Oliver Wyman Report: The Liquidity Matrix – Addressing fragmentation in European equity markets

In the context of the Savings and Investments Union (SIU), the Federation of European Securities Exchanges (FESE) welcomes a new study examining the issue of fragmentation in European equity markets. Titled “The Liquidity Matrix”, the study was independently authored by Oliver Wyman and sponsored by FESE. It compares the European landscape to other global markets and assesses the options available to improve equity market performance.

Since the implementation of MiFID, Europe’s equity market rules have fostered innovation and competition. However, this process has also led to increased liquidity fragmentation, weakened price discovery and a decline in the attractiveness of public markets for companies seeking to raise capital. Europe needs to revisit this delicate balance by shifting towards liquidity concentration while preserving the previous innovation and competition gains, in order to better support liquidity and, ultimately, attract more IPOs to its primary markets.

Fragmentation manifests in two ways: liquidity on a single stock can be split across venues and execution channels (‘intra-market fragmentation’), and across borders (‘cross-market fragmentation’). The fastest way to unlock more liquidity is by reducing intra-market fragmentation, the most prominent form of fragmentation. To achieve this, harmonisation and level setting of regulation is required between exchanges and other execution venues and systems.

Supply-side interventions can reshape how Europe’s capital markets function, but their success will ultimately depend on complementary shifts in demand-side behaviour. A balanced and sequenced approach will therefore be essential to ensure the effectiveness and sustainability of any structural change.