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EU Equity pre- and post-trade transparency regulation (LBF vol. 21) 2021/10.IV
10.IV What is optimal publication and consolidation?
mr. J.E.C. Gulyás, datum 01-02-2021
- Datum
01-02-2021
- Auteur
mr. J.E.C. Gulyás
- JCDI
JCDI:ADS266914:1
- Vakgebied(en)
Financieel recht / Bank- en effectenrecht
Financieel recht / Europees financieel recht
Financiële dienstverlening / Financieel toezicht
Voetnoten
Voetnoten
Sometimes narrow interpretations of ‘data quality’ are also used, such as only including accurate data (CESR, Public Consultation: Publication and Consolidation of MiFID Market Transparency Data, October 2006 (CESR/06-551), p. 11-17). The research uses a broad definition, somewhat similar to the broad interpretation used in the ESMA MiFID II Review. ESMA makes clear that quality of data also includes data consistency and comparability (ESMA, MiFID II/MiFIR Review Report No. 1: On the development in prices for pre- and post-trade data and on the consolidated tape for equity instruments, 5 December 2019(ESMA70-156-1606), p. 53). A broad – and more recent – interpretation of data quality enables to capture several aspects of data at once (i.e. not only accuracy, but also timeliness and comparability).
This argument is based on ESMA, MiFID II/MiFIR Review Report No. 1: On the development in prices for pre- and post-trade data and on the consolidated tape for equity instruments, 5 December 2019(ESMA70-156-1606), p. 42.
ESMA, Press Release: ESMA recommends real-time consolidated tape for equity, 5 December 2019 (ESMA71-99-1248).
This view is based on ESMA, MiFID II/MiFIR Review Report No. 1: On the development in prices for pre- and post-trade data and on the consolidated tape for equity instruments, 5 December 2019(ESMA70-156-1606), p. 58.
ESMA, MiFID II/MiFIR Review Report No. 1: On the development in prices for pre- and post-trade data and on the consolidated tape for equity instruments, 5 December 2019(ESMA70-156-1606), p. 40.
Published equity pre- and post-trade data is only valuable where it is of high quality. High quality data, as used in this research, means that the equity pre- and post-trade data is accurate, timely, and comparable.1 The publication of high quality equity pre- and post-trade data is a prerequisite for a well-functioning consolidated tape and/or consolidated quote.2 The optimal degree of consolidation depends on the amount of liquidity fragmentation and preferences of market participants. As a general rule, where a financial instrument is traded on several trading platforms, the importance of consolidation increases. The opposite is true in a concentrated market setting. The importance of a consolidated tape and/or consolidated quote reduces where liquidity is concentrated on one (or a few) trading platforms. This is because concentrated trading implies the data is already consolidated (i.e. in one or a few places).3
Market preferences also play an important role. Some market participants want to observe 100 percent of the market, including data from small and/or highly specialised equity trading platforms. Full coverage supports performing transaction cost analysis, achieving and monitoring best execution, and doing general market research.4 Full coverage can also improve competition and the level playing field, since market participants can observe all trading platforms that provide trading services in a given instrument. Not all market participants will be interested in full coverage, however. Some market participants might mainly be interested in specific financial instruments, such as high cap shares (shares with a high market capitalisation). Hence, these market participants will have less demand for full coverage of consolidated data (i.e. not all financial instruments and trading platforms).5
In sum, the publication of high-quality equity pre- and post-trade data is always important. By contrast, the optimal degree of consolidation depends on the degree of fragmentation and market preferences.