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AFME Research Finds True Size Of European ‘OTC’ Equity Market Is Nearer 16% Than 40%

Date 20/04/2011

The  proportion  of  European  share  trading  that  takes  place  ‘over‐the‐counter’ (OTC),  rather  than  on  stock  exchanges,  is  closer  to  16%  than  the  widely reported estimate of 40%, according to new research published today by the Association for Financial Markets in Europe (AFME).    

The  AFME  study,  ‘The Nature and Scale of OTC Equity Trading in Europe’, reveals  that  60%  of  all  OTC  equity  trades  reported  between  2008 and 2010, were duplicate trades already reported elsewhere.  Over the period surveyed, these duplicates represented an increasingly larger share of the reported OTC data. 

The discrepancy is due to the failure of MiFID reporting rules to differentiate between  genuine  and  technical  trade  reporting.  AFME  believes  that  more granular  and  standardised  reporting  requirements  would  address  this  issue and provide much needed clarity on European market liquidity. 

To  establish  these  findings,  AFME  collated  and  analysed  data  from  the  largest brokers  in  the  European  market  on  all  OTC   equity  trades.    This information has not previously been available.  

Commenting on the research findings, Christian Krohn, a managing director of Equities at the Association for Financial Markets in Europe said: 

“MiFID  has  transformed  the  European   equity  market  landscape  but  the current reporting requirements cause confusion and can result in misleading claims,  as  our  research  shows.  This  is  of  concern  as  it  suggests  that  policy decisions are driven by misinformation or misunderstanding.  

“In light of the ongoing MiFID  Review and regulatory proposals around OTC trading, it is critical that policy makers have a full and accurate understanding of the nature and scale of the OTC market. 

“The AFME   analysis of the  composition of OTC  equity  trading  and  conclusions on  its  true  size  as  a  proportion  of  the  European  market will  help provide this much needed clarity.”