"Europe’s Liquidity Challenge: Intra-Market Fragmentation" Says Oliver Wyman's Report - Liquidity Fragmentation In Europe Emerges From Intra-Market Rather Than Cross-Market Fragmentation

Liquidity fragmentation in Europe is driven by intra-market, not cross-market. Oliver Wyman elaborates in its report The Liquidity Matrix — Rebalancing European Fragmentation which explores the most effective pathways towards further integration.

“At the trading layer, liquidity is primarily fragmented intra-market across venues and execution channels, rather than cross-market across borders. [...] This indicates that intra-market fragmentation is the dominant issue at the single stock level — which has significant effects on primary issuance, as single-stock liquidity is a key consideration for prospective equity issuers.”

Oliver Wyman Report

The policy objective of liquidity concentration needs to be further prioritised. Market structure should be reoriented to better support liquidity and, ultimately, primary markets to attract more IPOs in Europe.

“In today’s European equity markets, intra-market competition among execution venues is high and innovation in execution models continues at a healthy pace, but liquidity fragmentation is holding Europe back. [...] A complete shift to solely prioritise liquidity at the expense of innovation and competition is undesirable, but a rebalancing of the trade-off is necessary”

Therefore, to achieve capital markets integration, it is crucial to address the fragmentation caused by multiple types of execution venues. Consolidating liquidity around lit primary venues would positively impact primary markets by improving price discovery, reducing volatility, and lowering the cost of capital for issuers.

“Intra-market fragmentation is the most urgent issue to tackle, calling for harmonisation and level setting across all venues, supported by enablers that drive demand and simplify the supply landscape.”

In the context of the European Commission’s plans on integration of EU capital markets, FESE welcomes the report’s insights as a timely and constructive contribution. It provides valuable analysis on how the EU could adapt its market structure to support capital markets development and better meet long-term investment needs.