Sam Railton, managing director, business management, EMEA at Tower Research Capital looks into the current liquidity situation in European markets.  

Ask five market participants to describe the liquidity landscape in European equities and you will likely get five different answers – even to the extent of differing views of how much traded in a given name on a given day. How do we account for the rise in bilateral trading? What’s driving off-book, on-exchange volumes? Is there addressable activity going unreported? Will a consolidated tape fix all this? 

These tensions were front and centre during the ‘perception versus reality: exposing the full liquidity picture – lit, dark and everything inbetween’ panel at TradeTech Europe, where I joined a group of industry peers for a frank exchange about the nature of liquidity – how it’s measured, what’s visible, and how the picture has changed recently. 

There was plenty of common ground. But as the conversation unfolded, a few key themes emerged that, for me, crystallise the gap between what we see reported and what is actually happening in the market. 

The encouraging part is that European markets are in many ways thriving, particularly through recent periods of political turmoil. They’re highly competitive, increasingly efficient, and structurally capable of supporting low-impact execution. Volumes – when aggregated correctly – often exceed expectations, provided you have a clear view of what’s truly addressable. 

But there’s a catch – actually, there are three 

First, we’re still operating in a highly fragmented landscape. Without a consolidated tape, the onus is on market participants to piece together a patchwork of data feeds, trade reports, and venue-specific insights to form even a partial picture of available liquidity. That complexity doesn’t just obscure opportunity – it actively undermines confidence. 

Second, there’s a striking lack of consistency in how activity is reported. The same economic trade can show up in multiple formats: as systematic internaliser (SI) volume, an off-book on-exchange print, a single-dealer RFQ on a multilateral trading facility (MTF), or a bilateral OTC execution. And within those categories, the range of underlying activity is even broader. The SI regime, for instance, encompasses everything from true bilateral risk pricing to internal matching as well as purely administrative book transfers. The result? Labels that appear uniform on the surface may reflect a wide range of underlying behaviours. 

Third, some sources of liquidity simply don’t show up in the data at all. Broker internalisation of client swap flow is one example – a real contributor to equity liquidity that doesn’t get reported under current rules. That means we’re not just misclassifying what we can see – we’re also blind to a meaningful slice of what’s really out there. 

So what can be done? 

First and foremost, we need a consolidated tape – but not just for the sake of it. The tape should surface addressable liquidity, which is not always the same as price-forming liquidity. Consider VWAP trades: the contra-side is fully addressable from a participant’s point of view, but the trade reports come through at a ‘benchmark price’ so ignoring all non-price-forming trades is also partially misleading. 

Second, the industry would benefit from clearer definitions and more consistent reporting standards. Let’s explicitly flag addressable liquidity. Let’s avoid reporting off-book, on-exchange trades that serve no economic function beyond a post-trade settlement process. Let’s align on what market activity deserves to be counted as part of the liquidity conversation – and what doesn’t. 

Finally, we need a regulatory mindset shift. Rather than imposing increasingly granular rules, regulators should adopt a principles-based framework focused on economic substance. That means ensuring internalised flows – especially those linked to derivatives like swaps – are reflected in equity reporting when they represent genuine liquidity. This isn’t about overreach. It’s about recognising activity that’s already shaping the market but isn’t yet being measured. 

Rethinking bilateral liquidity 

This gap between what’s visible and what’s actually happening is especially clear when it comes to bilateral liquidity. This isn’t to suggest that bilateral trading is new – it’s always been part of the market. But what’s changed is the buy side’s appetite for interacting with electronic liquidity providers (ELPs), the tools available to aggregate and compare streams, and the analytical maturity to assess execution quality through transaction cost analysis (TCA). That evolution deserves to be matched by better infrastructure – and clearer, more complete data. 

Liquidity is only as valuable as your ability to understand and access it. Until we align perception with reality, we’ll keep leaving insight – and opportunity – on the table.