EU watchdog told to step up work on share price tool to tackle market fragmentation

LONDON (Reuters) - The European Union’s financial services chief has told regulators to prioritise work on an instrument to collect share prices for investors to find the cheapest deals.

FILE PHOTO: Valdis Dombrovskis attend a news conference with Greek Finance Minister Euclid Tsakalotos (not pictured) at the Finance Ministry in Athens, Greece, June 15, 2018. REUTERS/Costas Baltas/File Photo

The instrument, known as a “consolidated tape”, has long been a cherished goal for users of Europe’s fragmented stock markets currently faced with about 20 trading venues, some offering the same stocks.

The tape distributes real time trade and quotes from trading venues in the market. The United States introduced such a tape decades ago to bolster efficiency in trading by knitting together platforms.

The EU’s revised “MiFID II” securities rules, introduced in 2018, gave Brussels powers to appoint a provider if a private sector tape for a reasonable cost remains elusive.

The European Securities and Markets Authority (ESMA) is reviewing how MiFID II is working, but it told the EU’s financial services chief Valdis Dombrovskis last week that due to Brexit, this work is being delayed by 6-24 months.

“We are currently assessing those delays by ESMA,” Dombrovskis told the European Parliament’s economic affairs committee on Tuesday.

“We will assesss whether it’s time to consider establishing more market transparency by means of a consolidated tape. We would like ESMA to prioritise this report. The U.S. markets have such a tape, so we would consider to introduce one in the EU.”

He wants ESMA’s report on a tape by early 2020.

It is part of a wider battle between exchanges and their biggest customers over the price of share trading data, with big funds asking Brussels to intervene.

FESE, Europe’s exchanges industry body, published a report last month which it said showed bourses were not gouging customers with high charges.

The report also said that data vendors were already offering a de facto tape for prices on the bulk of the so-called “lit” exchanges, where prices and trades are instantly visible.

Dombrovskis said initial lessons could be drawn from MiFID.

“We intend to look at consumer protection issues, as well as take a deeper look at the operation of equities and bond markets,” he told EU lawmakers.

Asset managers have become less willing to pay as much for research for picking stocks to buy following MiFID II, which forces some brokers to scale back their coverage of small- and medium-sized (SME) companies.

“We will assess how the unbundling of investment research from brokerage has worked out, and whether we need to adjust this unbundling rule. We have been receiving a lot of complaints, especially on the SME side in this area,” Dombrovskis said.

Reporting by Huw Jones; Editing by Gareth Jones