As the EU advances a major package of reforms aimed at improving cross-border integration, cutting regulatory burden, and boosting the global competitiveness of its equity markets, banks and so-called “dark trading” have once again been cast as the villain by some in the debate.
But much of the criticism rests on a fundamental misunderstanding of how equity markets work, and what delivers the best outcomes for investors.
The term “dark trading” has become shorthand for any activity happening outside of traditional order books. It sounds opaque - even sinister – by design, but in practice, it describes a set of well-established and widely used trading mechanisms that are a normal feature of modern equity markets around the world.
These mechanisms exist to serve a clear purpose: to add liquidity and complement the choice of available trading mechanisms to deliver better outcomes for investors by lowering the direct or indirect costs of trading. They are not an anomaly - they are an integral part of how liquidity is provided and accessed in today’s markets.
Yet recent commentary increasingly portrays “dark trading” and bilateral liquidity provided by banks as a structural problem in need of fixing, often linking it to broader concerns about market fragmentation, price formation, and even Europe’s IPO pipeline. This narrative is not only overly simplistic - it is misleading. This risks leading the debate in the wrong direction.
It is therefore essential to separate perception from reality. Policymaking must be grounded in how markets actually function, and in what delivers the best outcomes for investors, issuers and the broader economy.
Myth 1: Fragmentation is weakening Europe’s equity markets
A central claim is that European markets have become excessively “fragmented” and that trading should be drawn back onto primary exchanges.
This framing misses the point.
What is often described as “fragmentation” is actually diversity of how trading is executed - reflecting the different needs of investors. While lit venues play an essential role, they are not always the most effective option for every trade. Access to a broader set of trading mechanisms allows investors to tap into significantly deeper pools of liquidity than are available on exchanges alone.
These different models coexist because they serve different purposes. Together, they contribute to deeper, more competitive and more efficient markets. As ESMA’s recent study shows, the majority of trades take place on lit continuous order books. A further 14% happens in auctions run by these same venues. By contrast less than 10% of trades happen on so-called “dark pools” or off-venue.
In other words, despite the headlines, national exchanges remain the dominant trading location across EU markets.
Reducing diversity would not simplify markets - it would reduce choice and thereby competition, increase costs, and ultimately make European capital markets less attractive.
Myth 2: Fragmentation has undermined price formation
Another common argument is that trading outside traditional exchanges undermines price formation. In simple terms, that it makes it harder to know what a share is really worth.
However, this rests on a narrow and incomplete view of how prices are formed.
In reality, prices are not set in just one place. They emerge from a continuous flow of information across the entire market - including completed trades, company performance, economic data, and investor activity across multiple trading venues. Even when trades happen outside a visible order book, they are reported afterwards and feed back into the overall picture of price.
There is also no clear evidence that this system is failing. If price formation were genuinely impaired, we would expect to see clear signs, for example, inconsistent pricing, wider gaps between buy and sell prices, or reduced liquidity.
In fact, the opposite is often observed. Analysis by ESMA shows that stocks with trading activity spread across different types of venues tend to have tighter bid-ask spreads. This is a key indicator of healthy markets, suggesting that competition between trading mechanisms can improve pricing rather than weaken it.
Price formation depends on the information that is available to traders. While exchanges emphasise the transparency of their trading platforms, the data generated on those platforms is only accessible at a considerable cost.
If policymakers want to strengthen price formation, the most effective step is therefore not to restrict where trading takes place, but to improve access to market data. That means addressing the growing commoditisation of essential trading data and allowing a broader set of participants to see and use it.
The delivery of a consolidated tape that brings together trading data into a single, accessible view would be a major step forward in improving transparency and supporting more effective price formation.
Myth 3: Off-exchange trading is to blame for weak IPO markets
Another recurring claim is that alternative trading venues are contributing to Europe’s well-documented IPO challenges.
This is simply not borne out by the evidence.
There is no correlation between the concentration of trading on exchanges and IPO activity. In fact, recent market data shows the opposite can be true.
Sweden provides a compelling example: in 2025, about two-thirds of trading in Swedish equities took place outside the primary exchange, yet Stockholm was the EU’s busiest IPO market. By contrast, similar-sized markets with a higher concentration of trading on the primary exchange, like Italy, have, in some cases, seen limited or no IPO activity.
The reality is that IPO performance is driven by a much broader set of factors, including investor appetite, macroeconomic conditions, access to capital, and the overall depth of the investor base.
If Europe wants to revive its IPO pipeline, the focus should be on mobilising capital and increasing participation, not restricting how investors trade once securities are listed.
Setting Aside the Myths and Focusing on Real Priorities
European equity markets have shown strong momentum in recent years. But if Europe is serious about improving competitiveness, the focus needs to shift.
The core challenge is not where trading happens - it’s how effectively Europe turns its vast savings into productive investment. That means closing the gap between high household savings and low market participation, particularly among retail investors.
It also means tackling the real sources of fragmentation: barriers to cross‑border capital flows that limit scale and efficiency across the single market. Removing these frictions would do far more to strengthen liquidity than concentrating trading on any one type of venue.
Finally, better access to market data - including through a robust consolidated tape - is essential to give a clearer, more complete picture of liquidity across Europe.
These are the issues that will determine whether Europe can compete globally and finance its long‑term priorities.
A choice about the future of EU markets
This debate is not about “lit versus dark” - it is about the kind of market Europe wants to build.
Some arguments risk focusing too narrowly on protecting individual business models, rather than strengthening the market as a whole. But Europe’s priority should not be redistributing a fixed share of activity - it should be expanding the overall depth and attractiveness of its capital markets.
A more competitive, open and innovative ecosystem benefits everyone: investors, issuers and market operators alike.
The priority must be clear: build markets that grow the pie - not fight over how it is divided.
