FCA confirms final rules for a bond consolidated tape

What does this mean?

In July 2023, the FCA published its draft proposals for establishing a CT for bonds in the UK. A CT brings together market data on trades executed on trading venues (TVs) and over-the-counter into one comprehensive data feed, provided by the CTP. The FCA has confirmed it will proceed with a CT for bonds, and has said it will update on an equities CT later in 2024.

The main areas where the FCA has made changes to its consultation proposals are:

Value-added services: The CTP will not be permitted to provide value-added services, due to concerns over its ability to gain a dominant market position. The FCA requires that any value-added services must be provided by a separate legal entity. However, this entity can form part of the same group as the CTP.

The FCA notes it received a significant amount of feedback on this area of its proposals. A number of options were considered, with the FCA believing this solution to be the most straightforward.

Historical data: The CTP will be required to offer a historical data service, which must be sold to subscribers separately to the live CT. The FCA prescribes that historical data must be made available in a downloadable format, and in response to bespoke queries.

Payment to data providers: The FCA is now proposing to require the CTP to make payments to data providers to cover their costs of connecting to the CTP. The FCA presents three possible models for consultation.

All payment options would be conditional on data providers meeting certain criteria, including on the accuracy and timeliness of their data contributions. Groups will only be eligible for one payment.

Other changes have also been confirmed:

• New TVs and Approved Publication Arrangements (APAs) will be required to connect to the CTP and provide data as soon as possible, rather than within six months as previously proposed.
• The FCA confirms a stronger role for data users in the CTP’s governance arrangements via membership of the Consultative Committee. The Committee will be able to make recommendations to the CTP. However, the FCA will not play a role in resolving any disagreements between the Committee and the CTP.
• The CTP will also be required to have a complaints procedure. This will not involve any recourse to monetary compensation, however.

Many areas of the FCA’s original proposals for the CT remain the same. This includes the scope of the CT, which will not include exchange traded commodities (ETCs), or exchange traded notes (ETNs) in the first instance. The FCA notes that it will consider the right vehicle for consolidating data on ETCs/ETNs and will discuss this further with market participants.

The tender process will remain two-step, with the first stage focused on the overall quality of the service to be provided, and the second focused on price. The contract period will be five years, as originally proposed. The CTP will also not be required to make the CT free of charge after 15 minutes (however TVs and APAs will continue to be subject to this requirement). Consumption of the CT will remain non-mandatory.

Equities CT feedback

The FCA also provided a summary of the feedback it received on a potential CT for equities. 

Most respondents agreed that the scope of an equities CT should include shares, depositary receipts, exchange traded funds, certifications and other similar instruments, as well as ETCs and ETNs.

While most respondents supported an equities CT including pre-trade data, some felt it could undermine the role of central limit order books in concentrating liquidity, which could lead to reduced market quality. The FCA has committed to undertaking analysis of these issues.

Respondents demonstrated a range of views on whether and how an equities CTP should be required to put in place a revenue sharing model with data providers.

There was broad support for an equities CT to include data on market outages.

What do firms need to do?

The development of a CT forms a key part of the Government’s wholesale market reform agenda and is likely to substantially change the market for - and consumption of - trade data in UK markets. Firms should also take note of the outputs of the FCA’s wholesale data market study that is expected to report by 1 March 2024.

Firms that decide to purchase the CT will need to make necessary operational changes to integrate and manage the change or addition of market data feeds.

The FCA’s policy statement includes a section on the different approaches across the UK, EU and US to consolidated data feeds, reflecting the complexity that firms operating across one or more region will need to navigate. Firms will need to implement solutions to manage these differences as the rules are developed.

Following the passage of FSMA 2023, further significant reforms to the UK’s wholesale markets are being developed, including to the underlying bond and derivatives markets transparency requirements.  Firms should be alert to the scale and pace of regulatory change and consider the cumulative impact of these changes on their operational and reporting processes and controls.

Next steps

Comments on the consultation proposals can be made until 9 February 2024. 

The Data Reporting Services Regulations Statutory Instrument that sets the legislative framework for the regulation of CTPs, APAs and Approved Reporting Mechanisms takes effect on 5 April 2024, subject to parliamentary approval. The FCA’s rules and guidance will also become effective on this date.