07 July 2020

AFME: Understanding the Liquidity Landscape in European Equity Markets

This paper aims to contribute to this evidence-based analysis and set out AFME’s understanding of the liquidity landscape in the European equity markets. This analysis was produced using data provided by Big xyt, an independent analytics firm.

Since MIFID was reviewed there has been considerable discussion about the evolution in the distribution of market liquidity across various execution venues in general, and about the proportion of equities trading conducted on venues vs systematic internalisers in particular. The purpose of this publication is to provide a detailed factual analysis of actual activity across all segments of the market.

• A diverse set of open and competitive execution venues for equities trading help different end users achieve their objectives, on the one hand by issuers raising capital at attractive prices and on the other hand by investors efficiently allocating their investments. A robust market structure also fosters financial stability by providing a reliable cushion during distressed market conditions.

• Further improvements of data definition and data quality are key areas for AFME. We support substantial improvement of the identification of different trade categories, which should help ensure that regulators and policy makers are able to develop a more detailed understanding of the status of European equity markets.

• Our data analysis2 shows that on-venue trading represents almost 81% of the total addressable liquidity3. Volume traded off-venues, on systematic internalisers and pure OTC, only represent about 19% of the total volume of the total addressable liquidity.

Furthermore, we believe that a significant proportion of large-in-scale (“LIS”) trading should also be classified as non-addressable and should therefore be closely considered. When applying the additional step of classifying LIS liquidity as non-addressable, on-venue trading represents around 92% of the total addressable liquidity with systematic internalisers and pure OTC representing only 8%. We discuss this further in Section 3.

• In summary, available data shows that there has been no material post-MiFID II increase or decrease in the proportion of trading executed across the various types of execution venues. Moreover, there has been no observable decline in the quality of the price formation process.

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