Why European Equity Markets Are Stalling: Structural and Post-Trade Issues

European cash equity markets are currently experiencing a period of stagnation. Data indicates that average daily trading volumes in Europe are approximately seven times smaller than those recorded in the United States.

The Conflict Over Market Volume

The European Securities and Markets Authority (Esma) has identified a structural problem within the EU market. The authority attributes these meager volumes to the rise of dark trading, a practice where specific price and volume details are not divulged to the public.

While exchanges partially agree with this assessment, they suggest the narrative is incomplete. Market operators argue that the current focus on the divide between lit and dark trading may be overlooking significant post-trade issues.

Did You Know? Average daily volume in European cash equity markets is in the order of seven times smaller than in the US.

Expert Insight: Samantha Carter notes that the disagreement between Esma and exchange operators reveals a critical tension in regulatory priorities. While the regulator focuses on the transparency of the trade itself, the industry’s emphasis on post-trade issues suggests that the structural stall may be rooted deeper in the market’s plumbing than simply where trades are executed.

Future Market Scenarios

The resolution of this stalemate may depend on whether regulators shift their focus. Esma could continue to prioritize the limitation of dark trading to encourage more volume in lit markets.

European Securities and Markets Authority (ESMA)

Alternatively, a possible next step could involve a broader effort to address the post-trade issues cited by exchanges. Such a shift in strategy is likely to be necessary if the goal is to address the structural problems hindering European market growth.

Frequently Asked Questions

What is causing the low volume in European equity markets?
The European Securities and Markets Authority (Esma) blames the rise of dark trading, while exchanges suggest that post-trade issues are also a significant factor.

How does European trading volume compare to the US?
Average daily volume in European cash equity markets is roughly seven times smaller than that of the US market.

What is dark trading?
Dark trading refers to market activity where the price and volume details of the trades are not divulged.

Do you believe regulatory transparency is more important than market liquidity?