European markets accelerated higher during the first quarter of this year, with many indices experiencing record highs at the end of March, emphasising investor conviction in the face of geopolitical risks, according to Liquidnet’s latest liquidity landscape report.
The report highlighted that volatility has stabilised dramatically, sitting near the low end of the multi-year average.
“While most relative growth is still occurring outside lit continuous trading, the multi-year decline in the market share of the lit primary post-Mifid II appears to have plateaued, consolidating above a floor of around 30%,” said Liquidnet.
As the first quarter of the year progressed, EMEA market volumes increased, reaching a total average daily value transaction of €54 billion in March, which was the highest level achieved since the same time the year before.
The enhanced market activity coincides with all-time highs reached by several indices in the EMEA, including the DAX, CAC 40 and Euro Stoxx 50, which all experienced records levels at the end of March.
In addition, lit primary continuous volumes maintained Q4 2023’s minor uptrend, alongside being elevated compared to last year, with an average of 34.7% market share, up from the 2023 average of 32.5%.
“Interestingly, this consolidation is limited to the lit primary and does not extend to the lit continuous sessions generally, with lit MTF market share continuing to fall, reaching a record low of 12.2% in March 2024,” noted Liquidnet.
Contrastingly, periodic auctions experienced continued growth. Periodic auctions’ market share as a percent of overall lit activity peaked at 7.2% in February.
Elsewhere, Systematic internalisers (SIs) also experienced an uptick in activity last month, achieving 22% of total activity. This coincided with low levels of activity at the turn of the year, which tends to be the case historically.
“As flows are redirected to SI’s, market share in other methods of trading naturally declines,” highlighted Liquidnet.
Looking at February market shares in relation to March figures, lit primary share declined by 11%, period auction share by 21% and dark MTF share by 17%.
However, closing auction volumes remained stable in comparison, declining only by 3%, which Liquidnet attributed to the “stickiness and differentiation of closing auction volumes relative to other liquidity sources, which may be competing more directly with SIs for market participant’s attention for certain segments of flow”.
Overall auction volumes in the quarter averaged 26.97%, peaking at 28.72% in March, just below the record highs of 29.95% in June 2023 and 29.84% in September 2023.
“The growing importance of the closing auction has been a consistent theme over the past few years, as the rise in benchmarked flows has enhanced the network effects around not just the liquidity available in the auction but also its authority as a price setting mechanism,” said Liquidnet.
Elsewhere, Liquidnet noted that the dark market remains stable, with monthly shares around 10%, linked to significant importance placed by market participants on alternative sources of liquidity.