European volumes are closer to the US than they appear.

A widely held belief in global finance is that the US equity market reigns supreme in terms of liquidity, surpassing other markets by a wide margin. By contrast, European markets are often viewed as secondary. However, upon closer examination of equity flows in both regions, and taking into account the complexity associated with the concept of liquidity, the presumed dominance of the US in equity liquidity is not as clearcut as it might seem.

Executive summary

• At aggregate level, the Average Daily Value Traded (ADVT) in US looks 4.4x higher than in Europe (€288bn vs €65bn in 2023) combining all companies above €250m market cap.
• However, the liquidity gap is driven mainly by the 79 Mega-Capitalisation stocks in the US which account for over 50% of US turnover, while Europe has only 20 Mega-Caps listed.
• When measuring the value traded relatively to the different market capitalisation segments, the ADVT per single company yields interesting results:
  
  - Average Large-Cap stock has ADVT of €146m in US vs €116m in Europe (only 1.3x gap)
  
  - Average Mid-Cap stock has ADVT of €23m in US vs €12m in Europe (only 2.0x gap)
• Turnover Velocity metrics (value traded divided by market capitalization) also confirm the robust liquidity in Europe compared to the US.

Methodology

•  Market capitalisation segments are categorised as follows:
  
  - Small-Caps: €250m ≤ market capitalisation < €1bn
  
  - Mid-Caps: €1bn ≤ market capitalisation < €5bn
  
  - Large-Caps: €5bn ≤ market capitalisation < €100bn
  
  - Mega-Caps: €100bn ≤ market capitalisation
• Market capitalisation data is sourced from independent data provider Bloomberg.
• Market capitalisation data is the average total market cap (not the free-float market cap) for the year 2023 from Bloomberg using the following formula: BDH (Company Ticker, "CUR_MKT_CAP", "1/1/2023", "12/31/2023", "Currency", "EUR", "Period", "CY").
• Turnover data is taken from 1 January 2023 to 31 December 2023.
• Turnover data is sourced from independent provider BMLL Technologies, and is aggregated to cover all value traded in 2023. This data includes On-Book, Off-book, On-exchange, OTC, SI, Dark and Auctions turnover.
• In this study, ‘Europe’ is understood to mean the companies listed on the following European markets: all Euronext Markets (Amsterdam, Brussels, Dublin, Lisbon, Milan, Oslo, Paris); Deutsche Börse; Bolsas y Mercados Españoles; Nasdaq Nordic (Stockholm, Helsinki, Copenhagen); London Stock Exchange. The ‘US’ is understood to mean the companies listed on the following US markets: Nasdaq; New York Stock Exchange.
• All data has been harmonised to € to provide a relevant comparison.

Download Equity Liquidity Analysis - Demystifying the liquidity gap between European and US equities

How can you find today's daily index options and their quotes, and what is the logic behind the rotation?

The daily index options available for trading rotate on a daily basis. With daily options each trading day becomes an expiry day. This means that the trading codes of expiring options also change on a daily basis.

Daily index options on the AEX and CAC 40 Index complement the weekly and monthly options

Index options are primarily listed and traded on a monthly basis, and sometimes on a weekly basis. The daily index options fill up the remaining trading days. The combination of monthly, weekly and daily options makes each trading day an expiration day.

For example: the weekly option expires on a Friday. Euronext will add daily options with expiry on Monday-Thursday to have full coverage on each day of the week.

A weekly or monthly option that is within one day from expiry will show the same characteristics and usage as a daily option that is listed on the day before its expiry. However, market conditions could differ slightly, as the number of traded contracts, open positions and active trading parties may be larger on monthly expiries. This is even more likely if the monthly option originates from a quarterly or annual rotation.

Covering all days of the month as expiry days using daily, weekly and monthly options

Each daily option has the corresponding number of the day inserted in its chain logic. Listed and traded dailies correspond with Euronext trading days whereby options are made available on the trading day before expiration. We do not issue daily options for the expiry dates of weekly and monthly options.

Provided that the day is a normal business day and that no other monthly or weekly index option expires on that day:

• the option class with symbol P1 expires on the first calendar day of a month;
• the option class with symbol P2 expires on the second calendar day of a month;
• the option class with symbol P3 expires on the third calendar day of a month, etc.

The codes return on a monthly basis, and will be used in each specific month if the corresponding day is a trading day. For example, the 28 March contract will use the code P28, the same code that was used for the 28 Feb contract. For the Paris CAC 40 daily index options, the full coverage of all trading days includes:

Monthly option

PXA expires third Friday of the month*

Weekly options

1PX expires first Friday of the month*

2PX expires second Friday of the month*

4PX expires fourth Friday of the month*

5PX expires fifth Friday of the month*

^{* In the event that the third Friday is not a business day, the Last Trading Day shall normally be the last business day preceding the third Friday.}

All other days

As explained, the remaining days in the month are filled with the daily options based on the calendar date.

The first day of trading of a daily option class is the first normal business day preceding the expiry day.

Exchange contract code

Available exchange codes for daily options are

P1, P2, P3, P4, P5, P6, P7, P8, P9, P10, P11, P12, P13, P14, P15, P16, P17, P18, P19, P20, P21, P22, P23, P24, P25, P26, P27, P28, P29, P30, P31.

Only the relevant calendar days will be released for trading. Calendar days that represent a day on a weekend, bank holiday, or are covered by a weekly or monthly option will not be activated for that month.

All trading codes and links to the related instrument pages for both the AEX index and CAC 40 index daily options can be found in the table below.

A few examples:

• For September 2024, the first calendar day is a Sunday. The first daily expiring option is therefore P2 on Monday 2  September. P2 is listed and starts trading on Friday 30 August. The rest of the first week of September is covered by P3, P4, P5, and on the Friday by 1PX (the weekly option).
• For October 2024, the P1 contact will expire on Tuesday 1 October. P1 is listed and starts trading on Monday 30 September. The rest of the week will be covered by P30 for the preceding Monday, P2, P3, and on the Friday by 1PX (the weekly option).
• For November 2024, the first calendar day is a Friday. This day is covered by 1PX (the weekly option).

Links to the instrument pages

Contract lists on our website

Paris      Amsterdam

Capital Market Union – the role of capital markets

The existence of strong and liquid capital markets supports the growth of the European 

economy. It provides access to capital markets for issuers, including SMEs, providing 

reliable price formation and risk management. Capital market financing also supports 

and adds discipline to the transformation to a green and digital economy. Public 

markets are one of the major transmission tools towards greater sustainability and 

digitalisation, encouraging best practices in corporate governance, the 

internationalisation of companies, transparency, and environmental stewardship.

Capital markets can also promote a broader investor culture and a more efficient 

pension system. By easing pressure on public finances through improved risk-sharing, 

public markets play a vital role in societal wealth creation and can complement public 

pension systems.

As a true pan-European financial markets infrastructure provider across trading, 

clearing and settlement, Euronext helps overcome issues of fragmentation, 

providing benefits to investors and issuers alike. After Euronext migrated the trading 

of Italian securities on its proprietary technology platform in 2023, investors and 

issuers can now benefit from a single liquidity pool with an aggregated market 

capitalization of more than € 6.5 trillion. In 2023, c. 24% of European equity flows 

have been traded on the Euronext platform.

Addressing market fragmentation

Consolidation should be encouraged in Europe across the value chain and across asset 

classes. Financing the European economies is a critical industrial capability, and the 

next Commission must focus on creating a favorable environment for further 

consolidation opportunities to emerge.

Exchanges and post-trade infrastructures have played a large part in furthering the 

CMU. Euronext has spent considerable efforts in connecting capital markets by way of 

consolidating orderbooks, forming one single liquidity pool for markets and is 

promoting harmonization of its CSDs through its Euronext Securities projects. It is 

important to note that consolidation efforts are individual strategic business decisions 

that respond to economic realities and growth prospects. Any further consideration of 

consolidation steps should go hand in hand with a recognition of exchange groups and 

strengthening of the harmonised regulatory framework to allow exchanges to operate 

in a consolidated manner. This is a necessary precondition for companies to decide on 

consolidation steps in a commercially reasonable manner and to respect their 

shareholders’ interests.

It should furthermore not be forgotten that consolidation alone is not the silver bullet. 

Divergent applications of European rules across its European markets must be 

addressed. We must progress towards a single set of rules, enforced by a single 

supervision authority which will reduce complexity. This requires the phasing-out of 

national exemptions and domestic ‘goldplating’ of EU regulations, and an empowered, 

and necessarily reformed, European Securities and Markets Authority.

Priorities for the next mandate

The next mandate should focus on:

1. Implementation and assessments of the result: It is critical to advocate for a legislative pause and focus on implementation, especially where it regards recently agreed packages on the ESG front and the digital area.
2. As a general principle, newly proposed regulation and supervision of financial services should incorporate the following key elements:
   1. A systematic "competitiveness test" with a clear assessment, before introducing new rules, whether such new rules will weaken or strengthen European companies and beyond the European strategic autonomy.
   2. Simplification as an overarching approach encompassing simple access to markets, simple listing rules, convergence in supervision.
   3. Maximum harmonization.
3. Regulatory and supervisory simplification. A focus is needed on necessary adjustments to facilitate the ability of European financial market infrastructure to deliver positive and harmonised outcomes for the real economy and citizens. The current complexity prevents value creation commensurate with the potential of European economies. In this respect we see two options:
   1. We believe we should work towards ESMA supervision as the single regulator. Pan-European groups should transition under a single supervision authority to ensure a true level- playing field with subsidiaries of global financial firms operating from a single country
   2. In the interim, whilst taking steps towards this goal, we need to tailor the regulatory regime applying to exchanges taking steps to acknowledge the concept of a group of exchanges operating in more than one country in the EU. The condition for these exchange groups to fully operate on a consolidated basis is the need for a true single rulebook, no local gold-plating and fully harmonized supervision. The consolidated groups should be allowed to organise the group and its functions as if it were one legal entity. Only then can financial market infrastructures create full value and efficiency. This requires a mindset change where national supervisors look for the interests of the total markets across the borders of their own jurisdiction.
4. Incentivize public and private savings into equity markets. Europe has a prevailing culture of risk aversion and overall lacks a vibrant equity culture. The bias towards debt and bank financing, coupled with an abundance of retail bank savings, creates a climate of cautious investment. European households hold €10 trillion in cash within their bank accounts, and fewer than 10% of them are actively engaged in direct equity holdings¹. This risk aversion not only limits the diversity of investment portfolios and the resilience of pension systems but also contributes to a scarcity of early-stage funding for innovative ventures, hindering the growth of startups. Measures like a revamped equity fund or debt-equity bias reduction allowance would help channel these savings into listed equity and provide solid returns for citizens.
5. Learning from experience and best practices will be key to encourage retail investor participation. In this sense, the Retail Investment Strategy (RIS) proposal could offer a unique opportunity to increase retail investors’ participation in EU capital markets. We suggest reconsidering the current proposals moving beyond discussion on costs and risks and consider the true  purpose here: provide and promote retail access to capital markets and focus  on a more investor-centric approach that looks into the goals and strategies of retail investors, their behaviour, risk appetite and their investment priorities. 
   
   We need to take a balanced approach that takes into account investor protection concerns while incentivise retail investor participation in capital markets and their access to a diversified product offering, through (i) a  harmonized treatment of retail investors across Member States, (ii) a roll-out of systematic financial literacy training and (iii) measures to incentivise research coverage to improve transparency on listed companies.
6. Tap into long-term saving plans through tax-efficient saving schemes – including capital gains, income, and inheritance tax exemptions – which promote investment in European companies and a diversification of assets to balance risk with their time horizon. These plans should have simple eligibility criteria and include a proportion of investment in European public equities, to address the global mandate of investors and the rise of passive investments.
7. Supporting cross-border investments: the EU needs to prioritize crossborder investments as a key objective and facilitate financial market infrastructure in their consolidation. Challenging areas that require regulatory harmonization should finally be addressed, notably insolvency laws and remaining required adjustments to the post-trading regime.

Download memo CMU 2.0 priorities

¹ <sub>ECB,

https://www.ecb.europa.eu/pub/pdf/scpsps/ecb.sps46~3563bc9f03.en.pdf?0a…</sub>

 

SME Growth Markets

Under the Capital Markets Union project (CMU), and in order to support jobs and growth in the EU, the European Commission has set in motion several legislative and non-legislative initiatives aimed at strengthening public capital markets financing for SMEs and midcaps over the last several years.

In 2018, the European Commission published legislative proposals to build upon the creation of ‘SME Growth Markets’ in MiFID II. This follows from an industry consultation at the end of 2017 on potential proposals for targeted amendments to MiFID II, the Prospectus Regulation and the Market Abuse Regulation (MAR) to strengthen the attractiveness of these markets for SMEs and midcaps. As the operator of Growth Markets across its jurisdictions, Euronext is greatly supportive of such initiatives.

Euronext’s position on the EU SME Growth Markets initiatives

Commission Proposals to Promote the Use of SME Growth Markets (May 2018)

On May 24th 2018 the European Commission published proposals to amend the MiFID II, Prospectus and Market Abuse Regulations’ Frameworks in order to introduce further regulatory alleviations for all companies listed on SME Growth Markets.

Euronext welcomes and supports these initiatives. It is however our experience that, while many themes are shared across countries and markets, there are important differences and nuances which require flexibility in the regulatory and supervisory approach. This is critical to enabling implementation of tailored solutions that meet the specific needs of SMEs and midcap public capital markets.

While Euronext is supportive of legislative amendment in many of the areas identified by the Commission, we believe it is important that policymakers and regulators embed this core principle in any EU legislation seeking to improve the attractiveness of EU Growth Markets for SMEs and midcaps.

As an example, we believe the legislative changes should go further in ensuring that bond-only issuers also benefit from the proposed alleviations, particularly when it comes to the Market Abuse Regulation (MAR) where the majority of requirements are tailored for equity markets.

In the aim of developing a regulatory framework supporting access to public markets for all SMEs, Euronext makes proposals to adapt definitions in the Prospectus Regulation and a number of requirements in the MAR framework to bond-only issuers.

Commission Consultation on SME Growth Markets (December 2017)

In December 2017, as part of the preparation of the legislative proposals, the European Commission published a consultation on potential measures to strengthen the attractiveness of MIFID II’s SME Growth Markets, with a view to introducing targeted amendments to the relevant EU regulatory frameworks.

A detailed summary of the Euronext response to the consultation can be accessed above. The paper notably includes a comprehensive overview of the challenges faced by public markets for SMEs across the Euronext jurisdictions.

ESMA Consultation on functioning of the SME Growth Market regime

n May 2020, ESMA published a consultation on the functioning of the regime for SME Growth markets under MiFID and on the amendments to the Market Abuse Regulation for the promotion of the use of SME Growth Markets. Euronext welcomes the opportunity to comment on this consultation as we believe there is a lot of potential for this regime, but more needs to be done to make it a more attractive proposition for SME issuers. Our response to the consultation can be accessed below.

Downloads

21/12/2017

Public consultation on building a proportionate regulatory environment to support SME listing

01/04/2018

EU SME Growth Markets Consultation - Euronext Position Paper

21/06/2018

Commission Amendments to the Delegated Acts under MiFID II – Euronext Position Paper

07/08/2020

Euronext Position Paper on the EU SME Growth Markets Initiatives

Common Agricultural Policy (CAP)

The Common Agricultural Policy (CAP) is deeply rooted in the construction and development of the European Union. Established in the early 1960s around goals enshrined in the Treaty, it has since undergone several waves of reforms to improve the competitiveness of the agricultural sector, to foster rural development, to address new challenges and to better reply to societal demands.

Following the publication of the Communication on the Future of Food and Farming in 2017, the European Commission launched a set of proposals laying down the legislative framework for the CAP in the period 2021-2027 where the Commission aims to further improve the sustainable development of farming, food and rural areas. Consequently, a key element of the proposals is to identify and roll-out new market oriented solutions to make the farming sector more resilient and improve farmers’ position in the value chain.

As the leading futures market operator for a number of agricultural commodities in Europe, Euronext supports the Commission’s goal to increase the involvement of all stakeholders in the agricultural value chain by putting in place European platforms and networks to facilitate exchanges of experience and peer to peer learning on new risk management tools.

These platforms will provide farmers with adequate knowledge of financial instruments for investments and will help them strengthen their on-farm strategies. A robust CAP framework to facilitate farmers’ access to risk management tools can help stabilise markets, assure the availability of supplies and ensure that they reach consumers at a reasonable price.

Euronext Position on EU Agricultural Commodities Markets ahead of the Common Agricultural Policy 2020 review

Euronext supports the Commission’s efforts to make the CAP more responsive to current and future challenges via the creation of CAP Strategic Plans, which would grant flexibility to Member States in the allocation of EU funds, with a view to making the farming sector more resilient.

Euronext believes that the CAP legislative framework could benefit from additional incentives and/or measures to promote the use of risk management tools aimed at reducing the negative consequences of price volatility for agricultural market participants.

Euronext therefore welcomes the formation of the European CAP Network to provide peer-to-peer learning and awareness-raising actions for EU farmers in the management of their agricultural risks. The creation of such informative platforms should incentivise individual responsibility and enforce the position of individual farmers in the food value chain.

In addition, Euronext supports the proposal to establish a permanent EU-level platform for risk management. This should provide a forum for farmers, public authorities and stakeholders to exchange experience and best practices.   

The Euronext position paper provides more details on the functioning of the futures market and the benefits it brings to the farming community.

Downloads

Euronext High-Level Position the EU Agricultural Commodities Markets ahead of the Common Agricultural Policy 2020 review

Following the entry into force of MiFID II and associated increase in systematic internalisers (SIs) reported volumes, EU policymakers’ attention has focused on the non-application of the tick size regime to SIs and the implications of this exemption for the effectiveness of EU public equities markets.

In the context of the Investment Firm Review (IFR), amendments have been tabled in the European Parliament to extend the application of tick sizes to SIs.

In light of these developments, Euronext calls on EU policymakers to ensure a level playing field between trading venues and SIs and supports applying the tick size regime to SI and trading venue activity up to large-in-scale (LIS).

Euronext’s Position on the Extension of the Tick Size Regime to Systematic Internalisers (SIs)

Policymakers’ attention is currently focused on the non-application of the tick size regime to SIs and the implications of this exemption for the effectiveness of EU public equities markets. This concern has been translated into a proposed amendment from the European Parliament to extend the tick size regime to SIs in the context of the Investment Firm Reform (IFR). With the Council having recently adopted its position on the IFR proposals, Euronext believes it is timely to consider some issues of relevance to the ongoing trialogue discussions.

Euronext believes that it is acceptable for large-in-scale (LIS) trades executed on SIs and Trading Venues, and trades that are non-price forming, to be exempt from the tick size regime. In particular:

• A level playing field should exist between trading venues and SIs. Euronext supports extending the tick size regime to SIs up to LIS, recognising the fact that over applying the tick size regime may raise issues in respect of above LIS transactions. Above LIS, if SIs are exempted from applying tick sizes, then so should Trading Venues.

• MiFID II recognises that non-price forming trades (regardless of the size) may be exempted from tick sizes because they are not subject to the shares trading obligation. As such, these trades are still allowed for OTC execution and not subject to any tick size requirement when executed OTC.

Downloads

Euronext Position Paper on EXTENSION OF THE TICK SIZE REGIME TO SYSTEMATIC INTERNALISERS (SIs)

EU Benchmarks Regulation (BMR)

The EU Benchmarks Regulation, applicable as of January 2018, provides the basis for the regulation and supervision of benchmark administration in the EU. BMR provides a set of different regulatory frameworks to accommodate the full range of benchmarks present in the market. This is achieved via a categorisation of benchmarks into non-significant, significant and critical categories.

Moreover, the EU legislator also introduced a category covering Regulated-Data Benchmarks to reflect the fact that benchmarks based on regulated data (i.e. data from regulated trading venues) are less prone to manipulation as the input data is already subject to stringent pre and post trade rules in EU legislation (notably MiFID II and MAR).

Euronext supports the broad policy objectives underpinning the new EU framework. At the same time, Euronext has been obliged to avail itself of the transitional provision that BMR provides to existing benchmark providers until Jan 2020. The reason for this is that there are ongoing issues with key definitions in the legislation impacting on the applicability of the regime for Regulated-Data Benchmarks.

Euronext Position on Remaining Definitional Issues in BMR

BMR defines Regulated-Data Benchmarks as benchmarks based on input data which comes ‘entirely and directly’ from (amongst other sources) trading venues, as defined by MiFID.

Today, benchmark administrators often obtain data from trading venues via market data providers that provide the technical link between the venue and administrator without making any alterations to the unprocessed data. In our view, such practices should be deemed to fall within the scope of a Regulated-Data Benchmark, specifically meeting the requirement for the data to be taken ‘entirely and directly from the trading venue’ so long as the data is provided in a raw and unprocessed state.

The Euronext position paper provides more details on the issue as well as outlining proposals for clarification at Level 2.

Downloads

Euronext Position Paper on Benchmarks Regulation – Regulated data benchmark