Equity market structure in Europe
Fragmentation in European equity markets accelerated after MiFID 1 came into effect in
November 2007. The Directive allowed equity trading to be executed on MTFs, as well as on
Figure 4.4. Market shares in total alternative trading system volume in NYSE
and NASDAQ-listed shares, 2015
Note: The category “Others” includes 39 ATSs.
Source: FINRA, OECD calculations.
1 2 http://dx.doi.org/10.1787/888933362480
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
NYSE-Listed NASDAQ-Listed
Credit Suisse UBS Deutsche Bank Investment Managers Morgan Stanley Others
4. CHANGING BUSINESS MODELS OF STOCK EXCHANGES AND STOCK MARKET FRAGMENTATION
OECD BUSINESS AND FINANCE OUTLOOK 2016 © OECD 2016 127
traditional stock exchanges, and to be matched internally by investment firms (systematic
internalisers).
The impact of MiFID 1 on market fragmentation in Europe has been
significant. Starting with the launch of the first MTF in 2007, in January 2016 there were
103 regulated exchanges, 151 MTFs and 11 systematic internalisers in Europe according to
the European Securities and Markets Authority’s (ESMA) database on MiFID.
Comparing the fragmentation between exchange and off-exchange trading in the
United States and Europe is not straightforward. The main reason is that in Europe, there is
no publicly available standardised and consolidated trading information for all trading
venues, including OTC and internalised trading. Using trading information available from
BATS for stocks listed on 12 major European exchanges in 2015 gives the distribution
between exchange and off-exchange trading illustrated in Figure 4.6. For the London Stock
Exchange (LSE), for example, the use of BATS data shows that 57% of the trading in stocks
listed at LSE is actually traded on the LSE. Another third is traded on BATS and Turquoise;9
less than 1% in other lit venues and about 11% is in the form of dark volume. However, unlike
Figure 4.3 for the United States, the numbers for London and other European exchanges in
Figure 4.6 do not take into account trading on off-exchanges venues other than MTFs and
off-order book trading on exchanges.10 This poses particular challenges when it comes to
estimating the extent of dark trading in equities listed on European exchanges.
Moreover,
since the trading data in Europe is not standardised across trading venues,
concerns have been raised about the quality and consistency of the data provided by
different venues or data providers. For example, a study by the Association of Financial
Markets in Europe (AFME, 2011) which analysed data from a number of brokers in Europe,
found that approximately 60% of all reported MiFID OTC trading between Q1 2008 and
Figure 4.5. The two dimensions of fragmentation in United States equity markets, 2015
Note: Data include NYSE and NASDAQ-listed securities. Lit volume in ATSs in 2015 was insignificant and is not included in the figure.
Source: BATS Global Markets, US SEC, FINRA, Thomson Reuters.
Exchanges (Lit)
ATS (Dark pools)
OTC (Internalisation etc.)
Exchanges (Hidden)
Exchange volume, 67%
Off-exchange volume, 33%
Dark volume, 42%
Lit volume, 58%
4. CHANGING BUSINESS MODELS OF STOCK EXCHANGES AND STOCK MARKET FRAGMENTATION
128 OECD BUSINESS AND FINANCE OUTLOOK 2016 © OECD 2016
Q3 2010 was duplicate trades already reported elsewhere.
A major source of double
counting in trading data is that “give up/give in” trades, which transfer ownership of stocks
from one broker to another to execute an order on behalf of the broker, are reported by both
of the two brokers involved.
In an attempt to provide a more comparable picture between trading in US and
European equity markets, we have collected firm-level data on the trading volume of
individual stocks that are included in three major European stock indices (i.e. FTSE 100 in
the United Kingdom, CAC 40 in France and DAX 30 in Germany) for the period from
1 December 2015 to 31 March 2016. Based on this data, we have calculated how the trading
is distributed among all the individual trading venues, including exchanges, MTFs and
other OTC trading.
Given the difficulties with analysing the trading data in Europe, potentially doublecounted trades have been excluded, based on the explanations provided for each trading
category in the dataset, including give up/give in trades. Each trading category has also
been categorised as on/off exchange and lit/dark volume using the same explanations. The
aggregated results are summarised in Figure 4.7.
Using this method, the figure shows that the share of on-exchange volume is similar
across the three markets, between 48%-52% of all trading volume, but considerably lower
than in Figure 4.6. This also includes on exchange off-order book trading and hidden orders
on exchanges, which are both classified as dark volume. With respect to off-exchange
venues, the market share of MTFs is around 12% in the United Kingdom, 10% in France
and 8% in Germany, while the lion’s share of the off-exchange volume was executed on
non-MTF OTC centres.
