption mandatory and force asset managers to pay for a bulk of data they don't need and won't use. As a result, only 58 percent of small firms surveyed were in support of the move.

MiFID II Flaws Energize Data-Tape Push

The MiFID II changes on the horizon could spur the creation of a CT provider, notes BI. While the rule sought to establish a regulatory environment for competing CT providers, not one materialized, it adds, chiefly because it provides little commercial incentive.

Sarah Jane Mahmud continued: “First, MiFID II provides no recourse over poor-quality data submissions. Second, it doesn't tame the cost of negotiating, purchasing and integrating data from dozens of trading venues and off-venue post-data aggregators. Third, a CT provider may have added latency due to aggregation, with data published more than 15 minutes late having no commercial value.”

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