Author: FINBOURNE– finbourne.com

Following the launch of the CTP Design Council, Neil Ryan uncovers why the technology that underpins the CT, is key to ensuring that it is fit for purpose, no matter what the decided approach.

While the CT has been an issue debated for decades, all market stakeholders (regulators and market participants) agree that it can be an effective policy tool as well as an efficient market tool.  From a policy perspective, its’ seen as a vehicle that can drive the integration of fragmented markets and facilitate the completion of the EU’s Capital Markets Union (CMU).  From a market perspective, it’s regarded as a mechanism to shed light on some corners of the market that currently lack transparency.  More recently, a CT has become a catalyst for strengthening Europe’s global financial competitiveness, as it battles against financial centres around the world.

This is a view shared by FINBOURNE and presented at a recent EFAMA/AFME joint event. We strongly believe that the introduction of a CT, will provide increased market transparency and timely data, aggregated across all the venues. It will enable investors to track and understand market prices more consistently, minimising opaqueness and uncertainty around liquidity. And it will not only aid integration and unity across European markets but, vitally, deliver the market something far greater – a level playing field for transactions data, that promotes access to liquidity and ultimately, greater transparency.

To do this objectively, rather than commercially, we believe both the UK and EU should take an impartial stakeholder-led (technology focused) approach, as they develop their CT strategy across asset classes, in order to ensure the consistency and coherence of the data.

Achieving a data-driven CT

While the creation of a CT will need to be reactive to the legislative direction developed in both the UK and the EU, it is important to understand that the regulatory backdrop is only part of the equation. An equal focus is necessary on the shape of the Consolidated Tape Provider (CTP) and how it will operate in practice.

Many market participants have a different opinion as to the specific scope and timing of what a CT should cover. However, most agree that it needs to essentially be a single platform, consolidating pre- and/or post-trading data, and made available to the financial markets and public within a specified time frame e.g. real time, near real time or delayed.

In its recent consultation paper, the European Securities and Markets Authority (ESMA), highlighted the problem with aggregating post-trading for the purposes of reporting. Standardising or harmonising this process is key to creating an objective and transparent system for those market participants within the EU, while also attracting greater investment outside of the EU.

However, if the issue of the underlying data quality isn’t addressed at the start of the process, the output of any CT will be severely compromised, rendering it a ‘fish trying to climb a tree, rather than a fish that can swim in all waters’.

We agree and firmly believe that the quality of the data input will determine the effectiveness of any CT. To create an independent and low-cost CT that can be used across market participants, our view is that a stakeholder-led CTP delivers the fairest approach, using SaaS technology that can natively deliver standardised, aggregated data to the market.

A fish that swims in all waters

Despite the moving landscape, we believe a CTP will materialise, because the market justification is clear and the political motivation is intensifying. And having seen the benefits of implementing a data-driven infrastructure at some of the world’s leading investment and market infrastructure firms, FINBOURNE can bring that same experience to meet the demands of a cross-industry solution – irrespective of whether it is introduced as a stakeholder-led, commercial or regulatory entity.

Using our intelligent investment data management platform (LUSID), we want to apply our domain expertise, providing the foundation for a CTP, that can do away with the workarounds firms have built over the years to counter inaccessible and untimely data. After all, the value of information can only be found if it is made available in the first place.

To this end, we have collected and analysed transaction data since March 2021 – over 40 million transactions – from various public sources.  We have broken the data down to identify the specific issues with the transactions being reported.  We’re doing what we know best: managing data and addressing the underlying data obstacles, to form a transparent and pain-free solution.

The starting gun has been fired and tackling the data quality issue is one of the many reasons why a CT is necessary and must be delivered through a modern technology enabled platform. Aggregating the data is difficult enough but, if the data output isn’t accurate, a CT will not achieve any of the policy or market expectations.

Through detailed consultation with our Design Council members, we believe we can start the process of dissecting these issues and to help to start to solve those problems.

Tell us what you think. If you’d like to learn more about the CTP journey, or have your say in the CTP Design Council, get in touch with us here.