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Creating a single stream of all UK share trading data from across different markets would cost about £93mn and bring £100mn of benefits over the next decade by improving liquidity and lowering the cost of capital, the UK regulator has said.
The Financial Conduct Authority published the estimates on Wednesday as it presented plans to establish a UK equities consolidated tape from 2027. The project would provide investors with the best bid and offer prices for shares as well as post-trade data.
The UK is lagging behind other countries on centralising share trading data as the EU has already kicked off preparations to do so from next year while investors in the US have been benefiting from such schemes since the 1970s.
The FCA said combining data on the liquidity, volumes and pricing of share trading from multiple venues on a single source would increase investor participation in markets and attract more companies to list in London.
The UK has suffered a drought of initial public offerings in recent years, raising concerns among politicians and financiers about the dwindling number of London-listed companies and reduced liquidity. But there have been a flurry of UK listings in recent weeks, including by small business lender Shawbrook and tinned tuna maker Princes.
“UK markets offer diverse trading options which can be great for competition, choice and lowering trading fees,” said Simon Walls, interim executive director of markets at the FCA. “But this landscape makes it harder to assess liquidity as a whole in our markets.”
He said a single source of share trading data would “tackle this challenge head on by delivering more straightforward access to equity market data from across venues, supporting better decisions and boosting market participation”.
The regulator estimated the project would generate benefits with a present value of £50mn to £154mn over the next 10 years, while costing between £57mn and £130mn to create, run, connect to and regulate over the same period.
Market participants have told the FCA they would prefer to have a single consolidated tape to cover UK, EU and Swiss equity markets. The regulator said its proposals were compatible with those in the EU, which could allow a third party to combine both in a single data stream.
Some critics of the consolidated tape have warned it could drive more share trading from transparent markets, such as the London Stock Exchange, to dark pools and other more opaque venues. But the FCA said its analysis showed such a shift was unlikely.
Its plans were welcomed in the City of London. Eleanor Beasley, chief operating officer for Emea equities at Goldman Sachs, said “the creation of a consolidated tape will address the misperception of low liquidity in the UK market”.
The FCA said it had invited expressions of interest for the contract to create and run the equities consolidated tape for five years. It will review how well the project is working after two years, including whether to change how much pre-trade pricing data it provides.
A separate contract the FCA awarded earlier this year to create a consolidated tape for bond markets has been delayed by a legal challenge from an unsuccessful bidder in the tender process. The regulator said this week it had applied to the High Court to lift the automatic suspension of the contract, arguing the legal challenge was “without merit”.