Buy-side asset management institutions have written an open letter to politicians imploring them to reconsider their consolidated band proposals, particularly how they remunerate the band provider and incumbent exchanges.
Seventeen institutional members of the European Fund and Asset Management Association (EFAMA) who manage more than €8.5 trillion in assets said the current proposals are “puzzling” in that they place the needs of major stock exchanges before those of end investors. Among those who have signed him publicly are Eric Boess of Allianz Investors, Fiona Bassett of DWS, Steve Ellis of Fidelity, Paul Squires of Invesco and Brian Mitchell of M&G.
Current proposals put forward by regulators foresee that the winning bidder on equity-consolidated band will be the one that brings in the highest revenues for regulated markets and asset managers say this will ensure “another failed CT business for Europe “because it creates a business model around a high-cost tape that doesn’t meet market demand. Instead, they suggested that the tape supplier’s contributing exchange revenue be capped to cover production costs and a “reasonable” margin.
Exchange revenue is largely dependent on very low latency, non-display data that would not be in-band and therefore such revenue would not be displaced by the implementation of a consolidated public data source.
“The raison d’être of the strip is to support the functioning of the capital market in the EU and thus improve the results of issuers and investors. It should not be designed to subsidize the business models of intermediaries like major stock exchanges,” the institutions said in their letter.
“We view the proposed operating model as a subsidy for exchanges and not as a replacement for lost real data revenue. A real-time scanner [consolidated tape] for equities, updating data at the speed of a second is therefore complementary to, and not replacing, data flows from stock exchanges.
The letter highlights the “natural monopoly” exchanges have over their own order book market data – an issue that has been strongly and vocally debated by participants for several years now – adding that the Commission’s previous attempt European Union to solve this problem by the introduction of the principle of the reasonable commercial base (RCB) and the rules of unbundling within the framework of MiFID II had failed.
Market data has been at the heart of the ongoing market debate for several years now, with many participants unhappy with the high prices they have to pay for essential data from both sites and the vendors who aggregate data from them. . Regulators have subsequently launched investigations to explore competition issues in this space in a bid to mitigate the problem.
“A reasonably priced CT would at the very least introduce an element of competitive tension with the prices that sites set for their proprietary data. Currently, the proposal goes in the opposite direction, compounding an existing problem around market data costs,” the asset managers said.
The institutions aren’t the only ones protesting the compensation plans under the consolidated band proposals. Cboe called them “highly discriminatory” for pan-European exchanges in December shortly after the proposals were announced, while several trade associations also claimed they had created a level playing field and favored incumbent exchanges by giving them an unfair advantage.
Allianz, Invesco, M&G, Fidelity and DWS had not responded to a request for comment at the time of publication.