Chris Murphy
May 31, 2022
-min read

Beyond bonds - the case for delivery of an equity CT

Beyond bonds - the case for delivery of an equity CT

As most of the industry are aware, Ediphy has been working for some time to provide a solution to the outstanding consolidated tape project for bonds. Having now over 4 years’ experience actually consolidating the delayed data we have a battle-tested technology solution to the consolidation task and have accumulated a wealth of knowledge regarding the remaining technical issues, which mainly revolve around the quality of the data being published by the reporting entities. As the relevant official authorities embarked upon adapting the MiFIR regulations to address the remaining impediments to providing the tape on a viable commercial basis, we began working with a number of significant market players to develop a compelling bid to create and operate the bond CT on a cost-recovery, utility basis (see recent press release here:

Whilst our work to date has been mainly focused on the fixed income tape, in the process of our market engagement I have been involved in multiple industry panels where the equity tape has been discussed, often amidst much storm and fury. In addition, during the course of our technical work with the public transaction data, we have actually captured, consolidated and processed about 4 times more equity trades than bond trades as we connect to all the major APAs (see snapshot from our platform on the left showing proportion of trade count captured across asset classes).

Given the highly politicised nature of the discourse on the equity CT I have thus far opted to stay out of this debate. Further, the addition of the mandatory “minimum revenue targets” a prospective consolidator would need to build into its commercial model has made the equity tape mandate far too risky to take on, since these minimum revenues which need to be rebated back to the exchanges will be incorporated into the final cost to the consumers of the tape, inevitably shrinking the available market to the point where the consolidator can no longer recover its own costs. It is quite notable that, unlike for the bond CT where there are viable and highly developed bidders like our initiative and mooted others, we are not aware of anyone out there looking to participate in the tender for the equity tape.

However, since we have now been asked by many industry players the same question – on what basis would you consider extending your work to equities and participating in the equity CT tender process? – I thought it was time to set out some thoughts.

The first thing to say is that the real-time post-trade tape for equities is a very similar beast to the bond tape. Whilst trade count is a little higher, we have the technology and throughput capability to handle this without any problem (we have been doing so for the last 4 years, consolidating the delayed trade data in real-time as soon as it is published). Furthermore, from a technical perspective, consolidating the pre-trade quotes is also completely viable. For anyone who is not an HFT (high frequency trader) a near real-time tape is good enough – and there are plenty of important actors who will benefit from a consolidated view of top of book quotes from each venue. This could form the basis of an emerging EBBO (European Best Bid and Offer) and can be provided, via modern cloud infrastructure, for a modest cost to each subscriber. Yes, there are going to be imperfections due to latency differences but, compared to the current status quo, it would provide a considerable improvement in market transparency to the majority of participants.

There are many within the industry who feel the equity pre-trade tape needs to include further levels of depth. Again, this is absolutely feasible technically, although the number of order book updates can start to get very large, with an associated increase in cost due to the expanded size of data being handled. Hence, there is a trade-off between the cost at which the tape can be operated (and thus provided) and depth of order book included – less sophisticated users will be happy with level 1 data but need it at a low cost, yet larger players will ideally want up to 5 levels of depth before they think it adds value and would be willing to pay more. Official authorities can determine how best to balance these factors or leave it up to the CTP to establish which is most viable commercially. Those currently negotiating the final terms of the legislative text on the consolidated tape framework should be aware that there is a consolidation provider like ourselves ready to deliver both the equity and ETF tapes, pre- and post-trade, alongside the bond tape without the minimum revenue targets.

As always, we welcome thoughts and comments from the industry on our proposals. We are driven by our mission to simplify capital markets with transformative technology. It is our firm belief that the delivery of a consolidated tape for both equities and fixed income, under a utility model, will be a key improvement to the health of European capital markets and we are happy to be the catalysts to deliver this change. Get in touch to find out more and work with us to make it happen.

Contact us to join the CT initiative