Financial market data and MiFID

The opening up of the market for equity market data raises the question of whether data will be sufficiently consolidated and of a high enough quality post-MiFID, or whether it will become too fragmented, thereby hindering price transparency and the implementation of best execution policies. This policy brief outlines the market for financial market data, the provisions of MiFID and the implementing measures regarding financial data and data consolidation. It also looks at the approaches taken by CESR, the FSA and the US authorities. It concludes that markets should be capable of adapting and that additional licensing requirements, such as those proposed by the FSA, are in fact premature and act as a barrier to the single market. Neither would a US-style monopoly consolidator be needed in this case.

Karel Lannoo is Chief Executive of CEPS. This paper was first presented at the conference. ‘MiFID Implementation 2007’, which took place in Brussels on 8/9 March 2007. Comments from conference participants, as well as from Jean-Pierre Casey, Charles Gottlieb and an anonymous referee are gratefully acknowledged.

One aspect of the MiFID directive which is rarely discussed is its impact on the financial market data business. MiFID not only abolishes the concentration rule for trading of equity securities, but also for market data generated from these trades. Whereas today market data on equity transactions is primarily controlled by the exchanges, MiFID leaves open how and by whom this information will be consolidated in the future. It only says that it should be done on a reasonable commercial basis, and as close to real time as possible. This raises the question of whether the market will provide sufficiently consolidated market data by itself or whether it will become too fragmented, perhaps requiring an initiative by the authorities to create a single consolidated tape along the lines of the US NMS model.