As political uncertainty arises in the US, global asset managers are showing increased interest in European markets, however current industry sentiment is highlighting the need for further reform and innovation to bolster liquidity on the continent.
Speaking at TradeTech 2025, experts highlighted challenges such as market decentralisation, post-trade fragmentation, and punitive taxes as obstacles to Europe’s liquidity and equity investment.
Similarly, widespread discourse around the topic focuses on the need for Europe to advertise and self-promote to increase awareness of the liquidity available and create investor demand.
This has also been seen across firms which are voluntarily flagging trades. For example, many OTC trades are often not clearly flagged, and so their contribution to European markets is not made obvious, however they make up 15 to 25% of the market.
Speaking on this, Huw Gronow, head of dealing at Newton Investment Management made clear the need for Europe to prioritise measures and changes that will drive liquidity into the market, rather than analysing the mechanism of how to achieve this liquidity.
He said: “It is undeniable that market structure is way more complex than it was 20 years ago, but for small retail investors this isn’t a problem, the issue is trying to explain market structure to market makers.
“For large institutional investors, the availability and reversibility of liquidity is still difficult to define, and so the question still remains – what is liquidity in the European system?”
The necessity to grab the opportunities presented from a push into Europe from the US was also reiterated by Simon McQuoid-Mason, head of equity product and quant research at SIX, who highlighted the importance of removing punitive taxes which impede equity investment.
He said: “We shouldn’t torture ourselves about the mechanism, but instead address the big elements in the room, like making sure we are tax efficient. We don’t have national transaction taxes that apply differently in different areas for stamp duty in certain areas, which essentially are attacks on retail investors, given that a lot of institutional investors can trade via other mechanisms, trade on swap, or alternatively facilitates retail investors trading synthetics like CFDs.”
Despite existing challenges, experts also emphasised strengths in Europe’s liquidity offering, such as the wide diversity of cultures and languages, and cited Sweden as an example of European success, with good IPO activity, retail participation and tax wrapper products.
Similarly, recent developments such as the establishment of Robinhood in the UK and Webull in Amsterdam are set to provide greater retail opportunities across Europe, where retail still trades on venues, as opposed to the US’ retail off-exchange culture.
The panel also concluded that financial literacy and educational reforms are essential for pan-European success, particularly in the retail sector to drive literacy.
Speaking on essential steps to be taken to improve Europe’s liquidity, Gronow said: “The problem we have is one of a large inventory transfer. We need to do that as efficiently and minimum cost so that we know what we’re dealing with and then we can scale our portfolios analysis.
“This extends to education, which is important as well and I would like to see personal finance made a part of the national curriculum.”