With great fanfare, Europe’s reform of markets and transparency laws came into force two years ago. Mifid II – an update of the Markets in Financial Instruments Directive – promised to shine a light on the darkest corners of the financial markets, making trade data easily accessible, and bringing best execution and fair pricing to all.
Amid subsequent complaints that trading venues and data providers were not releasing information in accordance with the law, the region’s regulator in May 2018 clarified the rules for publishing post-trade data in a Q&A document.
But the latest evidence points to a continued failure by many venues and specialist providers known as approved publication arrangements (APAs) to abide by the rules.
“The trading venues and APAs are still not making data available for free after 15 minutes as is required by the rules and the Q&A,” says a regulatory expert at a large hedge fund. “It is a slap in the face.”
Prospective users are struggling to access free data on bonds and derivatives via the websites and portals on offer, sometimes because the information is buried in numerous separate files. The data itself comes in large quantities and downloading it requires automation, but many APAs do not provide machine-readable files. And there is widespread confusion over the small print in contracts, leaving users wary of capturing data for fear of breaking terms of service.
Some see an in-built conflict within the law that allows data providers to charge for real-time information but forces the same providers to give away the data for free after a 15-minute delay. Observers say this gives providers an incentive to make it hard for users to obtain the free feed, nudging them to pay for the premium real-time service – an accusation that data providers refute.
Overall, the failings are preventing banks and investors from being able to use the data for key trading functions such as analysing execution and observing trends in the market, or as an input into pricing and hedging algorithms, or for backtesting portfolios.
“There are different reasons why it is hard to make sense of the available data for the moment. If you want to get access to free data you have to go to each different APA and each different trading venue to collect the trading data. The format is not unified and it is not clearly machine-readable as some people expect it to be,” says a market structure expert at a European bank.
A senior European Union lawmaker is clear that local supervisors of APAs and trading venues should do more to enforce Mifid II’s requirements and ensure publishers provide data in a usable format.
“In general, I feel that many APAs apply quite loose interpretations of how to deal with the transparency obligations and national competent authorities would be well advised to give clearer guidance and also enforce the Mifid II framework more effectively,” Markus Ferber, the European parliamentary rapporteur for Mifid II, says in an emailed statement.
Publish and be damned
A central plank of Mifid II is that trading venues and APAs must publish the price and quantity of on-venue and certain off-venue trades. Providers have taken a variety of approaches to offering the data. Until last year some APAs – including BME, Euronext and TRADEcho – made the data available only via third-party vendors through a subscription to their existing services, but the European Securities and Markets Authority (Esma) ruled this practice as non-compliant with Mifid II.
Euronext now publishes data on its website. Users can download files containing post-trade information across the previous three working days.
Risk.net could not find data for TRADEcho nor BME. TRADEcho’s website has a link to “trade report data” but the link only displays a list of guidelines for London Stock Exchange’s ticker.
BME declined to comment when asked where it publishes data while a spokesperson for London Stock Exchange did not respond to a request for comment by time of publication.
Other providers publish data in such a way that users cannot easily automate its download, while making it cumbersome for a human to access the information. Two sources pointed to Tradeweb as one of the companies that operates in this fashion.
Esma expects APAs and trading venues to publish information in a machine-readable way
Tim Cant, Ashurst
Tradeweb publishes trade data in three different ways. First, it displays a list of the last 100 trades, which cannot be copied unless a user manually enters the information into their systems. Second, Tradeweb gives data to partner vendors, who only give access to the data if users subscribe to their existing services.
Third, Tradeweb provides a link on its website that displays a list of files containing individual trades. A file is uploaded every two minutes and contains all trades executed within those two minutes. The list of so-called “slice files” allows users to download data from the past 24 hours.
“You cannot automatically download the slice files so a human has to individually click every single spreadsheet and open it manually,” says the regulatory expert at the large hedge fund. “It is just not a workable solution because the slice files are every two minutes, so you have hundreds of these every day.”
Tradeweb’s UK APA produces more than 400 slice files each day, a number that is replicated on the firm’s multilateral trading facility as well as its organised trading facility. The company’s Dutch entity also provides three parallel versions of those services.
A senior manager at a data vendor says users can’t create an algorithm to scrape the Tradeweb data because the URLs of the files are not directly accessible without clicking through the link on the website.
Ben Fortunato, a managing director at Tradeweb, says that judging from recent usage of Tradeweb APA’s website some users have found ways to automate file downloads but he was unable to describe exact methods involved.
He also says Tradeweb is aware of complaints over inaccessibility and is working to change its website in the first quarter of 2020.
“We’ve heard the same suggestions that users would like to get access in an automated way,” he says. “We are responding to that by adding that [automation] to one of our next releases and customers will be able to click through to a file transfer protocol and at that point they will be able to automate their downloads.”
At the heart of the debate is how publishers interpret the rule in Mifid II to provide data that is machine-readable.
“The Q&A says quite clearly that Esma expects APAs and trading venues to publish information in a machine-readable way,” says Tim Cant, a partner at law firm Ashurst.
Ferber of the European Parliament believes the method of publishing data in individual files and preventing users from being able to automate the copying of data, does not square with requirements within Mifid II.
“When it comes to the processing of data… the published data must also be retrievable automatically by a computer, otherwise the data is not freely available.”
Can I see your licence?
A further limit on the use of free data stems from restrictions in licences from trading venues and APAs (see box: For your eyes only).
One data licence highlighted by the senior manager at the data vendor as restrictive is trading venue TP Icap’s.
“TP Icap data licence basically states you can look at the data on your screen. It is view only. You can’t use it for any purpose,” says the senior manager.
The licence goes on to state users shall not, among other restrictions: scrape the data or copy the data in an automated way, use the data in any execution system, or as part of a broking, benchmarking or end-of-day pricing service.
The senior manager at the data vendor interprets this as meaning any purpose an end-user would have, for example benchmarking their executed trades with others in the market.
TP Icap refutes this interpretation of its licence. Roland Anderson, chief technology officer at TP Icap, says the restrictions only apply in circumstances where use of the data would compete with TP Icap’s business.
“The restrictions around the data and the terms and conditions around the data on the website are not restricting banks from doing that [best execution analysis],” says Anderson. “What we are saying is that if an individual or a firm takes the data and uses it for a commercial basis that competes with our business, then that is where the restriction lies.”
Competitors would include data vendors that create products or redistribute data. Anderson says where the data licence states users shall not use the data within their “execution systems” or “broking service”, this refers to competitor platform providers.
A source at another trading venue says more guidance is needed to clarify the circumstances when APAs and trading venues can charge users for data.
Ferber of the European Parliament says he does not view restrictive data licences as in line with the intention of Mifid II and points to Esma guidance stating that restrictions can only be placed on the data where the user seeks to redistribute and charge for the data.
The regulatory expert at the large hedge fund believes changes to Mifid II’s primary legislation are warranted due to some APAs persistently trying to make the delayed data difficult to use. He suggests APAs and trading venues should be stripped of the power to charge for post-trade data published in real-time. He argues the status quo creates an incentive for firms to prevent users gaining easy access to the free data.
“Legislators should just eliminate the ability for trading venues and APAs to charge for required post-trade transparency at all,” says the expert. “You eliminate this dichotomy between real-time and 15-minute delayed data because that is creating the incentive structure where venues don’t want to make the data usable.”
He draws upon the example of swap data repositories in the US, which disseminate derivatives data reported to them under the Dodd-Frank Act and have not been found to deploy obstructive practices. In a ruling by the Commodity Futures Trading Commission, SDRs are prohibited from making commercial use of the data until after it has been publicly disseminated.
Mifid II requires APAs and venues to provide the real-time data on a “reasonable commercial basis”.
Many APAs apply quite loose interpretations of how to deal with the transparency obligations and national competent authorities would be well advised to give clearer guidance
Markus Ferber, European parliamentary rapporteur
Matthew Coupe, director of market structure at Barclays, believes a solution is to target the costs levied on the real-time data by assessing whether those prices are “fair”, which should be done through an “appropriateness test”. The test would balance the need for APAs to be paid for their services, while also assessing whether the prices are prohibiting end-users from accessing the data.
“There should be [an] appropriateness test put together around how much is charged for market data and make sure it is fair,” says Coupe. “Everyone needs to make sure that they can provide added value and be rewarded appropriately but at the same time we need to make sure we aren’t creating commercial models that are making it prohibitive for people to actually see the data.”
Others think there is no need for a legislative change but for supervisors to use the Q&A published by Esma as a lever to force APAs to publish the data in a way that is not prohibitive.
“It is just too optimistic to think that more Q&As or legislative changes are really going to have an effect on making APAs properly publish the data,” says an associate at a second law firm. “Ultimately if you really want to bring everyone into line, it would have to be some sort of enforcement action or notice by local regulators.”
This view is shared by Esma. In a report on market data fees published on December 5, Esma states: “Esma agrees with feedback received from many stakeholders that ensuring compliance with the provision of delayed data appears to be mainly an enforcement issue which is an area to be looked into by competent authorities and Esma.”
The European watchdog also states the May 2018 Q&A already addresses restrictive data licences.
“Esma agrees that the use of restrictive terms and conditions may undermine the usability of delayed data but considers that this is already covered in the Q&A,” states the report.
Tale of the tape
Whether or not users believe data providers are justified in charging for their services, an alternative solution would be for legislators to ensure the creation of a so-called consolidated tape provider. Such an entity would collect trade data from the APAs, aggregate it and disseminate feeds of price and volume data to market participants.
Indeed Mifid II envisages the creation of a consolidated tape by private entities but no company has so far stepped forward over fears that the regulatory requirements would be too burdensome, observers suggest. Tape providers have to ensure the accuracy of feeds and release the data for free 15 minutes after publishing a real-time feed.
“The consolidated tape is the avenue for industry and regulators to coalesce around to address the challenges we see today of insufficient access and cost of the transparency data,” says Sassan Danesh, a managing partner at technology firm Etrading Software. “It will require some kind of regulatory push to get that consolidate tape set up. The reason why we have no consolidated tape in the EU is because everything is voluntary.”
In its recent report on market data fees, Esma states a consolidated tape for equities would reduce the market power trading venues have when selling real-time post-trade data. Within the report it recommends the creation of a consolidated tape for equities and for amendments to be made to legislation to specify APAs must submit data to the tape provider.
Esma’s recommendation increases the chances of a regulated tape being created but it will be down to the EU’s three legislators, the European Commission, Parliament and Council of the EU, to decide if it should be created and how.
For your eyes only
All APAs publishing data on their own websites require users to agree to terms of service but each of these differ in how they work and what limitations are placed on users.
Fenics, which publishes data from BGC’s trading platforms, states the data is for “personal use only” and that users need an enterprise licence for “internal business purposes”.
It is understood that this aligns with standard licensing agreements before Mifid II came into force. There are use cases where there is no restriction, for example, when the data is used for analysis of best execution or market trends. However, if a bank was to offer those services and research to clients for a charge, then the bank would have to take out an enterprise licence.
An enterprise licence would also have to be purchased if users wanted to input the data in their internal risk systems or within pricing algorithms.
Finally, vendors wanting to resell the data must pay more than the enterprise licence.
Tradeweb’s terms of service state the information is “display only” and cannot be used for “commercial purposes” unless the user has Tradeweb’s express permission. Tradeweb wouldn’t state what use cases would count as non-commercial. Prospective users would need to discuss with the vendor how they intended to use the data.
“We’d need to go into detail into exactly how it is being used,” says Simon Maisey, global head of business development at Tradeweb. “It is hard to be too generic, which is why the agreements we have in there are generic and we need to have a conversation around that.”
Other data licences only restrict the circumstances where a user seeks to resell the data. For example, Trax’s terms of service state the data can be used for “internal business purposes” but not for “commercial purposes” and users cannot redistribute the data unless free of charge.
A spokesperson for Trax says internal business purposes would not bar banks nor end-users from using the information to create pricing or hedging algorithms or for their own analysis of the market. The spokesperson adds that users cannot resell the raw data or use it for a commercial service.
Nex says its delayed data is for “personal and internal information purposes”. Users must agree not to resell the data.
Euronext states there are no restrictions on the use of the data other than in the event of redistribution.
CBOE users can only use the data in accordance with Mifid II and specifically references the Esma Q&A that declares APAs can set restrictions on users that redistribute the data for a fee.
Deutsche Börse’s licence states users must only use data for their own “private purposes” and will neither disseminate it to third parties nor use it for the commercial benefit of a third party.
A spokesperson for Deutsche Börse says banks and end-users can use the delayed data for free, while onward dissemination from vendors reselling the data is liable to fees.
Risk.net could not find a data licence on Bloomberg’s website specifically for their APA service but it is understood that users can use the data for internal purposes and the resale of that data is not allowed.
A spokesperson at Nasdaq says it is difficult to state what specific use cases free data can be used for. However, as a general rule, the firm’s data is free to use but cannot be resold or redistributed.
Editing by Alex Krohn and Louise Marshall
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