Cboe Europe Equities Yearly Recap and Look Ahead

Natan Tiefenbrun, President, Cboe Europe, summarises Cboe Europe’s activities over 2022 and looks ahead to its plans for 2023.

Despite the wider market challenges, 2022 was a fantastic year for Cboe’s businesses in Europe:

• As our market share continued to grow, we were Europe’s largest stock exchange for six months of the year (see Chart 1) although we couldn’t quite hang on to that #1 rank in auction-heavy December.
• Cboe Europe Derivatives (CEDX), our one-year-old equity derivatives marketplace, laid strong foundations for its future growth by establishing a pan-European product suite.
• Cboe Clear Europe enhanced its position as the leading pan-European clearing house by handling record volumes and gaining traction as a "preferred” CCP on Euronext’s markets.

Market Share of Top European Exchanges, 2020-2022

Source: Cboe Global Markets

Our number one position in equities trading could not have been reached without the help and guidance of our clients and the industry at large – so thank you all for your ongoing support.

In the following note, we will share some of our equities highlights from 2022 and some of our expectations for the year ahead.

Looking Back at 2022...

2022 was significant for Cboe Europe in many ways, not least because it marked our 15th anniversary. I’m sure many of you remember the early days of Chi-X Europe and Bats Europe and will appreciate just how far we’ve come. We now have 148 Trading Participants from 17 European countries, an unrivalled suite of pan-European trading and reporting services, our own benchmark indices, and fully-fledged exchanges in Amsterdam and London.

While a lot has changed in 15 years, what hasn’t is our strong sense of purpose and mission. Just like Chi-X and Bats when they started, we remain highly motivated to ensuring the principles of innovation, choice and competition are alive in European equity markets. Across the infrastructure value chain – from trading through to clearing and market data – our aim is to promote competitive, pan-European solutions that simplify the landscape, lower costs and promote investment in the region.

These principles were evident in many areas of our equities business during 2022 and we want to highlight three below:

• Market Share Growth: Through a reinvigorated, data-led sales approach, we were able to meaningfully increase our market share and ensure competitive pressures in the industry remained high. Having first overtaken Euronext as Europe’s largest stock exchange in April, we were number one every month from July through to November. Our market share of 26.5% in October was an all-time record. While we’ve seen increasing adoption of all our services, it was our Lit orders books that predominately drove our market share gains. Using enhanced data and analytics capabilities we were better able to demonstrate the execution certainty our venues offer, with clients responding by directing more of their passive, displayed liquidity to us. As a result, our lit-only market share rose from 21.9% in January 2022 to 27.3% in December 2022. We’ve also seen dramatic improvements in our market quality metrics. For example, the chart below shows the percentage of time during continuous trading where Cboe Europe has orders at the EBBO in FTSE100 stocks. Cboe Europe is now present at the EBBO 80% of the time, bettering the London Stock Exchange by this measure since July. We’ve seen a similar trend in all our market segments across Europe.

Time at EBBO (Percentage), FTSE100 Stocks

Source: BMLL Technologies

• Cboe BIDS Europe: Cboe BIDS Europe, focussed on block trading, deserves a special mention for having a breakthrough year. Launched back in 2016 into a highly competitive market, it was the largest above-LIS platform for nine months during 2022, and its above-LIS market share of 36% (source: big xyt) in October was an all-time high. It continues to be adopted by buyside and sellside firms across the UK and Europe and beyond. Unlike other block platforms, it not only brings together both the sellside and buyside, leading to a larger aggregated pool of above-LIS liquidity, but also strengthens existing broker-buyside relationships by virtue of the fact that the buyside, for all their trades via BIDS, face and pay commissions to a designated broker of their own choosing. At the end of 2022, the BIDS Europe platform had over 600 active traders across 243 buyside firms, 28 sellside participants and 30 designated brokers, and has a strong pipeline of new firms this year.
• Market Data: We believe that to be successful in the long term, European market infrastructure operators must balance their own commercial self-interests with enhancements that benefit market participants and the long-term health of the ecosystem. In 2022, our efforts focused on the introduction of an equities consolidated tape (CT), the probability of which rose dramatically as the MiFID/R debate progressed. Along with many of you, we spent many hours working with policymakers to advocate for a real-time pre- and post-trade CT, despite vehement opposition from primary exchanges. A CT is the missing piece of European market structure and, by enhancing access to data and increasing the exposure of EU companies to international investors, would materially improve the competitiveness of European capital markets. The UK has signalled its intention to create the regulatory regime for a CT by 2024 and, in the EU, there are many in the Council and in Parliament who have thrown their support behind a real-time pre- and post-trade CT as part of the MiFID/R review proposals. We’re also doing what we can to make European data more accessible, and during 2022 commenced publication of our European equity data via the cloud, lowering connectivity costs for those consuming it.

Looking Ahead to 2023...

Taking our responsibilities as the largest pan-European stock exchange very seriously, you can be sure we won’t be resting on our laurels in 2023. It will be a key year both for Cboe as we intend to maintain our momentum from 2022 - but also for the future of EU capital markets as a whole with policymakers finalising the MiFIR review. Here are some key areas we’ll be focusing on in the year ahead:

• Regional and Global Expansion: Our European heritage is important to us and so we are excited to be enhancing our presence on the continent in 2023. We are moving into new, expanded offices in Amsterdam during Q1, which will house our European equities, derivatives and clearing businesses. Cboe NL is much more than a Brexit necessity for us, providing an opportunity to further our pan-European credentials and build stronger relationships with our key clients and regulators in the EU. We are lucky to have such a strong European identity while also being part of the Cboe family, giving us access to the resources and expertise of a best-in-class global organisation. Cboe itself will turn 50 in 2023 and has a lot to celebrate given the unrivalled global footprint it has built in recent years. That position gives us a unique opportunity to provide a uniform set of services to our clients wherever they are in the world, by taking successful products services from one region to another. A great example of this is the global expansion of the BIDS platform – which started in the US, then expanded to Europe and most recently launched in Canada. 2023 will see BIDS enter the APAC region with the launch of Cboe BIDS Australia, a move which has already attracted Australian firms wishing to trade EU equities.
• Product Focus: The analysis that drove our Lit market share gains in 2022 suggests we have even further room for growth in 2023 and is something we look forward to discussing with you all. In terms of product enhancements, we will be primarily focused on improvements to our Periodic Auction service in 2023. Periodic Auction Books (PABs) have become a well-established venue type in Europe and are benefitting from a more stabilised regulatory environment. They disincentivise speed by introducing randomness in timing and by prioritising order size, helping less technically sophisticated market participants and institutional investors to avoid negative market impact. We believe the use cases for these auctions can be extended to additional phases of a broker’s SOR, delivering the superior execution quality benefits of the platform more widely. We introduced additional functionality to the venues in 2022, including an Accept-or-Cancel (AOC) order type, a passive peg order type to allow for liquidity provision and spread capture strategies and a “Dark on Expiry” option, allowing PAB users to check for midpoint liquidity upon expiry of a Periodic Auction order. Later in Q1 we will be adding a PAB, Dark, Lit “super sweep” order type, subject to regulatory approval, enabling residual quantity from the dark book, or unmarketable AOC PAB orders, to sweep the local Cboe lit book. Please contact us to discuss these features further.
• Market Advocacy: The final word has to be given to the policy debate. 2023 will be a pivotal year for the future of European equity market structure, as discussions on the MiFIR review reach their denouement. The review is critical to revitalising European markets, which increasingly lag the rest of the world in terms of liquidity and remain fragmented, complex and expensive to navigate. A market structure that promotes open, competitive, pan-European market infrastructures and improves access to data will dramatically increase investment into the EU. That is why the formation of a real-time pre- and post-trade CT is so vital. Similarly, we must continue to make Europe attractive to investors of all types, catering to their needs by offering a range of trading mechanisms to facilitate price and size discovery. Restrictions to reference price waiver systems and other venues will almost certainly drive liquidity offshore to regions, such as the UK, that have taken a more investor-centric approach to markets reforms. These regions would be accessible to international investors and brokers, but not to EU investors and brokers, undermining their access to liquidity and international competitiveness. Investors benefit greatly from having access to diverse trading mechanisms that solve for different liquidity and market impact sensitivities. We will continue to advocate with EU policymakers for EU investors having access to diverse trading mechanisms and would encourage you to do the same – through your individual firms and trade associations.  

Thank you for your continued support and we look forward to working with you in the year ahead.