Stock exchange operators across Europe are facing increasing pressure from investors and brokers to revise and simplify their fee structures, aiming to create a more robust capital market that can rival Wall Street’s appeal for new company listings.
The European Union has long sought to enhance the efficiency of its fragmented capital markets, with post-Brexit Britain also exploring innovative avenues to attract significant Initial Public Offerings (IPOs).
Despite the perennial tension between exchanges and users over fees, more than 10 brokers, investors, and analysts interviewed by Reuters emphasized the immediate need for Europe’s primary operators to take action to attract investments.
Ben Springett, Head of European electronic and program trading at Jefferies, pointed out, “If you can improve or reduce the costs of execution in the market, then that has a huge effect potentially on boosting turnover and investability.”
Illustrating the challenges faced by Europe, the Association for Financial Markets in Europe (AFME) reported a 72% year-on-year decline in IPO issuance in the region during the first half of 2023, reaching a record low and heading towards the lowest annual issuance volume since 2011.
Notably, ARM, Britain’s largest chip company, chose to IPO in New York this year, and CRH, a building supplies firm, shifted its main listing to the United States.
A study by BMLL Technologies revealed that notional U.S. trading volumes grew more than 2.5 times faster than the European rate between 2018 and 2023.
Market liquidity plays a crucial role in selecting an IPO venue, with Nate Palmer, President of investment and trading platform Moomoo Financial Inc., stating that healthy trading volumes offer ideal conditions.
However, the presence of complex and varied fees acts as a significant deterrent for many middle-class and working-class Europeans, according to Samuel Gregg, a Political Economy fellow at the American Institute for Economic Research.
While operators assert that their fees are already straightforward, concerns persist. Andreas Heuer, Head of Market Analytics and Pricing at Deutsche Boerse, insisted their model is “quite simple.”
Euronext, operating exchanges in multiple European cities, has made progress in simplifying fees, according to Simon Gallagher, Head of Global Sales for Euronext and CEO of Euronext London.
The London Stock Exchange Group (LSEG) defended its position, stating that standard pricing on its primary exchange is publicly available and based on value traded within a banded structure.
Closing auctions, a crucial trading window exclusive to primary exchanges, are under intense scrutiny. Aquis Exchange estimates around €2 trillion ($2.2 trillion) of trading occurs annually in Europe during closing auctions, which are particularly lucrative for primary exchanges.
While LSEG and Deutsche Boerse do not impose closing auction surcharges, concerns remain about the clarity of their fee structures.
Alternatives to closing auctions, such as Multilateral Trading Facilities (MTFs), have been introduced by Aquis and the Chicago Board Options Exchange. However, these alternatives pose challenges in terms of liquidity and execution predictability.
Despite the complexities of the European trading landscape, pressure is mounting for reform. Ben Springett emphasized, “When you consider what drives healthy markets, competition and so on, these situations don’t help.”