London Stock Exchange boss accuses FCA of ‘playing fast and loose’ as she warns government may have to ‘step in’

The boss of the London Stock Exchange has taken aim at the financial watchdog over its plans to introduce greater market transparency in signs of a major fallout between the two City institutions.

Julia Hoggett, chief executive of the exchange, has accused the Financial Conduct Authority (FCA) of “playing fast and loose” with the market, warning she may ask the government to intervene if the regulator does not change course.

Her stark intervention addresses rules designed to ensure that trading is more transparent, with investors sharing equal access to accurate information over prices and other vital data, including deal volumes.

“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 said as she hit out at the FCA’s plans.

The financial watchdog plans to introduce what is known as a “pre-market consolidated tape” for the UK public markets – a centralised mechanism aimed at improving transparency by aggregating buy and sell orders across different venues so that prices and volumes can be referenced more easily.

According to Hoggett, the FCA’s current approach would make it an outlier in Europe and risks damaging the London market if appropriate safeguards are not put in place ahead of its introduction.

“Public policy and regulation must recognise that there is a risk to market integrity, and ultimately to the national interest, if innovations like a pre-trade tape are not introduced within the right framework,” Hoggett wrote in a blog post on the LSE website.

“It is also the case that introducing a damaging framework and assuming that any breakage to the system can be corrected afterwards may be playing fast and loose with market integrity.

“If the FCA is not prepared to proceed with caution and protect market integrity, it may be essential to ask the Government to step in instead.”

FCA must meet ‘critical tests’ ahead of transparency push, LSE boss says

As the structure of the market has become more complex, more and more shares have changed hands away from fully open exchanges where information on bids and offers is displayed in real time. Known as “fully lit” venues, they contrast with deals done on what are known as “dark pools” of capital, where activity is disclosed later.

The LSE argues that the move away from fully lit venues makes everyone worse off in the long run, as price data becomes less transparent overall, undermining confidence in the market. It says the FCA’s move to allow more flexibility over where deals are done has made it easier for trading away from lit venues into “off-exchange” alternatives.

That undermines London’s candidacy for major initial public offerings, the LSE argues.

And the FCA’s remedy – to provide data on bids, offers and volumes before any trade has taken place, in what is known as a “pre-trade tape” – risks excluding some off-exchange venues.

“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 her blog post Hoggett outlined four “critical tests” for the consolidated tape to be operable and secure the LSE’s approval: that it captures sufficient market activity; that the system is resilient; that differences in the speed of the tape in recording price changes and the speed of other venues’ feeds cannot be arbitraged; and that all venues which contribute data to the tape are appropriately compensated.

An FCA spokesperson commented: “We are developing a UK equities consolidated tape to improve transparency, demonstrate liquidity and strengthen confidence in UK markets. Our focus is on delivering a strong, proportionate framework that brings substantial benefits to all users of the market.

“We are engaging closely with market users across the board who strongly support the introduction of a tape. Our objective is to keep UK markets open, competitive and an attractive place to trade, invest and list.”

FCA bond market transparency push suffers setback

The FCA’s push to develop a stock market consolidated tape comes after a series of setbacks over earlier plans to create a tape for the bond market.

The regulator faced a legal challenge from a prospective bidder to operate the tape after a reverse auction to award the contract for the scheme was accused of being “demonstrably and fatally flawed and unfair.”

“We undertook a fair, competitive 2-stage process to ensure the provider could deliver a high-quality tape and the best value for money,” the FCA said in a statement.