Last week, Euronext released its new policy memo, ‘Breaking barriers: a blueprint for capital markets integration in the EU,’ calling for decisive reform to unify and strengthen Europe’s fragmented capital markets. The paper outlines how the EU’s €13 trillion in private savings can be better channelled into productive investments if structural obstacles such as fragmented supervision, disjointed post-trade infrastructure and opaque market structures hampering liquidity pools are finally addressed.
Euronext’s proposals include moving toward a single European rulebook and centralised supervision under a reformed European Securities and Markets Authority (ESMA), expanding the Target2-Securities platform to cover all EU CSDs, and harmonising access to trading venues. These reforms, the memo explains, are a strategic necessity if the EU wants to remain globally competitive.
To explore the motivations behind the memo and Euronext’s role in shaping the debate, we sat down with Jakub Michalik, Chief Policy Officer at Euronext.
What distinguishes Euronext from other players on Europe’s financial markets?
We are the leading capital market infrastructure in Europe, supporting around 1,800 companies to raise capital through fast and efficient listings. Beyond trading, we provide clearing, settlement, custody, corporate solutions and market data, covering the whole value chain. We also run programmes like IPOready and investor education, and work closely with SMEs across Europe to help them grow.
Euronext is deeply rooted in local communities across Europe. Through our federal model, we maintain strong local roots while connecting individual markets at a European scale. That gives us a unique perspective on what European capital markets need from not only a commercial point of view, but from a systemic, public interest perspective.
The memo frames the Savings and Investments Union as a ‘competitiveness imperative’ for Europe. What is at stake if these structural reforms aren’t implemented?
A healthy, competitive economy needs diverse sources of funding. But in much of Europe, especially in Southern and Eastern Europe, up to 85% of business funding still comes from banks. Only about 10% to 20% comes from capital markets. That’s in sharp contrast to the US, where roughly 75% of corporate funding is capital markets-based, and only the remainder comes from banks.
While Europe has historically relied on banks to finance its private sector investments, we see that this model has its limits, especially as regulatory constraints has tightened after the Global Financial Crisis and as businesses face increasing capital needs. Without reform, we are putting a ceiling on how far European companies can grow and compete with globalised markets.
That is why the shift toward capital markets-based financing is both technical and strategic. On one side, we need to encourage more companies to raise funds through IPOs, bond markets, and other instruments. On the other side, we need to mobilise Europe’s massive pool of private savings, which is over €13 trillion, and channel more of that into productive investment, rather than leaving it in bank accounts or in real estate.
If we don’t act now, Europe risks falling further behind in innovation, competitiveness and strategic autonomy. That’s why these reforms are so critical and urgent.
One of the memo’s core recommendations is for a single rulebook and single supervisor via a reformed ESMA. Why has this been so difficult to achieve, and what would change if it finally happened?
The idea of a single rulebook and a single supervisor is essential. It’s not a choice between the two – both are needed to truly integrate European capital markets. The main reason we haven’t arrived there yet is that the European single market is still very much a work in progress. Historically, we’ve relied on directives that each Member State transposes into national law. But during that process, countries often introduce their own additions, what we call ‘gold plating’, which ends up fragmenting the market rather than unifying it.
At Euronext, we operate in seven EU countries, all under the same trading platform (Optiq®). Yet we regularly face different interpretations of the essentially same underlying European rules from national regulators. That results in inconsistencies, duplications and even contradictions, which create inefficiencies and barriers to scale. A single supervisor would eliminate this fragmentation and enable more efficient, consistent supervisory processes across national borders for all financial market infrastructures.
Beyond internal efficiencies, a harmonised rulebook and central supervision are also essential for how Europe is perceived externally. Global investors don’t tend to look at Europe as 27 separate jurisdictions – they expect a unified capital market with fully harmonised rules. That’s why we believe it’s time for ESMA to evolve. Established in 2011, ESMA already has a strong track record as both a rule maker and a supervisor. Europe is ready for the next step: empowering ESMA with central supervisory authority over large and cross-border financial market infrastructures. Only then can we build a truly unified and competitive capital market.
In addition, we would very much welcome changes in the EU legal system allowing for a treatment of cross-border financial market infrastructures like ours as a group rather than a bunch of individual licence holders, similarly to how other financial institutions can operate already today.
The memo described the post-trade environment, especially custody and settlement, as fragmented and costly. Can you give a real-world example of how this affects investors or companies today?
This challenge has been highlighted not only by us but also in major reports from leaders like Mario Draghi and Enrico Letta on the state of the European single market. The core issue is that Europe’s post-trade infrastructure was developed largely along national lines. That legacy of fragmentation means we still operate in silos, where cross-border transactions are more complex, more expensive and less efficient than they should be.
While the European Central Bank’s Target2-Securities platform, which was designed to serve as a pan-European settlement system, has the potential to streamline cross-border settlement, it remains underused. Euronext has been one of the early adopters and advocates for connecting through this platform, and we believe all European central securities depositories should be onboarded. Broader adoption would make the system more efficient and cost-effective for everyone, and we believe it would allow to expand also to transactions in other currencies than Euro.
Ultimately, this directly impacts investors and companies. Fragmented settlement systems raise the cost of investing across borders and make it harder for companies to tap into funding from the wider European market. Creating a seamless post-trade environment is critical if we want accessible cross-border investment in Europe.
The memo raises concerns about the rise of dark and bilateral trading venues. What risks do they pose to market integrity, and how should regulation respond?
Several years ago, European legislators focused on making the trading landscape more competitive, which led to the development of various types of venues with regulated markets like Euronext, but also MTFs, OTFs, systematic internalisers and dark pools. The result is that today, about 67% of trading in Europe does not happen on lit venues. That has a negative impact on price discovery, which becomes opaque, and ultimately undermines orderly markets.
We believe this imbalance needs to be addressed. While the increased competition has brought some better pricing conditions to investors, and dark trading can at times serve legitimate purposes, such as executing large orders without market impact, our data shows that today around 60% of dark venue trades are for ticket sizes below €5,000. So this is not about the usage of dark trading by large institutional investors or for large-in-scale trades, but rather retail order flow being routed into dark or bilateral venues, which raises concerns.
That’s why we are calling on the European Commission, Parliament and Council as well as on ESMA to take a closer look at how to improve the balance between lit and dark trading, and to make sure that the foundational role of lit markets in price formation is protected.
Beyond regulatory and infrastructure reform, what practical steps should the EU take to encourage more long-term equity investment, especially from retail investors?
European citizens are strong savers, but they have historically been less engaged with capital markets. There are several reasons for this. First, there’s a general culture of risk aversion in large parts of Europe. Second, investor education is still quite limited across many EU countries. Third, access to suitable investment products is improving only slowly, whether those are direct investments or products like passive ETFs.
That’s why we strongly support initiatives at both European and national levels aimed at boosting awareness, improving investor education and helping shift the cultural mindset around long-term investment. We also believe there’s a real opportunity to make progress through the development of European and national investment or savings accounts, and through changes to tax regimes that currently may somehow disincentivise capital markets investments compared to other savings vehicles. Finally, we support any reforms that would deepen pension systems. In the long run, more robust and market-oriented pension schemes will be key to ensuring sustainable retirement systems across Europe.
For more insights, read the original policy memo, ‘Breaking barriers: a blueprint for capital markets integration in the EU’, where Euronext presents a clear roadmap to strengthen Europe’s investment landscape and build a truly unified capital market.
