Whilst packing my bags for my annual hols, I was thinking about the rates of fragmentation between different European countries. Most of Europe, especially the UK, Germany and France, seems to be following the same path with the notable exception of Spain. Stocks within all the major European indices are trading with an FFI approaching or exceeding 2, whereas Spanish stocks remain resolutely un-fragmented.
Why is it that over 99% of the trading in Spanish equities still occurs in Madrid? Maybe there isn’t sufficient volume or interest amongst the MTFs? Actually, no. Turnover in Spanish stocks is roughly half that of London or Paris so it’s definitely market share worth trying to grab. The answer is a good reflection of the challenges MiFID faces in trying to create a single European market for equities trading. Whilst MiFID provides one set of Europe-wide regulations they are, of course, subject to interpretation and enforcement by each of the domestic regulatory authorities. The situation in Spain seems hugely and unnecessarily complicated (for a good explanation please click here).
Whilst I am sure that these reasons are genuine, I can’t help wondering whether the same situation would have been allowed to persist for so long in London, Frankfurt or Paris.
Fragmented trading is increasingly becoming the norm across Europe and national exchanges have had to innovate to meet the challenges of the MTF community. This is making them more agile, competitive and increasingly pan-European in outlook. Once the barriers are finally removed in Spain the BME may find it has a lot of catching up to do.
Anyway, one to ponder over a few cool cervezas during the next couple of weeks …