New paper identifies unreported segment of liquidity in European equity markets

Addressing this gap would present a much more accurate and appealing market environment for those seeking to invest and raise capital in Europe

18 April 2024

AMSTERDAM and LONDON – A new paper published today by FIA European Principal Traders Association identifies an entire segment of equity activity in both EU and UK markets that is currently unreported. Consequently, European share trading volumes are perceived by the market, including global investors and issuers, as being significantly lower than they actually are.  

The paper points out that European equity markets are perceived to be suffering a longstanding liquidity crisis, with reported average daily volume stagnating, particularly relative to the US. This perception has been blamed for declining capital allocation towards European markets and the migration of listings to other regions. 

The unreported segment relates to hedging activity concerning bilateral synthetic equity exposures traded at-scale on broker-internal systematic internalisers. The scale of the unreported segment is material enough to significantly reduce the European liquidity shortfall relative to other global markets, according to the paper. 

Simple technical changes to the MiFID II post-trade transparency regime would bring this activity to light, boosting reported European equity volumes so that they better reflect the actual levels of addressable liquidity and economic interest available in European markets today.  

“A perception of larger, more vibrant secondary markets in Europe will contribute to strengthening EU and UK primary markets, as market depth and liquidity are key factors for companies considering listing their stock via an initial public offering. If the real story regarding European equity volumes was clear for all to see, this would present a much more appealing market environment for those seeking to invest and raise capital, supporting economic growth for the entire region,” said FIA EPTA Secretary General Piebe Teeboom. 

“Keeping these volumes out of sight unnecessarily complicates achieving the goal of a deeper and more liquid European market,” added Lara Shevchenko, Senior Policy Advisor – Market Structure at FIA EPTA. “Regulators in the EU and UK need to take the opportunity presented by the imminent establishment of a Consolidated Tape for shares and ETFs to update relevant post-trade transparency rules, so that they capture the full scope of share trading activity in Europe. Without this, Europe risks being left behind.” 

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