The head of the London Stock Exchange has warned that a proposed consolidated tape for UK equities could harm market integrity unless regulators impose stricter requirements on all trading participants.
Julia Hoggett, chief executive of London Stock Exchange plc, said the Financial Conduct Authority’s planned pre-trade tape — a single feed aggregating buy and sell orders across exchanges — would create a “free-rider” problem if systematic internalisers and other off-exchange venues are permitted to access the data without contributing their own pricing information.
“It is a little like playing cards with someone who wants to see what everyone else is holding but keeps their own hand close to their chest,” Hoggett wrote in an article published on June 8.
The intervention comes as the FCA prepares to publish tender documents for the tape in the coming weeks. Hoggett called on the government to intervene if the regulator proceeds without adequate safeguards.
The UK has fallen near the bottom of international rankings for the proportion of trading conducted on transparent “lit” exchanges, where bids and offers are displayed in real time. Hoggett attributed this partly to FCA rules that have made it easier than in the US or Europe for standard-sized trades to migrate to off-exchange mechanisms operated by banks and proprietary trading firms.
She outlined four conditions that must be met before a pre-trade tape is introduced: requiring all price-forming venues to contribute data; ensuring operational resilience comparable to lit exchanges; preventing arbitrage between venue feeds and the tape; and establishing revenue-sharing arrangements that compensate venues for providing reference prices.
Hoggett argued that a post-trade tape, showing completed transactions rather than live orders, would be a more prudent starting point. Such an approach would provide visibility of total daily volumes without the risks she identified.
The LSE chief warned that fragmentation of liquidity across off-exchange venues was feeding into concerns about London’s attractiveness for initial public offerings, as global investors may perceive the market as less liquid than it actually is.