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New FIA EPTA Study Reveals Unreported Liquidity in EU and UK Equity Markets

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A recent study by the FIA European Principal Traders Association (FIA EPTA), ‘Mind the Transparency Gap,’ has highlighted a significant underreporting of equity trading volumes in both the EU and UK markets, which has led to misconceptions about the actual market liquidity available in these regions.

According to the report, a large volume of equity trades linked to hedging activities on bilateral synthetic equity exposures, which are processed through broker-internal systematic internalisers, remains unreported. This oversight has contributed to the perception of a liquidity crisis within European equity markets, causing concerns over stagnant average daily volumes especially when compared to the US market.

FIA EPTA contends that this perceived shortfall in liquidity has had several negative repercussions, including a decrease in capital allocation to European markets and the relocation of listings to more favourable markets abroad. The paper argues that the volume of this unreported segment is substantial enough to meaningfully address the perceived liquidity issues in Europe.

FIA EPTA Secretary General Piebe Teeboom commented: “A perception of larger, more vibrant secondary markets in Europe will contribute to strengthening EU and UK primary markets, as market depth and liquidity are key factors for companies considering listing their stock via an initial public offering. If the real story regarding European equity volumes was clear for all to see, this would present a much more appealing market environment for those seeking to invest and raise capital, supporting economic growth for the entire region.”

The study also suggests that minor technical adjustments to the MiFID II post-trade transparency requirements could rectify this issue. Implementing these changes would not only reveal the true extent of market liquidity but also potentially stabilise the investment and regulatory environment in European equity markets. Such transparency is expected to attract more global investors and issuers back to European markets, enhancing overall market robustness.

“Keeping these volumes out of sight unnecessarily complicates achieving the goal of a deeper and more liquid European market,” said Lara Shevchenko, Senior Policy Advisor – Market Structure at FIA EPTA.?“Regulators in the EU and UK need to take the opportunity presented by the imminent establishment of a Consolidated Tape for shares and ETFs to update relevant post-trade transparency rules, so that they capture the full scope of share trading activity in Europe. Without this, Europe risks being left behind.”

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