European equity markets are often misunderstood. Policy makers, investors, and companies frequently operate on assumptions that don’t fully reflect reality — influencing decisions about where to list, how rules are shaped, where to invest, and how capital flows across Europe. It’s time to separate myth from reality.
Liquidity Is Bigger Than You Think
When people talk about liquidity in European equity markets, they often only consider trading volumes on traditional stock exchanges. But that’s only part of the total liquidity picture. Alternative trading venues and banks acting as “systematic internalisers” provide a significant additional share of trading with roughly two-thirds of trading activity happens outside of the primary exchanges. Together, these channels make up the full depth of the market and demonstrate that liquidity in Europe is far larger and more diverse than commonly assumed.
Companies deciding where to list care deeply about liquidity — how easily shares can be bought and sold. A deep, active secondary market signals strong investor demand and helps ensure fair pricing. Yet misconceptions about Europe’s market size risk pushing firms to list elsewhere or stay private altogether. Europe’s equity markets are far larger and more dynamic than many assume. Showcasing that reality is key to attracting both new listings and long-term investment. Consolidated tapes in the EU and UK, showing all trades in near real-time, would make the market’s scale visible, attract global capital, and empower investors.
FIGURE 1: 2025 Year-to-Date Trading Volumes in European Markets; Source: XYT
Market Diversity, Not Forced Concentration, Fuels Growth
But while European markets are larger than often given credit for, there remains significant potential for growth. Some argue that concentrating trading on primary exchanges will drive market growth. Evidence suggests the opposite. Markets with diversified trading—across exchanges, MTFs, and internalisers—tend to be larger, more liquid, and more efficient. Sweden offers a clear example: as declining concentration on its main exchange dropped from 51% to 37% over four years, turnover ratios and market capitalisation both surged during this period.
Different trading venues exist for a reason: they serve different investor needs and orders. While exchanges provide transparency and immediacy, they are not suitable for every transaction. Investors also need access to alternative venues to help reduce information leakage and minimise market impact. Studies clearly show that trading on an exchange can come with a higher price impact.
What some call “fragmentation” could more accurately be called “diversity”. The dispersal of trading across venues can actually improve market efficiency and liquidity. Spreading trading across venues tightens bid-ask spreads — lowering costs, increasing liquidity, and improving price accuracy. Evidence shows stocks with less concentrated trading often enjoy tighter spreads, not weaker markets.
Policies mandating trading on exchanges would benefit those platforms themselves, but they would restrict investor choice and undermine overall market health. Greater investor choice and competition - not exchange concentration - underpin successful equity markets.
FIGURE 2: Monthly Median Bid-Ask Spreads by ‘Fragmentation Index; Source - ESMA
What really shapes prices?
Some argue that only trading on primary exchanges contributes meaningfully to price formation. The reality is that price formation in equity markets depends on multiple factors beyond displayed prices. All post-trade reported transactions influence the pricing of future trades, and the introduction of a near real-time consolidated tape will further strengthen this process.
Within “lit” markets, there is little difference between primary exchanges and MTFs in the frequency at which they display a unique European Best Bid-Offer (EBBO) – suggesting that all lit venues make a similar contribution to price formation. In practice, for most of the trading day, the best available prices can be accessed from multiple venues, ensuring that price discovery is robust and competitive.
FIGURE 3: 2025 Year-to-Date EBBO Exclusive Presence; Source: XYT
Conclusion: Europe’s Markets, Unlocked
European equity markets are bigger, deeper, and more dynamic than many believe. Diversity—not concentration—drives liquidity, lowers costs, and strengthens price formation. Consolidated, transparent data and recognition of all trading venues are key to showing the full picture.
Policy makers should focus on preserving choice and competition, not restricting it. By busting the myths that hold us back, Europe can attract more listings, more investment, and unlock the true potential of its equity markets.
