Trade volumes spike at exchanges across Europe

Huge amounts of share trading normally done through banks or anonymous marketplaces shifted back on to exchanges in March, as traders opted not to wait for end-of-day auctions to dump positions.

Monthly data showed that activity on exchanges and other public venues surged amid the ferociously volatile month, in which the US benchmark S&P 500 made its quickest ever descent into a bear market, while the FTSE 100 recorded its worst quarter since 1987.

Average daily trading volumes across exchanges in Europe soared to €69bn in March, a 60 per cent year-on-year increase, according to data from Cboe Europe. 

Germany’s Xetra traded €259.6bn for the month, the highest level since January 2008, according to Deutsche Börse. The London Stock Exchange traded in excess of £10bn of deals several times in March, more than double its daily average of £4.6bn last year.

Those gains have largely been made because fund managers have used the former monopolies to trade shares, instead of using banks or high-frequency traders.

The market share for exchanges and other marketplaces known as multilateral trading facilities had slipped as low as 45 per cent in December but rose to 54 per cent in March, according to data from Big XYT, a data provider, as investors used them to get in and out of positions rapidly.

Peter Sleep, senior portfolio manager at Seven Investment Management, said in more normal markets large asset holders would be happy to trade anonymously, and wait for the best price and lowest cost. Typically, they would use off-exchange venues such as “dark pools”, where prices are disclosed only after a deal has been executed.

“When a crisis hits, they really go to the most transparent and widely used place and the cost of trading isn’t really such an issue when you want liquidity,” said Mr Sleep. “It’s almost muscle memory kicking in during the crisis.”

Niki Beattie, founder of Market Structure Partners, a UK consultancy, said volatile markets drew in institutions, market makers and retail investors alike to meet on public exchanges. “It just becomes a circular effect. All these people want to meet somewhere and the [exchange] is the best place,” she said.

The shift comes amid a regulatory debate in Europe over the practice of trading large blocks of shares away from exchanges’ central order books.

The steady rise in that activity has drawn scrutiny from EU regulators, who are worried that it makes trading more opaque and disadvantages ordinary investors. Before the coronavirus outbreak, authorities had planned to look at the rules again over the spring.

Under the Mifid II overhaul of financial market regulation, banks were banned from trading customers’ orders in-house and activity in dark pools was capped, in an effort to increase transparency.

However, the changes had little effect on trading behaviour and investors continued to trade away from exchanges and similar venues. The European Securities and Markets Authority, the Paris-based agency, said late last year that the Mifid revamp had been “only partially successful”.