By Sinead Cruise, Huw Jones and Samuel Indyk
LONDON, December 14 (Reuters) – Top stockbrokers in Europe are under pressure from some investors and brokers to trim and simplify their fees to build a deeper capital market that challenges Wall Street’s appeal to new company listings.
The European Union has long sought to make its fragmented capital markets more efficient, and Britain has also been trying to find new ways to attract big-ticket IPOs since Brexit.
And while there has always been healthy tension between exchanges and their users over fees, more than 10 brokers, investors and analysts interviewed by Reuters said Europe’s major operators now need to act to attract investment.
“If you can improve or reduce the costs of execution in the market, then that has a huge impact potentially on accelerating turnover and investability,” said Ben Springett, head of European electronics and software trading at Jefferies. JEF.N.
Illustrating the problems facing Europe, the Association for Financial Markets in Europe (AFME) said that IPO issuance in the region fell 72% year-on-year to a record low in the first half of 2023, and was headed for the lowest annual issuance volume. since 2011.
The largest British company ARM ARM.O opted for an IPO in New York this year after building supply company CRH CRH.N changed its primary listing to the United States.
Meanwhile, a study by BMLL Technologies shows imaginary US trade volumes grew more than 2.5 times the European rate between 2018 and 2023.
Market liquidity is a critical consideration when choosing an IPO venue, with healthy trading volumes offering ideal conditions, said Nate Palmer, President of investment and trading platform Moomoo Financial Inc.
But complex and varied fees are “major disincentives to invest for many middle-class and working-class Europeans,” said Samuel Gregg, a political economy fellow at the American Institute for Economic Research, because many see the market “as a rich man’s game.” “.
The operators argue that their fees are already simple, with Deutsche Boerse’s Head of Market Analysis and Pricing Andreas Heuer saying its model is “quite simple”.
Euronext ENX. PAwhich operates exchanges in Paris, Amsterdam, Brussels, Lisbon, Dublin, Oslo and Milan, has already made progress in simplifying fees, said Simon Gallagher, Head of Global Sales for Euronext and CEO of Euronext London.
And spokesperson for London Stock Exchange Group LSEG.L said standard price on its primary exchange was publicly available and based on value traded within a striped structure.
AUCTIONS
Fees during closing auctions, a key trading window that only primary exchanges can operate, are under particular scrutiny. These bring together buyers and sellers in the final five minutes of the day, establishing a final price for shares.
Aquis Exchange AQX.L an estimated 2 trillion euros ($2.2 trillion) worth of business takes place each year in Europe during closing auctions, which are “particularly lucrative” for primary exchanges.
Although popular among exchange-traded funds and other investors who need official end-of-day prices to rebalance and value portfolios, the higher fees are making some high-crossover, low-margin hedge fund strategies increasingly unviable on some European markets, sources told Reuters. .
Data from Rosenblatt Securities showed that a record 17.4% of total European equity trading took place during closing auctions in September, while intraday volumes are down, accounting for about 33% of volumes.
Euronext’s Gallagher said it paid a very small number of clients higher fees to trade in closing auctions compared to the rest of the trading session.
SIX Swiss Exchange, which runs the Swiss and Spanish stock exchanges, also charges more during closing auctions. Joerg Schneider, a spokesman for the firm said that they are a “major liquidity event” with a “significant weight of daily trading volumes executed during the window, allowing members to benefit from enhanced liquidity”.
Reuters was unable to determine which, or how many, SIX or Euronext users were subject to higher charges.
A paper published in June by the University of Melbourne, backed by the Platon Partnership of investment managers and brokers, said closing auction fees on primary exchanges ranged from 0.2bps to 0.95bps, with some also charging a fixed “per message” fee. .
While they do not impose closing auction surcharges, LSEG and Deutsche BoerseDB1Gn.DE could offer clearer structures to attract more investors and support liquidity, sources said.
Thomson Reuters, the owner of Reuters News, has been a shareholder in LSEG since 2021. LSEG also pays Reuters for news.
A spokesman for the World Federation of Exchanges said “complexities of pricing structures vary significantly and are influenced by a host of factors”.
AFME declined to comment. Britain’s Financial Conduct Authority did not respond to a request for comment.
While others like Aquis and the Chicago Board Options Exchange CBOE.Z have launched alternatives to close auctions, liquidity and execution may be less predictable.
Users of these alternatives, known as Multilateral Trading Facilities (MTFs), could pay fees of between 0.075bps and 0.3bps, or a monthly subscription, the University of Melbourne study found.
Although MTFs have grown rapidly since the pandemic, they still only accounted for between 5.5%-8.5% of trading activity in the venue at the close, said Will Hadfield, European Market Structure Analyst at Rosenblatt Securities.
“If you need to sell 5 million euros of BMW shares, you may want the certainty that you will do the transaction so that you can stick it in the closing auction at Deutsche Boerse.”
European trading costs are often higher and more complex, as exchange groups and clearinghouses face duplicate regulatory, real estate and technical expenses in the countries they operate in, sources said, making the switch more difficult.
“If you consider what drives healthy markets, competition, etc., these situations don’t help,” Springett said.
($1 = 0.9168 euros)
Continued lit trading volumes
Closing auction volumes
Business volumes
(Additional reporting by Pablo Mayo Cerqueiro and Lawrence White in London, and Vidya Ranganathan in Singapore; Editing by Alexander Smith)
((sinead.cruise@thomsonreuters.com; 020 7513 5026; Reuters Messaging: sinead.cruise.thomsonreuters.com@reuters.net))
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