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Turquoise and the Tale of Tape

Congratulations to Eli and Turquoise on concluding their recent round of fund raising successfully (as reported by Jeremy Grant in today’s FT). The fact that the money was raised from existing shareholders is testimony to these firms’ determination to keep the pressure on the traditional venues and, at the same time, have some skin in the game as the new, post MiFID landscape continues to shape itself. It was also interesting to read about Turquoise’s plans to link bank dark pools – the interaction of dark and lit liquidity is going to be one of the key battlefields through 2009. This represents a great area to find competitive edge amongst the MTF community (rather than just keep lowering costs) and we plan to start including analysis of dark venues in the near future.

Meanwhile, it would have been hard to miss the Thomson Reuters announcement this week that it is launching a consolidated tape for prices across Europe. Before we thank the folks at Reuters for doing their bit to save the world as we know it, I thought it would be useful to try and correct a few misunderstandings people have about the whole issue.

The term consolidated tape comes from the US and is used to describe the SEC/SIAC sanctioned dissemination of Level 1 National Best Bid and Offer (NBBO) data that existed even before the changes introduced by Reg NMS (the US equivalent of MiFID). The same term is used in Europe to talk about various commercial initiatives aimed at solving the same problem (i.e. prices for stocks being split over the multiple venues that have emerged since the introduction of MiFID). This affects many areas besides trading (e.g. portfolio valuation) and the race is now on to see who can create a de facto standard in the absence of a CESR mandated consolidated tape.

The fact that trading firms are free to define “best execution” any way they wish (provided that they can demonstrate that this policy is being followed) means that different brokers will require different “consolidated tapes” in order to match their specific MiFID best ex policies. To solve this problem, OMS vendors already provide a consolidated view of markets that can be dynamically configured to meet different best ex scenarios.

The Reuters initiative includes everything (lit, dark and OTC) no matter how small – this means that many brokers will need to strip out the data they don’t wish to use as part of their best ex obligations. It’s not clear from the Reuters press release, but I also assume that you will have to pay for it together with the “analytical tools” that they say you will need in order to make sense of their tape.

As readers of this blog or the FT will know, venues like Equiduct have been publishing a consolidated tape (Orange VBBO) for some time now. So what we will likely end up with is multiple consolidated tapes offered by competing vendors that all take a different approach.

Naturally, the mandarins at MiFID HQ are looking closely at the situation and, of course, a legislated consolidated tape would impose a one-size-fits-all solution across Europe. In these latency sensitive times, this would raise some interesting issues in terms of where the ticker plant for such a tape would be located. And, I guess the rules would need to be changed so that price is prioritised over the current flexible approach in terms of creating a best execution policy.

On the other hand, the sentiment behind MiFID was all about creating a more level playing field and, currently, the LSE and other primary exchanges do have an advantage as their price feeds are used as the benchmark feeds for the trading community at large. But, as liquidity continues to move away from primary exchanges, this advantage will be eroded. It will be interesting to see what emerges to fill this void.

One Response to “Turquoise and the Tale of Tape”
  1. Artur Fischer says:


    Thanks for shedding light on the complex issue of a consolidated tape. I agree that there might be different solution to the problem. However those customizations will be implemented on a local user basis and are therefore not relevant. The aim of a consolidated tape is to serve as a meaningful benchmark in a fragmented market. Equiduct takes great care in the selection of venues we include in our OrangeVBBO. Only those venues which have firm prices and are utilizing a clearing house are used. The same is true for the 500 plus instruments we calculate the OrangeVBBO for. Only instruments which are traded at least in 2 venues and which have a sufficient number of trades during the day are included in our calculation. However the main differentiator to other solution is our ability to calculate a volume weighted benchmark using two distinct volumes : RMS (7.500 €) and SMS (up to 100.000 e) as defined by CESR. A solution which only allows a top of the book (EBBO) view is as vague as a house price without the information about the number of bedrooms.

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