Market Fragmentation in Europe

Abstract

The European equity trading landscape of 2022 is a complex mix of exchanges, dark pools, dealers, and auctions. The once dominant national stock exchanges are now part of global exchange groups that compete with investment banks and high-frequency trading (HFT) firms to match the orders of retail and institutional investors. Is this diverse trading environment in the best interests of investors? Academic research has taken on this question from many angles, both theoretically and empirically. This paper surveys the findings of the market fragmentation literature, with a special focus on European equity market quality. I discuss why markets fragment, what the potential market quality effects are, and what this implies for the European context. The objective is to provide a concise review that captures the implications for current policy in Europe.

Keywords: mifid, dark pools, systematic internalisers, fragmentation

JEL Classification: G14, G15