European Banks Urge Regulators to Exercise Caution in Equity Market Regulation

European Banks Urge Regulators to Avoid New Equity Market Interventions

Calls for Caution Amid Declining Exchange Trading Volumes

Industry Concerns Over Regulatory Actions

LONDON, June 30 – Europe’s largest banks have called on regulators to refrain from imposing new restrictions on equity markets, arguing that the decline in trading on traditional exchanges has not undermined price discovery.

The Association for Financial Markets in Europe (AFME), representing institutions such as Deutsche Bank, Crédit Agricole, and Santander, as well as trading firms like Citadel Securities and Jane Street, warned on Tuesday that tighter rules on off‑exchange trading could backfire, squeezing liquidity and disadvantaging investors.

ESMA’s Study and Regulatory Proposals

Findings from the European Securities and Markets Authority

In April, the European Securities and Markets Authority (ESMA) released a study on equity markets and suggested possible legislative or regulatory measures to address the continuing decline in exchange‑based equity trading.

Trends in European and UK Equity Trading

Across Europe and the UK, the proportion of shares traded on exchanges during the trading day has fallen over several years, as investors increasingly utilise alternative mechanisms such as closing auctions and off‑exchange transactions where prices are not always publicly disclosed.

Potential Risks Identified by ESMA

ESMA noted that while the trend itself is not immediately alarming, a persistent decline could indicate growing reliance on less transparent or less accessible trading mechanisms, potentially weakening price setting and reducing the reliability of benchmark prices for investors.

Government and Industry Responses

Proposals from Europe’s Largest Economies

In the following month, the finance ministries of Europe’s six largest economies proposed steps that regulators could take to curb the growth of trading within investment banks and proprietary trading firms.

They argued that, to create a level playing field, banks and trading firms should be subject to stricter transparency requirements and should only handle retail orders if they provide better prices than those available on public exchanges.

AFME’s Position and Recommendations

Emphasis on Investor Choice and Evidence-Based Policy

In response, AFME cautioned against limiting investor choice regarding trade execution venues and stressed that any future action should be grounded in evidence.

Peter Tomlinson, head of equities trading at AFME, told Reuters: “Both Brussels and London aim to make markets more globally competitive and to simplify regulation. Adding more rules or restricting where and how investors trade is unlikely to support those objectives.”

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