Equity market liquidity in Europe has been significantly challenged post-MiFID II, according to participants in Paris at Europe’s largest equity trading conference, TradeTech.
“When an investor looks at the European market versus the US market, there’s a lot of noise in Europe in terms of regulation, and not having consolidated tape,” said Emil Framnes, global head of equity trading and transition asset strategies, Norges Bank Investment Management. “At the end of the day, investors don’t really have the confidence that they can get into the positions that they want, or more importantly that they can get out of the positions when they want and I have a feeling that a lot of investors are pulling back, they are not really wanting to risk going into the market.”
European market initiatives have not delivered a single market, despite the Capital Markets Union developed by the European Union (EU) and structured regulations and directives such as MiFID II/ MiFIR, some panellists said, due to the wide range of demands that an investors could face from different entities in Europe.
“If you’re a US, you’ve looked at Europe, it just looks hideously complicated,” said Natan Tiefenbrun, president of Cboe Europe. “Let’s say you run a quant fund that you want to trade in Europe. You need to buy market data from 27 venues and one venue says to report the number of software applications that will have the data, another venue asks you for the number of servers, and another venue asks you for the number of CPUs and another the number of logins. None of those is wrong, per se. But the complexity in sourcing market data for your quant fund is ridiculous.”
Regulators say they are listening to the markets, and that the MiFID review process is expected to reduce complexity.
“We have a strong preference for a more homogeneous and less complex system for non-equity instruments as it has been in the US for years, and are continuing our exchanges with EU co-legislators to support this,” noted Natasha Cazenave, executive director, at the European Securities and Markets Authority (ESMA).
Virginie Saade, head of government and regulatory policy, EMEA, Citadel, also noted that market participants had a largely similar set of requirements which market they operated in, and so there was a limit to the level of divergence that they would seek.
“The convergence is happening de facto, because when you’re talking to industry participants, you’re talking to the same people if you’re in the EU or in the UK,” she said.
Taking the perspective of investors and traders, TD Cowen’s James Baugh observed that Europe is now in third place as a hub of liquidity.
“If you just look at notional business, its actually increased post-MiFID II, but if you take out Brexit, COVID, Ukraine, it probably flat at best. However as was rightly highlighted, when you look at Asia, in the US, Europe’s actually not in the running. The fact is that the liquidity that is available is not necessarily the right liquidity, or necessarily quality liquidity.”
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