As part of a series of measures announced on 5 July 2023, the FCA published a Consultation Paper in relation to their proposed framework for establishing a "Consolidated Tape" or "CT" in the UK ("the CP"). A CT collates market data such as trade prices and volumes in a financial market, with the aim of providing a comprehensive picture of transactions in a specific asset class, bringing together trades executed on trading venues as well as those arranged "over-the-counter" ("OTC"). This is intended to help investors make better, more timely decisions. A CT would combine multiple sources of trading data into one stream of information, increasing transparency and access to trading data, by lowering its cost and improving data quality. 

The CP refers to a "Consolidated Tape Provider" ("CTP") being "needed to collect the market data and then disseminate the CT in a standardised electronic data feed to market participants. By providing a single, authoritative, complete and affordable source of market data, the CT should reduce trading costs, increase liquidity and allow investors to better assess their brokers’ execution quality".

This CP is part of the Wholesale Markets Review (WMR) – the review of UK wholesale markets that the FCA have been conducting with HM Treasury.

While MiFID II, which took effect in the UK in 2018, contained a regime to allow for multiple, competing CTPs per asset class, no firm applied for authorisation to be a CTP under that regime.

The CP sets out the FCA proposed framework for a CT initially for bonds only, which the WMR suggested was a priority. They invite feedback on our proposed criteria for how a CTP would operate and the tender process for appointing a CTP.

This CP also includes a section for discussion on a CT for equities, where the FCA's thinking is less developed, but they say they do expect a CT framework to be introduced once the framework for bonds has been established.

The Financial Services and Markets Act (FSMA) 2023 gives FCA new rule-making powers in respect of "Data Reporting Services Providers", which in turn includes CTPs.

The FCA intends to run a competitive tender process to appoint/authorise a single CT provider for bonds to be chosen through its tender process. The FCA hope to have a CT for bond data operating in the course of 2025.

Commentary

Based on information from the CTP, the FCA will assess whether the CT is being published in a timely fashion and whether it is resilient. Avoiding latency of the CT will be a key factor - publishing data as soon as reasonably possible - as will data quality. The FCA published a Wholesale Trade Data Review (WTDR) Findings Report in January 2022 in which they said that there are areas where competition was not working as well as it could in this area. The FCA found that the way data is sold can be complex, making it harder for data users to make informed choices. There was also little choice in the market for some data so switching supplier was not an easy option. Users had little choice but to pay the prices set for certain data. They also found complexity and limited choice result in additional costs to data users which were likely to be passed on to UK retail investors and savers. They also found that despite rules in place requiring delayed data to be distributed free of charge, many users end up with little choice but to pay for data. Assuming a suitable CTP comes forward and is appointed/authorised, the proposed changes should result in cheaper, higher quality and more accessible data for users. It may also make attempts to "paint the tape" less effective. The devil may be in the detail though, and the greater the number of data sources, the greater potential for latency, and perhaps also the potential opportunities for arbitrage between other, speedier price feeds and the CT itself.

Author: David Capps