The majority of share trading in the European Union takes place on exchanges with relatively little inside banks, according to a new report – The landscape for European equity trading and liquidity – by the Association of Financial Markets of Europe (AFME) on conjunction with consultancy Oxera.
The MIFID II review is currently underway which has triggered a battle between exchanges and their top customers – the banks and large asset managers – over competition.
The report found that 83% of equity trading in Europe was on trading venues, after applying filters such as removal of technical trades, benchmark trades and trade reports occurring outside trading hours.
Alternative trading mechanisms such as systematic iInternalisers (SIs) and over the counter (OTC) trading only accounts for 17%, which is a sharp drop from 47%, as reported by European Securities and Markets Authority (Esma).
The ESMA data has prompted bourses to call for this segment of the market to face tougher curbs so that more trading goes onto ‘lit’ venues like the main exchanges.
AFME, a wholesale financial markets association, said these findings counter “inaccurate” claims that SIs and OTC are disproportionately dominating the European equities landscape and trading on venues is decreasing as a result.
Adam Farkas, chief executive of AFME said the report showed how raw data from Esma can be used to “inaccurately” represent the trading landscape and influence policymaking, with the risk of perpetuating the dominance of exchanges in share trading.an overly concentrated trading landscape hampers competition, investor choice and keeps costs of trading high.
“Ensuring sufficient diversity of trading is to the benefit of individuals’ pensions and savings, whether it is via their direct participation in markets, or via the institutional investors which represent them,” he said.
He added, “A lack of competition in trading on the EU’s secondary markets may also be holding back the growth of primary markets which are underdeveloped compared to the size of the EU economy.”
The Federation of the European Securities Exchanges (FESE) though has termed this report as “misguided”, questioning its empirical evidence based on “cherry-picking” data.
It said, “The report incorrectly mixes technical transactions and trades without an economic trading interest and does not yield any insight on how pre-trade transparent trading has evolved since MiFID II, something at the core of the legislation.”
Additionally, excluding trades outside trading hours wrongly assumes that the entirely of those trades has a technical nature.
Oxera said it stripped out “technical trades”, which represent a significant part of off-exchange trading but do not determine prices generally, to give a true picture of underlying activity.
©Markets Media Europe 2021
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