DSB and Etrading Software joint submission to the EU on Derivatives CTP
Moving towards an OTC Derivatives Consolidated Tape in Europe
The case for a Consolidated Tape (CTP) in Europe is strong. In December 2019, ESMA announced a review of the consolidated tape as it felt that a reliable view of liquidity across the EU was still lacking, even though two years have passed under the MiFID II regime. Presently, the European Commission is currently considering proposals and feedback on the topic, and considering advantages such a CTP would bring. Regulators are very much focused on how to achieve increased transparency, reduce fragmentation, while ensuring the robust and efficient infrastructure industry needs.
The Derivative Service Bureau (DSB) and Etrading Software Limited (ETS) have submitted a joint response to the European Commission outlining factors key to the successful implementation of an OTC Derivatives Consolidated Tape (CTP). The DSB and ETS believe not only can such a framework can be implemented, but that its implementation can be accelerated by addressing data quality and governance issues. More is discussed in detail below.
First, successful implementation of an OTC Derivatives CTP would need to address the question of data quality, including how the ISIN’s daily change can be dealt with without compromising its existing regulatory utility. Potential ambiguities in the RTS 2 (Regulatory Technical Standards) Data Specifications will also need clarifying. Also, the existing data set should be augmented with additional price-forming data fields which would enable a more comprehensive understanding of the CTP’s price data.
A robust governance framework would be essential for the successful implementation of a Derivatives CTP. The DSB has significant experience in running such a governance structure for the OTC ISIN Service, and is implementing a similar structure to govern the UPI Service, in conjunction with the Financial Stability Board (FSB).
By building a CTP with high quality data, and a robust governance framework, the implementation of a Derivatives CTP can be accelerated. Leveraging existing infrastructure such as the DSB’s network will also reduce cost and operational risk. Retrieving data from the trading venue could be aggregated on a cost-recovery basis. By streamlining the market data infrastructure within Europe, industry would benefit from the knock-on impact in terms of lowered market data costs.