Report finds EU regulators ‘inaccurately’ claiming decline in on-venue equities trading

According to Oxera and the Association for Financial Markets in Europe (AFME), 83% of European equity trading takes place on venues, contrary to recently published data.

The majority of equity trading in Europe takes place on trading venues despite recent data compiled by regulators claiming otherwise, a report by Oxera and AFME has found.

In contrast to regulators’ claims that venue trading was declining in Europe, the report said 83% of equity trading volumes are taking place on regulated markets and multilateral trading facilities (MTFs).

Of that 83%, 42% take place on lit order books, 17% on auctions, 7% on dark venues and 17% occur off-book on-exchange.

In comparison, the report found that only 17% of equity trading volumes are taking place on alternative trading mechanisms, including 11% dedicated to systematic internalisers (SIs) and 6% accounting for over the counter (OTC).

Oxera and AFME said misperceptions about trading volumes were based on unspecific raw data collected by ESMA from national authorities.

EU regulators have claimed that trading volumes on internalised venues such as systematic internalisers (SIs) operated by banks and brokers have surged in the post-MiFID II era.

A statistical analysis by ESMA published in November last year found that SIs had dominated the equities landscape in Europe during 2019, claiming that the SI operated by US investment bank Goldman Sachs had traded more volume annually than the London Stock Exchange’s regulated market and multilateral trading facility (MTF) combined in 2019. 

Oxera and AFME’s report by contrast warned that with such a high proportion of volumes being transacted on trading venues there was the potential for competition to be hampered and for the overall cost of trading to increase.

“This latest analysis from Oxera highlights how existing raw equity trading data reported to ESMA can be used to inaccurately represent the trading landscape and to influence policymaking with the risk of perpetuating the dominance of exchanges in equity trading. A lack of competition in trading on the EU’s secondary markets may also be holding back the growth of primary markets which are underdeveloped compared to the size of the EU economy,” said Adam Farkas, chief executive of AFME.

“AFME is therefore calling for improvements to regulatory data definitions and collection processes to be prioritised in the upcoming MiFIR Review so that policymakers have an accurate picture of EU market developments and can compare them internationally. The Review should not privilege any particular trading mechanism – otherwise we risk running counter to its objectives of improving market liquidity and investor outcomes.”

The TRADE contacted ESMA for a response to the report but had not received a reply at the time of publishing.