The Consolidated Tape Proposal: A Boon to the European Market?

The European Commission has proposed the implementation of a consolidated tape to drive investment into Member States. What are the implications of this proposal? 

On Thursday the 25th of November 2021, the European Commission outlined a proposal to establish a consolidated tape. A consolidated tape, an industry standard in the US financial market, is a database utilised to log information concerning the purchase of equity across significant exchanges such as The New York Stock Exchange. Investors typically leverage consolidated tapes to ascertain the financial performance of publicly listed companies.  

In her keynote speech on the introduction of a consolidated tape, Mairead McGuinness, EU Commissioner of Financial Services, noted that an EU consolidated tape could ‘improve competition between trading venues, by attracting orders to trading facilities with better prices and better liquidity’. As consolidated tapes are designed to log data concerning past trades on multiple public trading venues, investors should be able to more easily identify a trading platform with the most advantageous prices. 

In order to make the consolidated tape a reality, the current proposal put forth by the Commission is to have all trading venues in EU member states upload a notification of completed deals to a tape. This tape would then be able accessible to investors seeking to invest in European markets.  

Not all parties affected by the prospect of a consolidated tape are entirely pleased with the Commission’s current proposal. Rainer Riess, Director General of the Federation of European Securities Exchanges, shared that he is ‘deeply concerned about the risks of such an elaborate and complex experiment’. One of such risks is financial in the sense that trading venues will have to bear the cost of uploading such information. Trading venues are also concerned about the Commission’s proposal that exchanges uploading information to a consolidated tape must meet a minimum revenue threshold. As the European financial market contains hundreds of exchanges, some of which are run by smaller firms, it is possible that smaller exchanges which record fewer trades will not be able to participate in uploading data to the consolidated tape. This can have the knock-on effect of investors prioritising exchanges with access to the tape and can consequently limit the growth capability of smaller exchanges.  

In its current form, the Commission’s proposal can lead to more external investment into Member States’ economies. However, there remains work to be done in fine-tuning the implementation process of consolidated tape technology so that all concerned parties benefit. 

By Brighton Dube