Making Europe more attractive in a global context
Alex Dalley
While European equity volumes increased in 2024 year-over-year, the longer-term trend is still one of decline. In other correlated asset classes, such as equity options, Europe has also significantly lagged other regions over the last decade. The notion, then, of how to improve European “competitiveness” on the global stage has been a topic of discussion for many years. But this year, with a new European Commission and several new national governments in situ, we might see some meaningful progress towards promoting more efficient and integrated European markets and the removal of barriers to growth.
The key question that remains unanswered is how this change could be brought about – whether it will be driven by top-down by policy makers, or through market-led innovations and initiatives.
At Cboe, we firmly stand on the latter side of that argument, because all of our of businesses are pan-European by design, based on the principles of competition, choice and open access, and have been built in partnership with clients. Our ultimate objective, as the operator of pan-European exchanges and clearing houses – whether it be equities, equity options and futures or securities financing transactions – is to create more efficient markets by fostering competitive dynamics and empowering user choice.
Unlocking participation by retail investors
European policymakers are increasingly recognising the benefits of a more engaged retail investor base. 2025 will see further strides across the industry to unlock participation by this community in exchange-traded products as a result of regulatory reforms, a greater emphasis on investor protection and the impending full ban on payment for order flow by 2026.
At Cboe, we’ve witnessed firsthand the benefits of a highly engaged retail community on our US, Canadian, Japanese and Australian exchanges and understand the importance of education and accessibility in this context. Educational programs, like those from Cboe’s Options Institute, which is expanding into Europe this year, are crucial in equipping retail investors with the knowledge and tools to understand and use financial instruments like equity options to manage risk, thereby encouraging their participation.
The onus for improving retail accessibility will fall on exchanges and brokers including neo brokers that are increasingly setting up in Europe with mobile-first apps that make exchange-traded products more attractive to retail investors. On our part, we will continue to lower barriers to entry for investors of all types and, having already implemented a dedicated fee program for retail-attested equity orders, we plan to further strengthen our retail proposition with an offering that appeals directly to retail brokers and the intermediaries executing on their behalf.
Trajectory crossing gathers momentum
The secular growth in systematic and passive investing is projected to rise further in 2025, leading to an increasing proportion of customer flow being transacted via participative and schedule-based algorithms.
It was against this backdrop that Cboe launched Cboe BIDS VWAP-X late last year, a first-of-its-kind venue-based mechanism which allows participants to use conditional indications of interest to match scheduled volume for execution at a forward VWAP price. With similar venue-based trajectory services having gained traction in the US and now familiar to many participants, we believe the timing is right to bring this market model to Europe.
While many brokers have developed their internal trajectory crossing capabilities, venue-based services can complement these efforts in several ways. They can offer a larger pool of liquidity and greater opportunities for matching natural buyers and sellers with a common execution objective and benchmark, introduce a standardised, exchange-regulated VWAP price methodology, and also provide greater transparency with trades reported under discrete but public MIC codes. While we’re disappointed by the recent ESMA proposal that could limit the availability of trajectory crossing within the EU venue ecosystem, to the disadvantage of EU-based investors and brokers, we remain focused on growing the user base of this platform in the UK and continue to engage with regulators as we seek ways to extend the service to include EU equities.
Keeping innovation alive in lit trading
With closing auctions reaching record highs as a proportion of overall trading and continued growth in OTC and other forms of bilateral trading, exchanges and trading venues will need to work hard to maintain a strong value proposition for their lit markets. This will include better highlighting the unique characteristics that each lit book offers by focusing on market quality metrics.
Similarly, periodic auctions are expected to see further adoption after a stellar 2024, accounting for around 10% of continuous trading by the end of the year.
These lit auction venues offer well-established and proven benefits around price determination, price improvement and market impact. The next phase in their evolution will see them move from being largely midpoint venues to facilitating execution across the spread range.
Decision time for consolidated tape providers
It would be remiss not to mention the consolidated tape! By the end of the year, we’ll know which entity regulators have chosen to operate the EU consolidated tape for equities.
As one of the most significant market infrastructure developments introduced by the EU in many years, this decision carries enormous weight. If well-run and governed, the tape could help attract global capital flows by increasing the visibility of European issuers both within Europe and internationally, while making European markets simpler and more cost-effective to access.
To achieve these goals, the selected provider must possess the necessary technical, operational, and commercial expertise and be aligned with policymakers’ vision and objectives for the tape. Even though Aquis and Cboe decided against participating in the tender process to run the tape through SimpliCT, we remain a key advocate of the initiative and will continue to seek to engage constructively with all efforts to deliver a tape that meets users’ needs.
