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MiFID Rules Break the Exchange Monopoly on Trade Reporting

A consortium of investment banks is building a trade data reporting and market data publishing platform to take advantage of MiFID.

As Europe braces for new pre-trade data and post-trade reporting requirements resulting from the Markets in Financial Instruments Directive (MiFID), the Pan-European legislation already is shaking up the status quo in the exchange-dominated market data business. Under the legislation, which takes effect in November 2007, investment banks will be in a position to form their own trade reporting authorities and charge for disseminating their own market data.

The opportunity for investment banks to capture, pool and disseminate their own market data "has been there for a very long time," according to Andrew Miller, managing director of Arcontech, a London-based real-time market data software specialist. But, he says, "MiFID is legislating that things must be done differently, so it's already shaking up the status quo and serving as a catalyst" for brokers across Europe to set up their own market data communities.

Already, a group of nine investment banks is moving forward with Project Boat, an initiative to create a Pan-European pre-trade data publishing and post-trade reporting platform. The platform will be used to comply with MiFID's pre-trade and post-trade transparency rules, which require firms that participate in over-the-counter (OTC) trading in equities off their own books to publish prices to the market for normal-size orders. After they publish the prices, brokers must execute orders at the public quote, refraining from offering a better price.

On Sept. 19, the consortium -- comprised of ABN AMRO, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, Merrill Lynch, Morgan Stanley and UBS -- announced that it had signed a letter of intent to pool trade transparency information across Europe and to create a trade-capture and market-data-dissemination platform. The consortium has been meeting since the beginning of the year, according to press reports.

'A Serious Chunk of Money'

Project Boat is expected to substantially reduce the cost of market data for investment banks because they will be able to save on trade-reporting fees in addition to selling their own data. "What MiFID is doing is saying, 'We're going to change the rules -- anybody can set up a venue for trade reporting and publish that information,'" says Duncan Paterson, a management consultant to Project Boat who has been working on the project since March of this year.

Currently, all U.K. stock trades (plus trades in non-U.K. equities by member firms that are not reported elsewhere) are reported to the London Stock Exchange (LSE), which charges the investment banks a fee for trade reporting. Then, ironically, the LSE sells the aggregated market data back to the investment banks. In the rest of Europe, all domestic trades are reported to the relevant exchange. But this all changes with the implementation of MiFID. Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio

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