Propellant Digital: A single tape is not enough

The move towards the consolidated tape is not a silver bullet

By Vidal Mehra, Chief Product Officer, Propellant Digital.

When the FCA and ESMA transparency regimes went live, the uptick in real-time transparency was immediate. However, for many desks, the challenge switched from visibility to usability.

In the eyes of many market participants, the first part of the puzzle is the launch of the UK Consolidated Tape (CT) for bonds on 22nd June this year. Whilst recent regulatory changes have significantly improved transparency across European credit markets, attention is increasingly turning to how the data is consumed and analysed.

A single tape is not enough
Data is now easier to access and is also becoming more timely. However, the challenge is no longer simply identifying the correct dataset to use; instead, it has moved onto the aggregation layer. With the volume of post-trade data having dramatically increased, with the introduction of the new transparency regimes, wading through a metaphorical swamp to find hidden treasure within the vast data lake can be problematic.

Aggregation is clearly not the only obstacle; licensing, de-duplication, trade lifecycle tracking, and producing meaningful analytics provide the next set of hurdles for both buy- and sell-side desks as the initial launch date rapidly approaches.

Alex Munn, chief technology officer at Propellant Digital, added, “The Consolidated Tape gives you a firehose, but what most desks actually need is a filter. The real business value comes from turning this raw post-trade transparency into a cleaned, high-quality and actionable dataset that supports trading and investment decisions”.

Whilst the exact date is not yet known, the ESMA equivalent CT is expected to go live in 2027, at which point the aforementioned challenges will become increasingly urgent to overcome.

Currently in Europe, aggregation is a complex process involving direct connections to multiple trading and reporting venues. When the tapes begin to roll out, whilst this may become easier on the surface, beneath the waves many infrastructure challenges remain.

To begin with, the differing scope between MiFID reporting and the CT means that firms seeking a complete view of the fixed income landscape will still need to maintain connectivity to multiple venues, not just the tapes themselves. The decision may not just come down to coverage but also the differing licensing conditions.

From a licensing perspective, it is possible that cross-jurisdictional differences could create potential issues for subscribers, particularly considerations around use cases and data removal. These complexities will provide a headache for those looking to join multiple tapes and go down the ‘self serve’ route – and that is before considering future planned tapes such as ESMA’s OTC derivatives tape (also expected in 2027).

Duplicates and deferrals
We could spend an entire day talking about the infrastructure and licensing concerns without even addressing the data. However, once those initial barriers have been hurdled, the next challenge lies within the trade reports themselves.

Existing consumers of MiFID data will no doubt be very familiar with the complexities of the data, particularly the prevalence of duplicates (which come in many flavours) and lifecycle events (such as how an amend, cancel or update is joined to the original report).

De-duplication requires ‘hash’ creation (unique strings created by complex algorithms to determine if trade reports are identical). This approach is far more powerful than a manual eyeball check and in the modern world that is simply no longer viable. There is a large amount of data and not enough time; therefore, it is imperative that duplicates are highlighted in minutes or even seconds, not days.

Lifecycle events also present their own challenges. A price may need to be amended, or maybe the notional was incorrectly entered; these seemingly simple amendments can result in (multiple) additional rows of data, which in turn increases complexity and cost.

The new transparency regimes aim to reduce reporting complexity; both provide market participants with a set of rules that can be applied to trades. However, this can still result in multiple reports per trade (for example, if an initial ticket has its volume omitted) and, in many cases, the applied deferral may still be subjective as the appropriate deferral rests heavily on the available reference data.

All these factors combine to highlight one clear fact: the move towards the CT within fixed income is not a silver bullet. As each tape is launched over the next few years, the reliance on aggregators and experienced data specialists is likely to increase. Increased transparency leads to larger data sets, whilst also enabling quantitative decision making in a way that simply was not possible a few years ago.