19 April 2023

AFME's Hansford: MiFIR Review outcome could risk holding back EU equity markets

As EU trilogues on the MiFIR Review begin this week, the AFME has issued a warning on the state of equity market liquidity in Europe and is calling on the negotiators to consider the impact of this important financial markets regulation on the attractiveness of Europe’s capital markets.

 

• AFME has found that European equity markets are markedly less dynamic and liquid than their US peers.  From mid-2016 to end 2022, the equity turnover ratio[1] increased by 40% in the United States but remained completely flat in Europe over the same period.

 

• This trend in Europe’s equity turnover ratio is largely explained by the EU’s nationally fragmented equity markets which operate under a regulatory framework that limits choice and introduces even more complexity through arbitrary restrictions that deter liquidity. (The European equity market is less than half the size of the US but it has three times as many exchange groups; more than 10 times as many exchanges for listings; more than twice as many exchanges for trading; and roughly 20 times as many post-trade infrastructure providers[2].) This complexity is likely to be one of the factors motivating European high-growth companies to list outside the EU.

 

• Therefore, AFME is calling on policy makers to ensure a variety of trading mechanisms remains in place as the backbone of a healthy, vibrant market, but also that an ambitious real-time pre-trade consolidated tape is implemented to reverse the worrying trend in EU equity market turnover. Together, these measures will facilitate equity capital raising and support dynamic economic growth.

AFME

© AFME