FCA accused of breaking procurement law in consolidated tape battle

The Financial Conduct Authority faces a difficult choice: to admit failures of judgement and re-run its competition to provide the UK consolidated bond tape, or stick with its chosen provider and risk a lengthy legal battle and perhaps the result being overturned by the High Court.

So far, the FCA looks determined to fight the case and plough ahead with its original decision.

Details of a lawsuit challenging the competition were made public on Thursday last week. Ediphy Analytics is suing to overturn the FCA’s decision to award the contract to Etrading Software.

Ediphy’s fairCT vehicle has won the concession to run the European Union’s consolidated tape but was turned down for the UK contract.

The suit alleges multiple failures by the FCA, including unwise decisions about how to conduct its competition to choose a consolidated tape provider (CTP); use of a faulty online auction system; and a decision to close the auction after the online system failed to register a bid by Ediphy, when it was one of the two last bidders.

Ending the auction led to the price that will be charged to consumers of the consolidated tape being higher than it otherwise would have been.

However, the amount involved is tiny, since the auction had already driven the revenue which the CTP will be allowed to raise down to almost nothing.

Etrading Software (ETS), which was named preferred bidder by the FCA on August 29 after the auction, might also make a submission to the court as an interested party. Ediphy’s claim quotes a letter from ETS’s solicitor saying it would “vigorously contest” Ediphy’s attempt to challenge the decision.

“Where matters directly impact ETS, then in those matters we can protect our interests,” said Sassan Danesh, ETS’s CEO.

At the moment ETS’s ability to proceed and be finally authorised by the FCA to provide the tape is blocked by a court injunction that results automatically from Ediphy’s appeal against the outcome.

However, GlobalCapital understands that the FCA will imminently file papers with the court rebutting Ediphy's claim.

At the same time, it will ask the court to lift the injunction, hoping for a swift decision in its favour. The aim would be to enable ETS to go ahead and start preparing to provide the UK consolidated tape.

The main challenge by Ediphy would still continue and could take a long time to be decided.

Ediphy’s lawsuit also claims the FCA failed to appropriately manage a conflict of interest by appointing an adviser to ETS, Stéphane Malrait, to become one of the regulator's own non-executive directors. During the competition, which ran before Malrait took office at the FCA, the regulator did not require that he cease his involvement with ETS.

There is no evidence that Malrait did anything wrong. He declined to comment for this article.

The row threatens to delay the UK’s introduction of the consolidated tape, originally intended to happen next March, and throws into question whether the tape will be established on a robust footing, with enough revenue for the provider to be able to ensure a high quality service.

Meanwhile, market participants are also grumbling that Ediphy looks likely to take longer than expected to provide the EU tape, and is still assembling its group of financial backers.

Ediphy wants fairCT to be owned by a broad set of market players. The initiative was supported during the competitions by several prominent firms, including Cboe Global Markets, FactSet, Google Cloud, Norges Bank Investment Management, TP Icap and UBS. But the actual investor consortium has not been finalised yet. However, GlobalCapital understands that Ediphy has committed funding for its present needs and has built its core system.

Ediphy declined to comment.

The European Union and UK have both been moving for several years towards introducing a consolidated tape for their bond markets — which are really parts of the same market, since there is huge overlap between the participants and securities involved. Slightly more than half of bond trading in Europe is estimated to take place in the UK, and most of the rest in the EU.

The EU and UK are catching up with the US, which has had a consolidated tape, the Trade Reporting and Compliance Engine (TRACE), since 2002.

Regulators had hoped the Mifid II regulation in 2014 would bring about private sector provision of a consolidated tape organically. But it did not happen, so both jurisdictions have reformed their versions of Mifid II to mandate new transparency obligations on parties trading bonds.

All trades need to be reported publicly in real time, except that for certain categories of big and illiquid trades, disclosing the size can be deferred for specific, staggered lengths of time to protect the traders from prices moving against them.

The UK obligation takes effect on December 1 this year, the EU one on March 2, 2026. They are different in some details but the same in essence.

The two jurisdictions also both decided to appoint a single company to provide the consolidated tape (CT) for bonds as a utility, paid for by licence fees from users of the tape. The fees were intended to be cheap enough to ensure wide public access to the information. In both cases the first concession is for five years.

The European Securities and Markets Authority (Esma) and the FCA each held a public consultation to gather market participants’ views.

In both jurisdictions, the same four companies, all UK fintechs, were the candidates competing for the CTP contract: Bondtape, Ediphy, ETS and TransFICC.

But the two regulators took very different approaches to choosing the provider. Esma ran a beauty parade in which candidates submitted proposals, including how they would design licences and how much they would charge. It interviewed the bidders and chose the one it thought could deliver the best service.

“The EU was very focused on the quality of the tape,” said a source familiar with the process.

In July, Esma chose Ediphy.

The FCA, on the other hand, ran a process in which the four candidates had to pass qualifying stages based on their credentials, but the final stage of the competition was an auction. Candidates had to bid down the fees users would pay to receive the tape.

In designing the auction, the FCA was advised by DotEcon, an economic consultancy based in London. DotEcon has advised on other government procurement processes and auctions for contracts and public goods such as telecom spectrum.

In June 2023, DotEcon produced a 59 page report for the FCA, recommending that it run an auction to choose the CTP.

Market participants have criticised the FCA’s decision to appoint a consultant with no experience of the bond data market, and to follow DotEcon’s advice by running a process in which the outcome was determined by price.

In July to September 2023 the FCA held a public consultation on its proposals, including on how it should run the tender process. In the 40 page consultation document, the FCA devoted pages to theory about what form of tender would produce the best price competition. It followed DotEcon’s advice that “price be the main economic variable upon which the tender process is conducted”.

Market participants were offered two styles of auction to comment on: a clock auction and an Anglo-Dutch hybrid auction.

In a clock auction, successively lower prices are given to the bidders until all but one has dropped out. The Anglo-Dutch is the same, but the last two bidders compete with sealed bids.

In their responses to the consultation, several influential trade bodies representing bond market participants disagreed with the FCA’s thinking.

They argued that “quality as well as price should be the driving factor of the tender,” as the Association for Financial Markets in Europe (Afme) put it (see box for trade body responses).

Nevertheless, the FCA pressed ahead with the auction model, choosing a clock auction.

A source familiar with the process told GlobalCapital that since the quality of the service to be provided was predetermined, and the successful CTP would be obliged to provide it, the FCA had correctly prioritised trying to ensure the service be available to as many market participants as possible, at the lowest possible price.

Bond market participants say they hold the FCA’s markets team including Fabio Braga, Stephen Hanks and Robert Avery in high regard, but they believe they were overruled in how they conducted the competition by the FCA’s procurement team, which insisted on using DotEcon and following its advice.

The FCA formally opened the procurement in March 2025, by publishing an invitation to tender. This set out that it would be a “competitive flexible procedure” under the Procurement Act 2023 and specified the rules.

There were three preliminary, qualitative rounds followed by the auction. Any bidder that scored 65% or more in the third preliminary round progressed to the auction. The qualitative scores would then no longer count, except as a tie-breaker.

Controlling the prices charged to users of the tape is complex because there will have to be appropriate licence fees for users of all sizes, from the largest banks and asset managers to retail investors. How licence packages are structured is therefore important.

In the EU process, each bidder could design its own range of licences as part of its proposal. In the UK, since there was going to be a price auction, the FCA devised after consultation a standard basket of licences, weighted to be realistic according to the expected take-up of each kind of licence.

The bidders were asked to bid on the level at which they would set an annual ‘weighted average price cap’ (WAPC) — the maximum cost of this notional standard basket of licences, which must be complied with in each of the five years.

The starting level can be increased annually by CPI inflation, but this was left out of the bidding calculations.

The FCA said in its invitation to tender that it estimated the expected contract value to the successful provider — meaning the total revenue over the five year term of the concession — was £29.5m, not counting the inflation uplift.

It picked this figure as it was the midpoint of a range of £14m-£45m that the FCA had previously estimated.

In its 2023 consultation the FCA had estimated that the CTP would have “total costs in the range of £14 to £45 million”. This was based on estimates of £4m-£10m for set-up costs and £2m-£7m a year for operating costs.

In December 2023 in a separate consultation, the FCA said the CTP “will need to at least earn back its costs” — underlining that it expected the CTP’s allocated revenue to cover its costs.

Ediphy’s suit relies heavily on the Procurement Act, which governed the tender. But the law is only two years old, meaning there may be a shortage of case law to guide the courts in interpreting it.

Ediphy alleges that between March and June, during the preliminary stages of the competition, the FCA behaved inappropriately in three ways.

At one stage bidders were allowed to ask the FCA questions for clarification, and the FCA was to have shared the questions and answers with all bidders on an anonymised basis.

However, according to the claim, on or around June 4, the FCA disclosed “an internal master copy of all bidders’ clarification questions, which included the identities of the bidders tied to the questions asked, and the internal comments from the FCA team against each of the questions.”

This appears to have been sent to the bidders by mistake. Ediphy calls this “a serious breach of [the FCA’s] obligation of confidentiality”, though it is not pursuing a claim based on this.

The second breach Ediphy charges to the FCA concerns one of the complexities of the tender — modelling the likely take-up of different licence types over the five year concession. Some users may join slowly, or change to larger licences, for example.

Ediphy claims that on or around June 2, it submitted a spreadsheet to the FCA which “contained a worked example of a WAPC as well as the Claimant’s own estimates of the demand for the service. The spreadsheet contained commercially sensitive information belonging to the Claimant.”

On or around June 10, the claim states, the FCA used a spreadsheet based on Ediphy’s one to email bidders asking for “various financial information in relation to WAPC calculations and… demand estimates”.

The FCA did so, Ediphy asserts, “because it had become apparent to the Defendant [the FCA] that as a consequence of its flawed procedure some bidders had misunderstood the WAPC concept and the Defendant wished to ensure that as many bidders as possible made it through to the E-Auction.”

In other words, the claim alleges the FCA used work Ediphy had done to help rival bidders.

Ediphy said it met the FCA on June 13 to complain about this and says the FCA “failed to ensure compliance with the principle of equal treatment of suppliers” under the Procurement Act.

Ediphy is not pursuing a claim based on this but the claim says “it is pleaded as a key circumstance informing the lawfulness” of the ultimate outcome.

Ediphy’s third complaint about the FCA’s handling of the early stages of the process concerns Stéphane Malrait, who until January was global head of market structure and innovation for financial markets at ING in London.

He is a well known expert on bond market structure who has been involved in debates about plans for the European consolidated tapes for several years.

In around January 2025, according to the claim and Malrait’s LinkedIn page, ETS appointed Malrait as independent chair of its Consolidated Tape Industry Stakeholder Group, a group of industry participants that was advising it as it prepared to provide the CTs in the EU and UK.

Also in the early months of 2025, Malrait was applying to become a non-executive director at the FCA. On April 29, the FCA announced that Malrait had been appointed to the post alongside three other NEDs.

While the other three took office in May, Malrait’s appointment was fixed to start on October 20 — after the expected conclusion of the CTP tender.

Malrait was active on ETS’s behalf from January until October. For example, he made a LinkedIn post in the summer as a representative of ETS, highlighting that trading firms had no time to lose in preparing for the introduction of the EU and UK tapes and inviting them to contact him.

Malrait chaired the stakeholder group for ETS from January to September, throughout the UK competition.

On September 17, after ETS had been named preferred bidder for the UK CTP on August 29, Malrait announced that ETS had appointed him its chief product officer — a full staff position.

On October 7, after Ediphy had raised questions about this with the FCA, Malrait announced he would “close this chapter” at ETS at the Fixed Income Leaders’ Summit conference in Amsterdam on October 15-16. That meant he was resigning from ETS. He represented ETS at the conference.

In a detailed section of the claim, Ediphy alleges that this sequence of events constituted “a conflict or potential conflict of interest” or a perception of one, which the FCA must have been aware of. Under the Procurement Act, procuring authorities are obliged to avoid such actual or perceived conflicts.

“While Mr Malrait could not have been involved in the evaluation process [of the tender] it is averred that knowledge of Mr Malrait’s appointment to the Defendant’s Board would have been known to the evaluators and subsequently given rise to a conflict or potential conflict of interest,” the claim states.

“In such circumstances, the [FCA] was obliged to produce a conflicts assessment including details of any steps it has taken or will take to demonstrate that no such conflict or potential conflict exists.”

According to Ediphy, the FCA has not provided any conflicts assessment in answer to Ediphy’s requests. However, the claim states, “In correspondence, the Defendant has admitted that it identified a potential or perceived conflict of interest during the course of its recruitment of Mr Malrait and concluded that no mitigation was required.”

GlobalCapital understands that the FCA considered there was no conflict of interest because Malrait was not involved in the decision-making process and was not employed by the FCA at the time.

ETS's CEO Danesh said: “Stéphane joined ETS before the announcement of his appointment to the non-executive role at the FCA. He stepped down from his duties at ETS before taking up his position at the FCA. We consider that ETS has at all times acted in accordance with applicable governance and conflict of interest standards.”

GlobalCapital understands that ETS and Malrait discussed from the beginning how to handle potential conflicts of interest. ETS was comfortable it could manage any issues using its robust internal policies.

Malrait’s primary focus at ETS was on the bid for the EU tape. He resigned from the stakeholder group on September 15 and had he continued as chief product officer after joining the FCA he would not after that have had anything to do with the regulated CTP entity.

However, after Ediphy launched its legal challenge, Malrait stepped down from ETS.

When the auction began in early August, it did not proceed as the FCA had expected.

In a procurement process separate from DotEcon’s advice to the FCA, the FCA had chosen DotEcon to conduct the auction.

It used its proprietary system, WebBidder, which has been used before for multiple public auctions.

Originally there was to have been one round of the clock auction each working day. In each round, bidders would be offered a new, lower price. Each bidder could accept it or, if it did not, it could offer a final ‘exit bid’ of its own, below the last price but above the one it had rejected.

On August 1 bidders were informed that there would instead be three bidding rounds a day, each of 30 minutes. The auction began on August 4 with a starting price of £1,209 for the WAPC.

It turned out that at least two of the three bidders that entered the auction round, Ediphy and ETS, were willing to go far lower in price than the FCA had expected.

Ediphy had already won the contract to provide the EU consolidated tape, which provides an acceptable level of revenue, so would not face great additional costs to run the UK one as well. Although the rules for delays were slightly different, there would be large overlap in the parties submitting information and there were significant economies of scale to be had by one company providing both tapes.

ETS had not won the EU tape, but believed its incremental costs for providing the UK tape were not high either, probably similar to Ediphy’s, because it was already providing a free service channelling the existing 15 minute delayed bond data to market participants.

ETS intended, whatever the outcome, to make money by combining the tapes of the UK, EU and US into a premium product it would sell to subscribers in the free market. “We see the key interest from market participants as being an aggregated feed of both tapes,” said Danesh at ETS.

It could therefore accept very low revenue as the CTP.

The result was that both Ediphy and ETS were willing to go down effectively to zero revenue for providing the consolidated tape — a bizarre situation, drastically at odds with what many market participants had expected or the FCA’s estimate of £29.5m.

If the current decision stands, the award of the CTP contract at close to no revenue is likely to shape how consolidated tape provision develops in Europe over the next five years.

But Ediphy’s challenge to the FCA is not based on the low revenue its auction produced. It turns on an alleged malfunction in the auction system late in the bidding process, and how the FCA decided to handle this.

On August 11, the auction was quickened to four bidding rounds a day, at 9am, 11.30, 2pm and 4.30.

The auction went through 53 rounds, up to the morning of August 22. The 54th round began at 2pm.

Stewart Quinn, project lead for Ediphy’s fairCT, logged in and accepted the proposed bid, which was now £0.68 for the annual fee value of the WAPC — a staggeringly low value, which market participants regard as effectively equivalent to no revenue.

The claim states that “according to DotEcon’s logs [fairCT accepted the bid] at 14:00:37 BST”.

Ediphy asserts that when Quinn accepted the bid, as usual this “revealed the Confirm Bid button, which he then clicked.”

It is then that things went wrong. According to Ediphy’s claim, the WebBidder system somehow failed to register Quinn’s confirmation of the bid.

Quinn stayed logged in until the auction round concluded. However, instead of then being notified that Round 55 would soon take place, “the system displayed a screen stating that the auction was over.”

Quinn initially thought fairCT had won, because he was not asked to submit an exit bid.

At 2.39pm Ediphy contacted DotEcon to notify it of the error and make it clear that Ediphy wished to remain in the auction.

According to the claim, in a hail of messages back and forth during the next few hours, which included Ediphy’s CEO Chris Murphy and Stephen Hanks, the FCA’s lead for the consolidated tape, it was clear that the FCA understood that Ediphy was complaining that its bid had not been registered, that it wished to stay in the auction, and that the FCA was “looking into” the issue.

FairCT even said at 4.33pm: “For the avoidance of doubt, our intention is to bid down to zero.”

However, the FCA and DotEcon’s position seems to have hardened around disqualifying Ediphy because its bid had not been registered as confirmed before 2.30pm.

It asked Ediphy to provide evidence that it had attempted to confirm its bid, says the claim. Ediphy states it could not do this, since DotEcon’s logs do not contain any information about bids that have not been registered.

The user manual for WebBidder states that: “If you fail to submit a bid (i.e. you do not confirm a valid checked bid) before the end of the round, you will be informed that no bid was submitted. In this case, you will also not be able to continue to participate in the auction should further rounds be required.”

However, Ediphy maintains that in refusing to allow Ediphy to continue in the auction, the FCA failed to exercise discretion it possessed under the terms of the tender to permit confirmation of a bid accepted through the auction platform by other means than pressing the Confirm Bid button.

It also failed to document this important decision, Ediphy claims.

Moreover, Ediphy calls the FCA’s decision “manifestly erroneous/irrational”, since Ediphy had indicated minutes after the end of the bid round, and well before the beginning of the next round, that it perceived an error and wanted to stay in the contest.

Ediphy could gain no advantage by having confirmed its bid in this way outside the online tool, and the FCA could suffer no disadvantage by accepting it.

Furthermore, the FCA’s decision ended the auction, meaning that the WAPC would be £0.68, instead of zero, which Ediphy was willing to go to.

The case could turn on whether the FCA was right to insist that only a bid confirmed through the auction tool within the half hour window could count — and on the fact that Ediphy did not receive a confirmation notice when it clicked Confirm Bid, as it usually would, yet did not notify the FCA that its bid had not been confirmed until after 2.30pm.

The court will have to weigh this against Ediphy’s arguments that the FCA’s insistence on sticking to the letter of the computerised process ended up defeating the regulator’s goals and duties — the more important principles of running a fair process and the purpose of the auction to minimise the price for consumers.

Asked about all the issues in the case and what it intended to do now, the FCA declined to comment, because of the legal proceedings. It referred GlobalCapital to its statement on September 24, when it announced that Ediphy had challenged the competition result.

This said: “We undertook a fair, competitive 2-stage process to ensure the provider could deliver a high-quality tape and the best value for money. This challenge means we can’t enter into a contract with the successful bidder as quickly as planned. We will do so as soon as possible and, in the meantime, continue discussions with market participants to prepare for the tape.”

Christian Koboldt, co-founder of DotEcon, told GlobalCapitalin an email: “We would like it to be on the record that we reject any claim that WebBidder is not fit for purpose. It has been used to run numerous high-stakes auctions around the world. There is no evidence of any technical failure that would have prevented or hindered Ediphy from bidding within the required deadline. The auction proceeded in line with the auction rules.”

DotEcon otherwise declined to comment on criticisms made of it by market participants and in Ediphy’s claim.

Ediphy has not specified in its claim whether it wants the FCA to resume the auction at round 54, or re-run the whole process.

Were the FCA to resume the auction where it left off, and both ETS and Ediphy to bid down to zero, the result under the existing rules would be determined by a tie-break based on their scores in the qualitative rounds.

A clue to Ediphy’s preference is that the claim mentions that on August 14, when the WAPC fell from £200 to £100, Ediphy messaged the FCA to express “significant concerns about the process being flawed with the result that Contract would be awarded at a WAPC which would be unsustainable for bidders who, unlike the Claimant, did not have the ability to deploy infrastructure developed for a comparable contract elsewhere”.

Some market participants away from the lead bidders believe the auction’s result of lowering the CTP revenue to almost nothing was undesirable and unintended, so that the FCA should use the opportunity of Ediphy’s challenge to scrap the whole competition and start again with a qualitative assessment.

However, the FCA is so far showing no sign of backing down.

It is understood to now be preparing to lodge its response to the claim.

ETS if it wishes to make a statement, will have to lodge a formal claim with the High Court to be considered an interested party, which the FCA or Ediphy could contest. Then the litigants will need to wait for a High Court hearing, which could take many months.

However, much sooner than that, the FCA will ask the Court to lift the injunction preventing ETS being authorised to provide the CT. Ediphy could also contest this and if it did so would be likely to ask the court to consider the importance of its claim as it has presented it.

If the Court agrees to lift the injunction this would appear to create a fait accompli as ETS could go ahead and start providing the UK tape. It was originally intending to go live on March 30. If the court later ruled in Ediphy’s favour, any settlement would be much more complicated if ETS had started to provide the tape.

The dispute — and the parallel EU process — have also thrown the spotlight on to the likely ecosystem of bond trade data provision that will surround the consolidated tape in future.

Experts say providing the tape is not just about sucking in information and spitting it out again. Setting up the tape in the first place requires a lot of work, by both the tape provider and the 60-odd market operators such as bond trading platforms and exchanges that will have to supply it with trading data.

No one has provided data before to the specifications required by the new EU and UK rules.

Once the tape is up and running, the data needs to be continually checked and cleaned of errors, using algorithms that spot potential mistakes and a process to investigate anomalies.

All this costs money. In the EU, Ediphy will have some. But the UK’s choice of a price-based auction means the CT can only be provided by a company willing to subsidise it from other revenue.

When it awarded the contract to ETS, the FCA published the contract value as £4m, or £4.8m including VAT. On a net basis that is equivalent to £800,000 a year for the five years — enough to employ perhaps two senior, experienced officers, with precious little left over for all the system’s other costs. No experts GlobalCapital has spoken to believe the tape can be provided as cheaply as that.

But market participants who have examined the issue cannot understand how the FCA reached the figure of £4m, as the £0.68 final bid seemed to imply an even lower figure.

Had Ediphy won the UK contract — and it was willing to go to zero revenue — that would have meant it effectively paying for the cost of building and maintaining the UK service out of revenue allowed it under the EU contract.

This might have disturbed Esma, as it would look like EU customers were subsidising a free service in the UK — even if in practice most bond market players will need both feeds, so the two groups largely overlap.

ETS’s plan for the UK tape is to subsidise the incremental cost of providing it out of revenue from selling its ETS Connect Premium service, which will combine data from the UK and EU markets.

ETS’s preliminary market research had suggested that what market participants most wanted was a combined tape. But they also told it they would rather buy one from an entity that was also the official tape provider in at least one jurisdiction. So ETS concluded it would make more revenue from its combined product if it held one of the CTP contracts, and could pay for it out of the expected increase in revenue.

In practice, once the CTs are operating, a range of companies are likely to offer to deliver the data to market participants in the most convenient and market-friendly way, perhaps enriched with other features.

Ediphy’s pricing model in the EU will mean each end consumer of the data buys one licence from Ediphy, but it can then decide to consume the data through whichever provider it wishes.

This might be Bloomberg or Refinitiv, or Ediphy’s own trading systems, which already feed bond trading information to customers — or products provided by ETS or Propellant Digital, one of the backers of Bondtape.

For its part, ETS believes it can make enough money from ETS Connect Premium to cover the cost of the CT.

“Most market participants will want to take both tapes and then have that data feed in a single harmonised consumption, so there is an opportunity for vendors to provide this aggregated data feed,” said Danesh. “We are going to do that in a responsible way — we want to be an official redistributor of the EU tape, and as we sell it we will pass part of the revenue back to the EU tape. I would not be surprised if Ediphy wanted to be an official redistributor of the UK tape, and we would be very happy for them to do that.”

But participants wonder whether that is a robust basis for the tape. If ETS’s other software products are not as successful as it hopes in free competition with rival products, could that force ETS to spend less on optimising the tape?

And would it be incentivised to draft the terms and conditions of licences unattractively for customers, either to drive users to take its premium service or to make it harder for rival resellers to distribute the UK tape?

In navigating these issues, market data players — and the FCA — are in uncharted waters.

Additional reporting by Arthur Bautzer