A well-functioning equity market is expected to offer liquidity, efficient price formation, low trading costs, innovation, and resilient infrastructure for end-investors. Since the introduction of MiFID I in 2007, concerns have been raised about the fragmentation of liquidity across multiple venues, and this has been central to much of the policy debate in UK equity markets, including recent discussion regarding an equities consolidated tape (CT).

The objective of this report, commissioned by the London Stock Exchange Group (LSEG), is to contribute to the wider policy debate around the functioning of UK secondary equity markets, and to inform as to the potential impact of different types of CT for equities in the UK. Our report builds on previous Oxera work on the functioning of capital markets, bringing together insights from the academic and policy literature and new empirical analysis using a range of data provided by LSEG, BMLL, and Virtu. 

There are different design options for an equities CT. When designing the final framework, the FCA will ultimately need to assess the magnitude of the benefits associated with a pre- and post-trade CT, from the perspective of the market, its participants, and the wider economy. The FCA must then balance any expected benefits against the projected costs of setting up and running an operationally resilient tape. Our report informs as to whether and how these potential benefits are likely to materialise.

In its work to date, the FCA has emphasised that the market structure and the nature of trading data for equities are significantly different to those for bonds (where the FCA has confirmed its final scope for the CT and is developing the tender process). Therefore, our report also aims to take stock and assess the broader functioning of UK equity markets, as well as potential future directions of travel.