MiFIR Review outcome could risk holding back EU equity markets

AFME has issued a warning that the MiFIR Review could potentially hamper the development of EU equity markets.
Indeed, the group found that European equity markets are significantly less dynamic and liquid than their US peers. The equity turnover ratio in Europe has remained flat from mid-2016 to end 2022, whereas in the United States, it increased by 40% during the same period. The trend in Europe’s equity turnover ratio is due to the nationally fragmented equity markets in the EU, which operate under a regulatory framework that limits choice and introduces complexity through arbitrary restrictions that deter liquidity. European high-growth companies may choose to list outside of the EU due to this complexity.
The AFME is urging policymakers to keep the attractiveness and liquidity of EU markets at the forefront of its considerations. It is asking for a real-time pre-trade consolidated tape, which will provide a much-needed window where all users of capital markets can have a complete view of liquidity. Additionally, the AFME is requesting that sufficient choice in trading mechanisms remains to attract investment within and into Europe. The EU’s geographically fragmented equity markets and complex regulatory framework risk holding the bloc back from making policy choices that could benefit the EU overall. The AFME wants co-legislators to continue to recognise the important role that banks’ systematic internalisation plays in the liquidity ecosystem.
AFME has found that systematic internalisers provide an additional EUR 3 trillion, or 14% of total European liquidity, because they place their capital at risk to enable trading to take place that might not happen otherwise. This is different from exchanges that bring buyers and sellers together but do not facilitate trading using their balance sheet. Both types of trading mechanisms have key roles to play in creating a vibrant market environment. It is crucial to work in partnership to grow overall liquidity within the EU, and policymakers need to put a legal framework in place that will ensure the best possible outcomes for the users of capital markets, such as investors and savers.