Hayley McDowell, EU equity electronic sales trader and market structure consultant, RBC
In 2025, we will see momentum in European dark trading continue to build. Over the past 12 months, we have seen an explosion in dark trading and trajectory crossing venues, driven in part by the loosening and scrapping of double volume caps in the EU and UK. Increasing competition for market share in Europe’s shrinking lit markets has also played a role – this year, lit markets hit their lowest level as a proportion of overall European trading activity.
What does this mean for the buy-side? On the one hand, traders can expect more execution choice and capabilities. On the other, new venues mean greater fragmentation of dark and lit liquidity, and the potential for even greater complexity. Exchanges across the continent and even in the US are looking to get a slice of the action in Europe’s dark markets. Traders will have to keep a close eye on new venues entering the market to take advantage of greater execution choice but also to navigate an increasingly fragmented market.
Belinda Mar, EMEA equities market structure, Bank of America Securities
We’ve seen exchanges continue to innovate and launch new execution channels all through 2024, which isn’t a new thing, but of interest for 2025 are new European crossing platforms trying to replicate their successes in AMRS, alongside primary exchanges dipping their toes into dark pools.
The differentiator in Europe at the moment is the trajectory cross, following its success in AMRS. CBOE, Nasdaq and Aquis are launching between Q4 2024 and Q1 2025. Whilst each of these offerings are slightly different, they have been popular in the US and Canada due to the rise in passive trading. Trajectories are algorithms which are benchmarked to an average price over time.
In addition, a handful of primary exchanges have decided to compete in the dark pool space which will complement their more traditional offerings in lit markets. Euronext introduced their dark book in Q2 2024, enabling clients to trade at mid-point in the dark. Deutsche Borse and BME have just gone live with similar offerings in December 2024.
Finally, US based ATS One Chronos is looking to expand into Europe in 2025, where it will compete for a share of the periodic book. Whilst the level and pace of innovation is positive, we note that the European trading landscape is one where volumes remain low, fragmentation is high.
Iouri Saroukhanov, head of European derivatives, Cboe Europe
We anticipate one of the key trends in 2025 to be the continued increase in retail investor participation in European capital markets, particularly through exchange-traded products. While there is already some investing activity among European retail investors, it varies greatly between countries, with different products preferred in different regions. Overall, Europe has lagged behind other regions in retail market involvement due to regulatory, taxation, and cultural barriers. However, we expect this to change as policymakers increasingly recognise the benefits of a more engaged retail investor base and market participants become more attuned to the specific needs of this community in Europe.
Efforts to bridge this gap will focus on enhancing education, accessibility, and a supportive regulatory environment. Educational initiatives will equip retail investors with the necessary knowledge and resources to better understand and utilise financial instruments like equity options. This will help them embrace the benefits of these products, rather than only focusing on complexities of derivatives, to help them achieve financial goals across their target time horizons. Accessibility will be improved through exchanges, mobile-first trading platforms, and apps, making investing in exchange-traded products more appealing to the retail segment.
We expect more of the neo-brokers that have fostered retail participation in the US to make their way to Europe in 2025. Lastly, regulatory frameworks, such as the European Commission’s Retail Investment Strategy, will help support retail participation by addressing risk perceptions around options and promoting their benefits as transparent, centrally cleared financial products that offer risk management and income generation opportunities.
Seema Arora, managing director, head of EMEA execution services, Stifel
With nearly half the world participating in State elections this year, policy changes and geopolitical movements will be key factors for markets in 2025. While the US market momentum (i.e. magnificent 7) continue to impress, we believe compelling small and mid-cap investment themes will emerge. This is particularly true in Europe where earnings visibility is improving, and the specter of deregulation could meaningfully stimulate investment trends. The combination of consultation papers and a softening of Mifid II policies (re-bundling) are marginally helpful, but primary market health indicators will be the barometer for a more competitive European landscape.
From a trading perspective, sourcing liquidity outside of the lit market remains paramount for dealing desks. The sell-side will seek to optimise unique liquidity opportunities for clients; those able to leverage alternative pools (e.g. retail flow) should be well placed. Closing volumes will undoubtedly still dominate attention spans as will the evaluation of price formation versus cost of alternatives. It wouldn’t be surprising to see some consolidation in the market given the degree of fragmentation amongst venues and brokers. AI adoption will increase across the investment cycle and technical advancements to pre-match on T+0 prepare for the inevitable T+1 deadline. Watch this space!