Europe has taken the first step to preparing for the eventual adoption of a consolidated tape of post-trade data.

A consortium of European exchanges, data vendors and technology firms have developed uniform rules for identifying trades executed on trading venues. The Market Model Typology or MMT provides a data model and cross-reference tables which map trade flags across securities exchanges, multilateral trading facilities and over-the-counter facilities and over-the-counter trade reporting venues into new consistent standards.

Members of the group says that the MMT 1,0 mapping will "provide a strategic bridge to implementing European equity post-trade standards in order to enhance market transparency." Data vendors could apply the translations on behalf of their users and exchanges are also beginning to adopt MMT within their datafeeds to relieve data vendors from that task. The consortium, which began its work last year, includes the Federation of European Exchanges, Thomson Reuters, Bloomberg, Fidessa, NYSE Technologies, SIX Telekurs and Markit Boat.

Developing a consolidated tape is part of the overhaul of the Markets in Financial Instruments Directive (MiFID), adopted in 2007 to spur competition among trading vernues. Regulators want to create a data feed that shows the price and volume of individual stock trades and where among the dozens of venues they were executed. Agreeing on common standards is a precursor to deciding how and who should be a consolidated tape provider (CTP) to provide post-trade data to fund managers, brokers and other market participants. Unlike the U.S., Europe doesn't have a system that does so. As a result, fund managers and brokers must compile the data themselves and may decide to get it from a combination of venues. Each of those have their own formats to describe the trade giving users a rather incomplete view of trading activity which ultimately affects their trading decisions and strategies and makes it difficult to understand whether they are fulfilling their best execution requirements under MiFID. While broker-dealers and fund managers have advocated that a single firm provide a consolidated tape the EC appears to be leaning toward multiple commercial CTPs to promote competition

The MMT structure is divided into four complementary levels that describe the circumstances under which a trade has been executed. Every trade will carry attributes from each of the four levels. The four levels are the market mechanism; the trading mode; the transaction type; and the publication mode. The market mechanism refers to whether or not the trade was executed through a central limit order book; a quote driven market; a dark order book or an off-exchange book. The trading mode refers to whether or not the trade was executed through auction trading; at market close trading; out of main session trading; on exchange trading; off-exchange trading or a systematic internalizer run by a broker-dealer. Included in the categories of transaction types are plain vanilla trades; dark trades and benchmark trades. The publication mode may be either immediate or non-immediate. A full copy of the MMT can be found on www.fese.eu/en/?inc=page&id=79.

MiFID, now under review, says that CTPs must provide the data for free if it is delayed by 15 minutes from the time the trade was executed or at a "reasonable cost" if it is published immediately; the CTPs must be registered with national regulators. Several firms, including Thomson Reuters and NYSE Euronext already provide consolidated tape services but their scope and timeliness differ from CTP requirements.

Still to be determined are operating rules for the CTPs which has some data vendors concerned about the potential inequality between data vendors such as Markit Boat and exchanges. "CTPs will not only be tightly regulated by the resulting cost but disadvantaged versus competing data offerings [from exchanges]," says Marcus Schueler, director of regulatory affairs at Markit, which operates the Markit Boat platform. "Transaction data will always be more timely than CTP data and market participants that concentrate on speed may decide to link to exchanges directly."

Schueler wants the European Commission to extend the period of time before data must be made free of charge; make the use of a consolidated tape mandatory for financial firms to comply with best execution requirements and level the playing field between CTPs and exchanges which have historically been the largest and favored providers of the data. Markit Boat is considered Europe's largest trade reporting venue for over-the-counter cash equity trades. It is fed real-time data from forty investment firms and multilateral trading facilities.

Written by Chris Kentouris, Editor-in-chief (Chris can be contacted through Chris.Kentouris@hotmail.com)

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