European Institutional Equity Trading Study: Regulation and market structure

This article was written by Bloomberg Intelligence Market Structure Research Strategist Nicholas Phillips. It appeared first on the Bloomberg Terminal.

Buyside traders involved in European equities want less-restrictive regulations, increased retail participation, more IPOs and no extension of trading hours. Respondents to our survey are relatively neutral on new, multilateral trading facilities, yet on balance they prefer on-venue trajectory crossing models — systems that match large orders internally to reduce market impact. The lack of a consolidated tape remains a concern, but the EU’s proposed solution doesn’t yet appear to be a viable alternative to market feeds, and traders favor a fully transparent, pretrade tape in the longer term.

Large funds want lighter rules

All surveyed traders from large funds said they want less regulation in Europe, which they see as more restrictive than other regions, with a quarter of overall respondents sharing this view, citing limits on equity-market innovation. About 25% said a consolidated tape should be the top reform, including 33% of medium-sized fund traders and 27% of small firms, with some saying it could help reduce market-data costs. Just over a fifth of respondents (21%), including 22% from the medium cohort and 27% from the small, said they would reverse the competition introduced by MiFID I and II by cutting the number of trading venues.

Larger institutions said EU regulators often overlook the perspectives of the broader market, with outcomes seen as favoring exchange operators, a dynamic the respondents said could contribute to perceptions of overreach and squelch equity-market innovation. Post-Brexit divergence has added complexity for market participants: While the UK has moved to fully remove double-volume caps on dark trading, the EU has introduced a single-cap system, creating differing rules for cross-border activity.

European IPO activity has declined in recent years, with many companies opting to remain private or list in the US. Among the senior traders surveyed, as can be seen in Fig. 1, 20% expressed uncertainty about the precise way to reinvigorate IPOs but agreed that something structural must change, with increased retail participation and improved valuations high on the list.

About 31% of traders at mid-sized funds support removing stamp duties to boost competitiveness, while 12% favor easing restrictions on executive pay, with some arguing that strong performance should be appropriately rewarded. Respondents noted that the Saving & Investment Union consultation offers a timely opportunity for change.

Figure 1: What Can Be Done to Help European IPOs?

Institutions say no to 24/7 trading, advocate for retail

European institutional investors in our survey overwhelmingly oppose 24-hour-a-day, five-days-a-week (24/5) or 24/7 trading, with a number of US exchanges having put in application for 24-hour trading and the London Stock Exchange considering it. Many of the senior traders we spoke with aren’t in favor of a potential move, with a number of respondents voicing strong opinions

Figure 2: Views on 24/7 Trading in Europe

More than three-quarters of the traders we interview oppose any move toward 24/5 or 24/7 operations, with many concerned about diluted liquidity, with one noting that US premarket sessions remain largely inactive despite wider access. Many argued that Europe’s earlier debate on reducing hours should be revisited, suggesting shorter sessions might help concentrate liquidity and align more closely with US openings, fostering a more efficient and competitive market.

Greater retail participation is viewed as a way to expand the liquidity pool in European equity markets and support broader capital-markets growth. Almost two-thirds (64%) of senior buyside traders surveyed said they would like increased access to retail flow — 58% from large funds, 64% midsize and 69% from smaller funds. Just under a quarter (22%) already trade with retail but indicated they would like to increase that exposure, while only 8% said they would prefer not to engage with retail flow at all.

Retail flow is often considered less toxic than other types of equity flow, offering institutional traders an opportunity to interact with it in ways that could enhance overall liquidity provision.

The survey showed 44% of large and 41% of medium buyside funds support on-venue trajectory crossing models — systems that match large orders internally to reduce market impact — in Europe, with just 4% of senior traders opposed across all funds. The UK and Switzerland already permit such models, but the EU has yet to decide, underscoring regulatory divergence. Respondents noted that a regulated, on-venue option could promote transparency and support market-structure innovation, similar to existing sellside capabilities.

Figure 3: Are You in Favor of On-Venue Trajectory Crossing?

Figure 4: Top Market-Structure Issues

Proposed tape unlikely to replace market-data feeds

Just 28% of our study’s participants indicated interest in switching to a consolidated tape, with smaller institutions (33%) – which are potentially more concerned about the price – and quantitative funds leading. A consolidated tape in Europe could replace direct data feeds for market participants, allowing them to potentially reduce their market-data costs by swapping direct feeds for a CT. But this depends on multiple factors, including the tape’s type, cost, latency and robustness.

Figure 5: Could Proposed CT Let You Swap Data Feeds?

The BI study revealed strong buyside preference for a consolidated tape that includes both pre- and post-trade data, with support from 45% of large, 37% of medium and 67% of small institutions. By contrast, only 24% of funds favor the EU’s current proposal, which aims to implement a consolidated tape (CT) offering post-trade data and pre-trade Level 1 top-of-book quotes — best bid and offer prices across venues. The project is at the tender stage, with just one potential provider stepping forward so far.

The UK Financial Conduct Authority is prioritizing a consolidated tape for fixed income before considering equities, yet survey results show strong demand for a broader approach: 72% of respondents favor a pre- and post-trade equity tape in the UK, led by smaller institutions (79%), then large (71%) and medium-sized funds (67%). Support spans regions, with 80% of North American funds, 71% of UK, 69% of EU and 67% of Swiss saying any UK equity tape should include both pre- and post-trade data.

Just under half of survey respondents (48%) think the EU will implement a full pre-trade consolidated tape (Fig. 6). The EU has already agreed to launch an anonymous tape covering post-trade data and pre-trade Level 1 top-of-book quotes — the best bid and offer across venues. This marks a first step toward broader pre-trade coverage, with 61% of EU funds and 55% of smaller institutions expecting such a development.

Figure 6: Will a Full Pre-Trade EU CTP Ever Happen?

79% of institutional traders back Europe’s move to T+1

Support for Europe’s planned shift to next-day (T+1) trade settlement is strongest among funds based in the UK (91%) and North America (90%), with overall backing at 79%. The US has completed its own transition smoothly, boosting confidence in Europe and the UK ahead of the 2027 rollout. T+1 cuts counterparty risk by one business day but raises operational and FX costs.

Figure 7: Are You in Favor of Europe’s Move to T+1?

Europe’s shift to a T+1 settlement cycle is seen as a positive step for equities, yet the need to coordinate across multiple central securities depositories (CSDs) makes the transition more complex and costly than in the US. Market participants may need to prepare earlier given Europe’s intricate post-trade environment.

Traders broadly back Europe’s move to T+1, yet support drops sharply for faster cycles. Only 20% favor T+0 (same day) settlement and just 11% back real-time settlement. Such changes would likely heighten risks and costs without major technological and operational upgrades. Still, the rise of tokenization and crypto’s use of real-time settlement suggest the debate may resurface.

More than half of UK funds favor pan-Euro clearing

Europe’s fragmented clearing landscape adds costs, especially for smaller firms navigating multiple systems. Horizontal clearing — enabling trades to be processed seamlessly across jurisdictions without centralization — could cut inefficiencies and costs, and boost interoperability. Overall, 45% of traders support pan-European clearing, rising to 57% among UK institutions.