COBA Project Shelved as MiFID 2 Indecision Scares off Funding

The COBA Project, an independent organization dedicated to the development of a European consolidated tape of quote and trade data, has suspended operations, citing "insufficient support to pursue implementation as proposed."

Co-founders Mark Schaedel and Graham Dick -- former head of market data at NYSE Euronext and former head of business development at Chi-X Europe, respectively -- decided to suspend COBA after a number of key stakeholders began to question the timing of the project following speculation that regulators overseeing the transition of the European Commission's review of the Markets in Financial Instruments Directive (MiFID 2) into law are now considering mandating a single tape provider for a European consolidated tape, despite announcing in October 2011 that provision of a consolidated tape would be left to an industry-led solution made up of competing tape providers.

This model, known as Option C, was the basis of the COBA Project, which last November set out a framework to address the regulatory, technical and commercial issues surrounding an industry-led tape (IMD, Nov. 27, Nov. 30, 2012), and was due to begin the pilot phase of implementation imminently with a group of "stakeholders" -- which include a number of market data vendors, buy-side and sell-side firms, exchanges and multilateral trading facilities -- before doubts were raised over the regulator's intentions, Schaedel says.

"Our lead was taken from what was proposed in the [original] MiFID 2 text... that called for competing consolidators and for the industry to solve this problem themselves. But recently, what we've heard at the Council level and also from our constituents has called all this into question, so we're stepping back and suspending the project until we have a catalyst to move forward," Schaedel says.

The MiFID 2 proposals are currently being negotiated by the European Union's Council of Ministers -- which represents the executives of the 27 member states and the European Commission -- who must come to an agreement over the regulation during meetings expected to run throughout 2013, before MiFID 2 is implemented next year or early in 2015.

Late last year, the European Commission added a caveat to its draft proposals for MiFID 2, making provisions for a mandated tape, in case the industry-led solution did not lead to "timely delivery of an effective and comprehensive consolidated tape. Now, speculation that the regulator would go a step further and mandate a single tape provider is holding back progress, Schaedel says.

"This compromise was agreed, and there was support for a commercial response, as we had two years beyond the introduction of MiFID 2 to prove ourselves But what wasn't expected is that we are two years into the regulatory process, and we're still debating the fundamental issue of whether it should be a single consolidator or multiple consolidators," Schaedel says. "The fact is, whether there's one tape or many, that tape needs to be defined -- and it's hard for us to see how we can proceed with any commercial undertakings when there is this fundamental question of whether or not a commercial response is appropriate."

Schaedel and Dick planned to fund the COBA Project themselves until the end of the first quarter of this year, when the stakeholders would take over responsibility for funding the project. But despite receiving broad support from stakeholders -- particularly as COBA's proposal attributed revenues on the basis of contributions to price discovery -- the regulatory indecision has led stakeholders to take the view that "it is too early to invest, and that investing now was too risky," Schaedel adds. "The unfortunate thing is that the commercial debate has really stolen all of the oxygen from what we set out to address -- that is, market transparency."