The controversy concerns APAs, which investment firms use to fulfill new pre- and post-trade transparency requirements under Mifid II and its accompanying Mifir regulation, which came into force on January 3. Pre-trade transparency means publishing offered executable quotes, while the price and quantity of certain trades must be published after execution.

The APAs must make the data free and available to the public 15 minutes after execution of the trade, but they can charge users for real-time access to the data.

“I have heard complaints from market participants that post-trade data is either provided in unusable file formats or only during an unreasonably short time span. While this might technically be in compliance with the letter of Mifid II, it is certainly not in line with the spirit of the law, which was to democratize access to such information.”

Markus Ferber, Member of the European Parliament

The benefit for traders of having pre- and post-trade data—even with a delay—is that it will help them compare prices available in the market. However, sources complain that the data published by two APAs in particular—Tradeweb and Bloomberg—is potentially unusable.

“The APAs seem to be acting [in a way that], if not in violation, [then] clearly frustrating the concept of publishing data free of charge and also in a machine-readable format. It is an issue with both APAs and trading venues. The entire mission of Mifid II is to improve transparency, particularly in the non-equity markets, and this is not helping,” says a regulatory expert at a large investment firm.

While the APAs might not be violating the letter of the law, lawyers and the member of the European Parliament responsible for drafting the rules say they are breaking the “spirit” of the law, which aims to increase transparency in non-equity markets.

“I have heard complaints from market participants that post-trade data is either provided in unusable file formats or only during an unreasonably short time span. While this might technically be in compliance with the letter of Mifid II, it is certainly not in line with the spirit of the law, which was to democratize access to such information. Clearly, this behavior of certain APAs is an attempt to sidestep the Mifid II transparency regime,” says Markus Ferber, the parliamentary rapporteur responsible for negotiating Mifid II.

In response to those complaints, Ferber sent a letter to Esma chairman Steven Maijoor on February 15, asking whether the pan-European markets regulator has observed the same practice, and if it will do anything to resolve it.

In response, in a letter dated March 6 and seen by Inside Data Management stablemate Risk.net, Maijoor says that “From our first observations, it appears the data made public by several APAs may not meet these requirements…. We will continue our assessment of how APAs make data available to the public.”

No Copying

One method of presenting post-trade data that has frustrated two sources is publication in a format that cannot be copied—a technique used by the Tradeweb APA.

The regulatory expert at the large investment firm says the only way they can copy the information is by taking screenshots of it on the website and manually copying the data afterwards, which makes it difficult to consolidate. Risk.net used Tradeweb’s APA site on February 21, and also found the only way to copy information was by taking screenshots.

Two lawyers are unconvinced this meets certain requirements set out in Mifid II.

“The APA that doesn’t allow you to copy and paste strikes me as pretty close to violating the rule by letter, as well as by spirit,” says a partner at a law firm in London.

A Tradeweb spokesperson says that its APA “makes data available to the public for free 15 minutes after the initial publication of the trade report on both a website and in a machine-readable format, which we believe is in compliance with the regulatory requirements of Mifid II.” However, sources say the machine-readable data is only available through other third-party technology providers that charge for their services.

A requirement placed on APAs in Article 14 of a delegated regulation finalized by the European Commission on June 2, 2016, is for them to ensure their published data is machine-readable. The delegated regulation lists a series of provisions outlining machine readability, one of which says it should be able to be accessed, read, used and copied by computer software free of charge.

The two lawyers say they do not believe that the format can be called machine-readable if a computer cannot actually select and copy the data, as it suggests a computer is unable to identify the information.

“I am not convinced that meets the requirements for the information to be machine-readable. There is a legitimate argument from either side, but that is clearly not what was intended,” says a regulatory expert at a second law firm.

The partner at the first law firm also believes this practice is in violation of another requirement in the Level 1 text of Mifid II, which says APAs and trading venues must ensure their pre- and post-trade data can be consolidated with similar data from other sources.

The purpose of this provision is to enable the creation of consolidated tape providers in equity and non-equity instruments. At the moment, no consolidated tape providers exist, but the law firm partner does not believe this voids the obligation on the APA to ensure the data can be consolidated.

“The consolidated tape providers don’t seem to exist right now, but the fact is that if these APAs are subject to an obligation that they need to be publishing things in a way that can be used by third parties, that is not really being met if you can’t extract the information being made public,” says the partner at the first law firm.

Disappearing Data

The investment firm regulatory expert at also expressed concerns at the difficulties involved in using the APA operated by Bloomberg, which publishes single-slice files in a spreadsheet format throughout the day. Each file contains a list of trades executed between each periodic publication. However, each file is deleted within two minutes after publication and the information does not reappear.

Risk.net downloaded files from Bloomberg’s APA on February 21, between 10:10 a.m. and 10:15 a.m. GMT. During that time, four files were uploaded to the website, but each one was deleted once the succeeding file uploaded. Each file contains data on between one and three trades, and does not contain any information on the trades in the previous files. Risk.net rechecked the Bloomberg APA website on March 13 and found this to still be the case.

“APAs are subject to an obligation to make the data available within a certain timeframe post-execution, but the rules don’t then go on to say you need to maintain the visibility of the data for a certain amount of time thereafter. So, while it may not be in violation of the expressed letter of the law, the regulatory purpose is not being served here if you [only] have 30 seconds to capture the information before it is gone.”

Partner at a London law firm

The regulatory expert at the investment firm says that unless the firm assigned someone specifically to monitor the site and download every file, they would not have a complete view of activity. But a source at a data provider says the vendor has written code that monitors the website and downloads each file as it is uploaded.

Both lawyers speaking to Risk.net believe this is within the letter of the law, because the legislation places no time limit for the data to be available. But the partner at the first law firm says the original intent of the regulation—to increase transparency in the marketplace—is not being fulfilled.

“APAs are subject to an obligation to make the data available within a certain timeframe post-execution, but the rules don’t then go on to say you need to maintain the visibility of the data for a certain amount of time thereafter. So, while it may not be in violation of the expressed letter of the law, the regulatory purpose is not being served here if you [only] have 30 seconds to capture the information before it is gone,” says a London-based partner at the first law firm.

A spokesperson at Bloomberg says that its APA data is “freely available in machine-readable format 15 minutes after a trade is published on a public webpage, which isn’t gated. We consider this approach compliant with law, and [with] the objective of ensuring the public can use computer software to directly and automatically read transparency data.”

Esma’s Maijoor does not mention the practice of APAs only publishing data for a short period of time in his letter, but says Esma will now speak with the national authorities supervising the APAs—in the case of Bloomberg and Tradeweb, UK regulator the Financial Conduct Authority (FCA).

Defining ‘Reasonable’ Fees

But some sources say they believe the APAs have deliberately made the data difficult to use so as to incentivize demand for their own premium services.

“By making what is publicly available as useless as possible, it compels you—if you actually want the data—to subscribe to some data package that is maybe available now or at least [which] these entities are thinking is a longer-term opportunity,” says the regulatory expert at the large investment firm.

Tradeweb APA runs a real-time service that charges for the data, while Bloomberg also makes trade data available via its Bloomberg Professional terminal and B-Pipe real-time datafeed. However, two sources speaking to Risk.net say the fees for these services are excessive for the uses for which the data is intended.

An electronic trading expert says they have been quoted fees ranging from $1,000 to $2,000 per month for each user. Considering there are more than five APAs, each publishing different trades, and investment firms want multiple traders to have access to the data, the overall cost for an individual institution can soon mount.

As a result, the electronic trading expert says it is currently difficult to justify the price tag—particularly because of numerous problems with the underlying data itself.

Some firms have sought legal counsel on the fees charged by APAs, as one lawyer says some clients are complaining that the fees are not set based on reasonable commercial terms.

“Firms are complaining that [the fees charged by APAs] are not on a reasonable commercial basis. Some of the APAs are charging hundreds of thousands,” says the regulatory expert at the second law firm.

Under the Mifid II legislation, APAs and trading venues are allowed to charge for their real-time data as long as those charges are made on a “reasonable commercial basis”—a term that the regulator does not explicitly define.

Although the European Commission outlined the meaning of “reasonable” commercial terms as the cost of producing and disseminating data plus a “reasonable margin” in a delegated regulation finalized in May 2016, parliamentary rapporteur Ferber argues this is still open to interpretation.

“When the commission was drafting the delegated acts under Mifid II, I warned them it will not do the trick to define ‘reasonable commercial basis’ as ‘costs plus a reasonable margin’ as this leaves the fundamental question of what ‘reasonable’ means unanswered. Once again, it will be supervisory authorities that will have to come up with some guidance, but this is an issue that could have been easily avoided,” Ferber says.

The partner at the first law firm says this argument over commercial terms is typical in cases of vital services being provided to clients. “Customers will always complain they are going to be gouged by their service providers. I don’t think there is a way to solve that by putting more words in the legislation,” the partner says.