Liquidity in French and Italian markets has dried up since the countries introduced financial transaction taxes (FTTs), despite a broader recovery in Europe, according to research from TABB Group.
French market share has fallen to almost half its 2011 peak of 23% so far in 2013 and TABB estimates the market will represent just 12.8% of European equity turnover by year-end.
Meanwhile, Italian market share has fallen below 5% for the first time following its introduction of a FTT on equities six months ago. Since the beginning of 2013, equity turnover has dropped from €101 billion in the same period of 2012 to just €50 billion this year.
“If we compare France and Italy with the UK and Germany, we can see that these countries are really struggling due to these punitive measures of taxing financial transactions,” said report author and senior analyst at TABB, Rebecca Healey.
In contrast to the situation in the French and Italian markets, market share in the UK and Germany has increased from 19% and 18% in 2011 respectively to 21% in 2013.
In contrast to the situation in the French and Italian markets, the UK and Germany now both have around 21% of market share, up from 19% and 18% respectively in 2011.
“While proponents of the tax have said this is due to the difficult economic situations in those countries compared to the UK and Germany, other countries with tough economic conditions have not seen the same impact.”
One such example is the Spanish market, which has seen relatively stable activity and is being actively targeted by exchange groups, including BATS Chi-X Europe despite the difficult economic situation in the Iberian Peninsula.
More generally, the TABB report found that institutional investors were making a return to markets in 2013, with their activity making up almost 21% of the European trading population in H1 2013, up from 18.55% in 2012.
In a second report published this week, TABB also found that European dark trading had grown to over 10% of the market in 2013 so far.
The research found that a growing number of asset managers are now executing a large proportion of their trades in the dark, with 25% of asset managers claiming they trade more than 30% of flow off-exchange. Just 6% of asset managers do no dark trading, showing the trend toward making greater use of dark pools has stretched to virtually all parts of the market.
Preventing information leakage has been highlighted as the main reason for using dark pools by 85% of traders.
“Alternative liquidity pools – dark pools – matter and they’re attracting trading volume,” added Healey.