Making EU Capital Markets More Competitive

Nick Dutton
February 22, 2024

As the European Commission nears the end of its current term, it’s a good time to reflect on the state of the EU’s regulatory landscape and the key priorities during the next mandate. In the capital markets domain, we should consider what aspects of the regulatory framework have performed well and what the focus of regulators should be to ensure EU markets are competitive and grow in the years to come.

The decisions facing EU policymakers are pivotal: across many metrics EU markets have underperformed compared to those in other developed countries in recent years, including trading volumes, liquidity and listings. We should therefore be ambitious in our efforts to increase the visibility of EU issuers to the rest of world, make our markets easier and cheaper to access for end investors, and be more attractive to investors globally.

As policymakers consider how best to further these goals, it is important to recognize and learn from the successes of the last 20 years: EU markets are much more competitive than they were 20 years ago, particularly in market infrastructure. In equity trading and clearing, we now have a well-established competitive framework that has lowered costs, encouraged innovation and forced incumbent players to raise their game – all to the benefit of end investors.

Cboe Europe’s success – we operate the largest pan-European stock exchange by market share, the most connected pan-European CCP and a fledgling equity derivatives exchange – is proof that this competitive framework works and is what market participants want. We embody a vision of European Capital Markets through our pan-European approach, that helps simplify access to and dramatically reduces costs for those wishing to access EU markets. This is a fundamental aspect of growing European capital markets: we must preserve and enhance the spirit of open competition in our capital markets to ensure the future competitiveness and attractiveness of EU markets, and to create connections across European markets for the benefit of all end users.

To this end, amongst all the discussion about “top down” and “bottom up” approaches to delivering more effective capital markets, we believe significant responsibility sits with the industry to continue to develop structures that support that objective. In many cases the role of policymakers – whether at national or EU level - should not be to regulate more effective capital markets into existence, but rather to create an environment in which the industry can deliver them.

Part of this will undoubtedly be effective implementation of what has been agreed under the current European Commission mandate – particularly around the MiFIR/D review. The agreed text solidifies the ability of investors to access markets through a range of execution methods and provides a mandate to create a Consolidated Tape framework for equities, which has the potential to deliver incredible benefits for European capital markets by democratizing access to data and enhancing visibility for EU issuers to the rest of the world. On this latter point, it is vital that the Level 2 work being undertaken by ESMA in 2024 delivers a competitive bidding process that attracts operators that are committed to providing a sensibly priced tape that enables broad adoption of the CT and provides a true consolidated picture of liquidity, therefore maximising interest in European companies.

But more can be done to enable the EU to attract investment. We believe competition and innovation need to be consistently considered at all stages of the legislative process. We must also not lose sight of the fact that that a more integrated capital market remains a worthy goal. Furthermore, and perhaps most importantly, capital markets need to work for retail investors. The national fragmentation of European retail activity is one reason why EU markets have underperformed. As EU policymakers seek to enhance retail participation by driving greater harmonisation and by enhancing investor protection, their priority should be to encourage customers towards competitively quoted, centrally-cleared exchange-traded products, such as options and ETFs, by removing any barriers to investment in simple products and ensuring exchange-traded products are not disadvantaged through excessive disclosure requirements.

Cboe will always do what it can to bring greater efficiencies to Europe’s trading and post-trade architecture, whether that is its established trading or clearing businesses or its recent launch of a derivatives exchange and its plans for corporate listings. But there is always more that can be done, and we look forward to working with policymakers this year and beyond to enable the EU to perform on a global stage as a financial centre. 

Nick Dutton is Cboe Europe's Chief Regulatory Officer. This article originally appeared in The EUROFI Magazine, here.