Fledgling European Equities Market Recovery will be Undermined by Regulation, Says TABB Group in State of the Industry Research

LONDON & NEW YORK--(BUSINESS WIRE)-- European equities markets deemed “un-investable” only six months ago are regaining popularity but the financial transaction tax (FTT) and other market reforms may create a false dawn, according to new research published by TABB Group.

Prior to the introduction of the FTT in 2012, says Rebecca Healey, a London-based senior analyst who authored “European Equities Market: 2013 State of the Industry,” the French equity market share of European trading had increased from 13.84% in 2008 to 17.3% in 2011. According to TABB, the impact of the French FTT combined with the currently scheduled March 1 Italian FTT, alongside worsening economic data, is expected to depress equity volumes by 6% in 2013. “Coupling recent regulatory attempts to target model-driven equity trading flow alongside high-frequency trading may well have a drastic impact on the formation of liquidity, creating new challenges for every Eurozone market participant,” Healey says

Addressing this in commentary on TabbFORUM, she says that “By including all automated flow in the new regulations, the ability of market participants to interact will be severely impaired. Without natural orders to ease the flow of liquidity, we risk returning to volatile markets, which will further deter investors and create the very conditions that would make HFT profitable once more.”

The real risk is that Europe as a percentage of global trading will become increasingly irrelevant, says Healey. “Those in Brussels who perceive this as a coup against the finance industry may have a rude awakening at the wider implications of this policy. There’s a real danger that equity market participants will not be willing, or not able, to support the added cost burden and investors will simply head to Asia.”

Key points from the report:

• Broker commissions will grow only 3% in 2013 as model-driven funds dominate order-flow volumes
• Trading on dark venues now accounts for 9% of value traded, forecast by TABB to rise to 10% in 2013
• Emerging Europe was the 2012 beneficiary of €21.7bn; by EOY13, the positive upswing will translate into €7.46bn of fund flows to developed Europe vs. just €2.17bn for emerging Europe
• Equity derivative volumes remain range bound with underlying trading down 38% since 2008 as continued low interest rates and an overall decrease of volatility have reduced hedging needs
• Two main dark multi-trading facilities (MTFs) account for over 50% of market share

Sampling of exhibits:

• European volumes predictions for 2013, with/without financial transaction tax
• Total French equity volumes vs. European, German, UK volumes, 2012
• Fund flows for European equities, developed vs. emerging
• Developed Europe all fund flows vs. rise of ETFs, 2012-2013
• European equity and equity derivatives notional turnover, 2008-2012
• Developed Europe value-traded by country, 2008-2012
• Volumes on lit European venues-primary exchanges vs. MTFs, 2008-2012
• Growth of European dark trading, 2005-2013e
• European dark venue market share, 2005-2013e
• Percentage change in average trade size across dark venues, 2012
• European institutional turnover by trading channel, voice vs. electronic
• European institutional equity brokerage commissions (in $MMS)
• European institutional execution brokerage commissions (in $MMS)

The Executive Summary for this 22-page report is available now for download by TABB Group Research Alliance Equities clients and qualified media at www.tabbgroup.com. For more information or to order the report, write to info@tabbgroup.com.

About TABB Group

With offices in New York, London and expanding across the Asia-Pacific region, TABB Group is the financial industry’s only strategic advisory and research firm focused solely on capital markets, based on the proven interview-based research methodology of “first-person knowledge” developed by founder Larry Tabb. For more information, visit www.tabbgroup.com. In January 2010, TABB launched TabbFORUM, the online global capital markets community covering opinions and analyses on current industry issues, tracked daily by over 15,000 industry professionals.