Key facts
- Europe's largest banks and trading firms, represented by AFME, have urged regulators not to intervene in equity markets.
- AFME stated there is no evidence that declining trading on traditional stock exchanges has harmed price-setting.
- The group warned that tightening rules on off-exchange trading could damage liquidity and leave investors worse off.
- ESMA had previously published a study on equity markets, raising the possibility of measures to curb declining exchange trading.
- Six European finance ministries proposed stricter transparency requirements for banks and trading firms handling retail orders.
Europe's largest banks and trading firms have urged regulators against intervening in equity markets, arguing that a decline in trading on traditional stock exchanges has not harmed price discovery. The Association for Financial Markets in Europe (AFME), which represents institutions including Deutsche Bank, Credit Agricole, and Santander, as well as trading firms like Citadel Securities and Jane Street, issued a warning that tightening rules on off-exchange trading could backfire by damaging liquidity and negatively impacting investors.
This stance comes after the European Securities and Markets Authority (ESMA) published a study in April on equity market trends. ESMA noted a multi-year decline in the proportion of shares traded on exchanges, raising concerns that this could lead to increased reliance on less transparent trading mechanisms, potentially weakening price setting and the reliability of benchmark prices.
In response to ESMA's findings, six European finance ministries proposed measures to curb the growth of trading within investment banks and proprietary trading firms. They suggested stricter transparency requirements and that these firms should only handle retail orders if they can offer better prices than public exchanges.
AFME cautioned against limiting investor choice regarding trade execution, emphasizing that any future regulatory actions should be evidence-based. Peter Tomlinson, head of equities trading at AFME, stated that additional rules or restrictions on trading venues are unlikely to support the goals of making markets more globally competitive and simplifying regulation.