The Association for Financial Markets in Europe, representing banks including Deutsche Bank, Credit Agricole, and Santander, as well as trading firms including Citadel Securities and Jane Street, is urging regulators not to tighten rules on off-exchange equity trading. The industry group argues there is no evidence the decline in activity on traditional stock exchanges has damaged price formation. The warning comes as European equity markets have experienced a shift away from continuous trading on public exchanges, with more volume moving into closing auctions and off-exchange channels where prices may not always be publicly displayed. The European Securities and Markets Authority published a study in April on equity market structure and raised the possibility of legislative or regulatory action to address the continued decline in exchange-based share trading. Finance ministries from Europe's 6 largest economies have proposed steps to limit the growth of trading inside investment banks and proprietary trading firms.
AFME Warns Tighter Rules Could Reduce Liquidity
The Association for Financial Markets in Europe warned that new restrictions could reduce liquidity, limit investor choice, and leave end investors worse off. The dispute centers on how European equity markets should handle the shift away from continuous trading on public exchanges. For several years, a smaller share of trading has taken place throughout the day on traditional venues, while more volume has moved into closing auctions and off-exchange channels.
Banks and market makers argue that alternative execution channels can improve outcomes for investors, especially when they provide liquidity or better prices than those available on public order books. Peter Tomlinson, head of equities trading at AFME, said both Brussels and London are focused on making markets more globally competitive and simplifying regulation. Tomlinson said adding more rules or restricting how and where investors trade is unlikely to support those goals.
ESMA Published Study on Equity Market Structure in April
The European Securities and Markets Authority published a study in April on equity market structure and raised the possibility of legislative or regulatory action to address the continued decline in exchange-based share trading. The regulator did not describe the trend as automatically alarming. Its concern is that, if the pattern continues, European markets could become more dependent on less transparent or less accessible trading mechanisms.
The regulator's concern is whether enough activity remains visible on public exchanges to create reliable reference prices. If too much liquidity moves into private channels, the displayed market may become thinner, making public prices less representative of actual demand and supply. That concern has drawn political support from finance ministries.
Finance Ministries Proposed Stricter Transparency Requirements
Finance ministries from Europe's 6 largest economies have proposed steps to limit the growth of trading inside investment banks and proprietary trading firms. Their proposals included stricter transparency requirements and a rule that retail orders should only be handled away from public exchanges if the firm can offer a better price than the exchange market.
The policy fight is about the balance between transparency and execution quality. Regulators want stronger public price formation, while banks and trading firms argue that restricting off-exchange trading could reduce liquidity and make execution more expensive for investors. AFME said any future action should be evidence-based and warned against reducing investor choice over where trades are executed.
FAQ
What did AFME warn regulators about off-exchange trading rules?
The Association for Financial Markets in Europe warned regulators not to tighten rules on off-exchange equity trading, arguing there is no evidence the decline in activity on traditional stock exchanges has damaged price formation. AFME said new restrictions could reduce liquidity, limit investor choice, and leave end investors worse off.
What did ESMA publish in April regarding equity markets?
The European Securities and Markets Authority published a study in April on equity market structure and raised the possibility of legislative or regulatory action to address the continued decline in exchange-based share trading. The regulator's concern is that European markets could become more dependent on less transparent or less accessible trading mechanisms if the pattern continues.
What did finance ministries from Europe's largest economies propose?
Finance ministries from Europe's 6 largest economies proposed steps to limit the growth of trading inside investment banks and proprietary trading firms. Their proposals included stricter transparency requirements and a rule that retail orders should only be handled away from public exchanges if the firm can offer a better price than the exchange market.
