We welcome ESMA's data-driven approach, while noting the limitations of the data used. EPTA's reading of ESMA's data shows stability rather than decline, and a market that is broadly working well. EPTA considers that equity market quality is most reliably judged by the outcomes end-investors experience, including spreads, depth, market impact, certainty of execution and resilience. Order-book depth and spreads over recent years do not show deterioration in these outcomes.
In our view, safeguarding end-investor choice will be the key prerequisite for maintaining well-functioning EU equity markets. End-investors depend on having genuine choice between the execution mechanisms and market models best suited to their specific requirements, enabling them to execute at the size they need, at the moment they choose, and without absorbing undue cost. Regulation should remain neutral and not mandate where execution takes place. Measures that seek to do so merely displace activity to alternative mechanisms rather than returning it to the central lit order book.
EPTA views the Systematic Internaliser (SI) regime as a positive construct offering more formalised, democratic access to bilateral, principal on-risk liquidity provision. Because SIs commit their own capital and face price exposure on every trade, their liquidity provision is genuinely price-forming. They perform a fundamentally different role from multilateral venues, which match trades without bearing risk. Ignoring these differences would harm market liquidity and be the wrong policy direction. End-investor demand for bilateral risk transfer is genuine and durable: constraining it in the EU would not remove that demand but relocate it to other jurisdictions, leaving EU markets shallower and less attractive.
EPTA's key recommendation is, therefore, to improve post-trade flagging so that reported data genuinely reflects the activity it seeks to capture. This will solve the existing problem that aggregate SI data currently encompasses genuine principal-on risk liquidity provision alongside riskless and technical activity, all reported under the same label. Consistency between the EU and UK regimes needs to be ensured too: the same activity should not be reported or flagged twice or differently as this undermines the reliability of any proper analysis of EU equity market structure.
Alongside improved post-trade flagging, a comprehensive pre-trade consolidated tape, with venue attribution and five levels of pre-trade data, would give the market a genuine, verifiable view of where liquidity resides. EPTA considers these two data sets the foundation on which any future policy assessment of the functioning of EU market structure should be based.
