CP23/33: The framework for a UK consolidated tape

The Financial Conduct Authority (FCA) has published a combined policy statement and consultation paper in relation to the introduction of a consolidated tape (CT) in the UK. As stated in the corresponding initial consultation paper (CP15/23) (EventID 22066), the aim of the CT is to improve availability and quality of market (trading) data while enhancing transparency and reducing overall market data costs, primarily by collecting market data across the market from various sources at a central data point and disseminating the data in a standardized single feed. The ultimate goal is to aid investors in making better, more timely, and more informed investment decisions.
The first part of this combined paper now deals with the feedback and the FCA’s way forward on the basic framework for the design of the consolidated tape, particularly as it concerns the inclusion of bond data. It thereby addresses the determination of a consolidated tape provider (CTP), the scope and functioning of the CT – corresponding details on associated fees and notifications are subject to discussion in the second part of the paper – and the scope of covered bonds subject to mandatory reporting.
—
#### The first part – a new policy statement for the basic framework and design of the CT
The FCA received a total of 30 responses to its consultation and – generally speaking – respondents supported the FCA’s proposals for the proposed UK bond consolidated Tape framework. The key issues addressed by respondents along with the FCA’s way forward are outlined below:
(1) Historical data: A large number of respondents supported the requirement for the CTP to offer a historical data service, while some were concerned about the costs of such data service due to the CTP’s privileged position to provide such data. As a consequence, and unlike planned, the FCA has now decided to require the CTP to offer historical data in an effort to improve access to such market data. However, the data should be kept separately from the live feed, so the FCA.
(2) Costs of connection: Data providers to the CTP such as exchanges and investment firms strongly supported payments from the CTP to them to recognize the burdens the CT would place on them to deliver the data. However, users of such CT criticized the FCA to „reward“ data providers simply to fulfill their regulatory requirements. As a consequence to this feedback, the FCA is moving away from its „free costs“ stance which entailed that the CTP does not have to reimburse data providers for their data. In fact, the FCA now seeks to introduce „connection fees“ to be paid by the CTP to data providers. These costs are subject to consultation in the second part of this document.
(3) Value-added services: Respondents expressed strong concerns about the CTP gaining a dominant position, if it were to offer value-added services due to its privileged market position. In response to these concerns, the FCA has now changed its original proposals requiring the legal entity acting as the CTP to set up a separate legal entity for providing value-added services and so to prevent any unfair advantage. (Initially, the FCA proposed that a CTP could offer value-added services if not bundled with the core CT).
(4) Governance requirements: Respondents emphasized the importance of market participants‘ input into the operation of the CT and thus their roles in the functioning of a CT. Accordingly, many suggested changes to the proposed new consultative committee which should interact – independently from the FCA – between data users and data providers and the CTP to ensure better and more representation of the user industry (e.g. fund managers). Some respondents also proposed that the FCA should have a role in addressing disagreements between the consultative committee and the CTP, if necessary. As a consequence to the feedback, the FCA will clarify its expectations for a consultative committee and will thereby take into consideration the feedback received. However, the FCA states that it will not be available for dispute resolutions between the CTP and the committee.
(5) Single CTP: Respondents generally favored having a single CTP for an authoritative source of data and financial viability which is why the FCA will move forward as planned with a corresponding tender process. Talking about this process, the FCA also states that it will maintain its proposed two-stage process as outlined in the consultation, which was indeed NOT favored by respondents.
To conclude, the FCA notes that it hopes to have all legislative pieces in place by April 2024, so that the final provisions on the CT for bonds can come into force on April 5, 2024, the proposed new starting date of the CT.
—
#### The second part – New consultation on the payments to data providers connecting to the bond CTP and reporting / notification forms for data reporting service providers
As noted above, the FCA proposes that the CTP must „reward“ in some way those firms delivering data to the CT. Therefore, the FCA is now proposing three options to set up such fee / cost regime:
(1) Option 1: Under option 1, the CTP would have to pay each connecting data provider a fixed sum, e.g., £58,500, which represents the medium cost mentioned by respondents that would be incurred for the set up of data provision to the CTP. The payments should reflect 50% of the estimated connection cost to ensure that sufficient incentive is provided to reduce costs overall and to engage in more technological innovation in this context. Payments could thereby be split into two annual installments, with a single payment to be due for contracts where the data delivery date is nearby.
(2) Option 2: Under option 2, data providers would have to determine their own one-off connection costs, validated by external auditors, and the CTP would be required to pay 50% of those verified costs to each data provider in two annual installments. Again, a single payment should be made to providers connecting to the CTP close to the end of the tender period for the appointment of the CTP.
(3) Option 3: Under option 3, the CTP would set aside and have to disburse an amount equal to X% of revenues for payments to data providers with a minimum of, for instance, 20% to ensure the recovery of the set up costs by data providers. These payments would thus be contingent on the financial success of the CTP and on firms‘ ability to meeting adequate data quality standards. An upper limit, for instance, could be set at £3.3 million which was the highest estimate provided by respondents.
—
As far as notification requirements of DRSPs are concerned, the FCA proposes to require DRSPs to submit those forms currently used under the Retained Market Abuse Regulation with some modifications to adjust to the new CT regime. These forms include the following – as quoted:
– Annex 1 – Application form to provide the service of ARM and/or APA and/or CTP
– Annex 2 – Notification form for list of members of a management body
– Annex 3 – Variation of Authorisation of a DRSP
– Annex 4 – Cancellation of Authorisation of a DRSP
– Annex 5 – Material Change in information for a DRSP
– Annex 6 – Notification form for changes to the management body
– Annex 7 – Market Data Processor on-boarding application form
– Annex 8 – Yearly Notification Form for a DRSP
– Annex 9 – DRSP Ad hoc notification
– Annex 10 – Market Interface Specification confidentiality agreement
—
Comments on the fees regime and the notification requirements of DRSPs may be submitted to the FCA up to February 9, 2024.