Despite growing political and industry concern that Europe’s equity markets are falling behind the United States, new research suggests the situation may not be as dire as it seems.
A forthcoming report by New Financial, produced in partnership with Goldman Sachs, argues that perceptions of fragmentation and illiquidity in European markets are overstated. The study challenges the widely held belief that Europe’s complex network of exchanges and trading systems is fundamentally undermining its competitiveness.
Calls for a Unified European Exchange
The debate was reignited last week when German Chancellor Friedrich Merz proposed the creation of a single European stock exchange. He argued that Europe’s fragmented financial system — divided among more than 35 exchanges, 17 clearing houses, and 28 settlement systems — discourages investment and drives companies to list in the United States.
By comparison, the U.S. market appears far simpler, with only two main listing venues, one central counterparty (CCP), and one central securities depository (CSD). This structural simplicity, coupled with its massive scale, helps explain why the U.S. stock market is four times larger by value, three times bigger relative to GDP, and twice as liquid as Europe’s.
Indeed, the combined market value of America’s “Magnificent Seven” technology giants — over $21 trillion — now exceeds the total market capitalization of all European stock exchanges.
Fragmentation vs. Functionality
However, the new report suggests that Europe’s multi-market structure is not as inefficient as critics claim. While it may resemble a “spaghetti junction” compared to the U.S. system, Europe’s equity market infrastructure has adapted remarkably well.
Cross-border trading platforms such as Cboe Europe, the consolidation of exchange groups, and advanced order-routing systems have helped create a more seamless and interconnected market than the fragmented surface suggests.
Moreover, the share of total trading conducted via order books versus alternative venues has remained broadly stable since 2019 — at 56% and 44%, respectively — nearly identical to the split seen in the U.S.
Transparency and Trading Patterns
European reforms under MiFID I and II increased competition by allowing trading across multiple venues, but they also reduced the dominance of traditional exchanges. Today, less than one-third of trading occurs on these exchanges — and only 28% in Europe (and 22% in the UK) takes place via “lit continuous trading,” the most transparent form of trading.
Some policymakers, including former City minister John Glen, have warned that this shift toward less visible trading could harm liquidity and investor confidence. Yet data shows no significant deterioration in market function.
In fact, increased competition has given investors greater flexibility and access to a broader range of trading mechanisms. Many now access more than double the liquidity available on traditional exchanges by using alternative venues, often achieving lower market impact and reduced costs.
Deeper Structural Challenges
The report concludes that Europe’s key challenges lie elsewhere — particularly in the shortage of long-term capital pools, such as pension funds, and the region’s savings-oriented financial culture, which discourages equity investment.
Regulatory complexity across different jurisdictions also remains a major obstacle. Even with efficient trading mechanisms, fragmented supervision and varying national rules make it harder for capital to flow freely across the bloc.
A Different Path to Competitiveness
Analysts say that Europe’s efforts to close the gap with the U.S. should focus on mobilizing long-term investment capital, simplifying regulation, and strengthening the culture of equity ownership — not necessarily on merging exchanges or restricting competition.
As the European Commission and the UK Financial Conduct Authority prepare to review market structure rules, the findings offer a timely reminder that Europe’s equity markets may be performing better than they appear.
Creating a single exchange might be politically appealing, but the real test of Europe’s financial strength lies in how well it channels its citizens’ savings into productive, long-term investment — not just in how many exchanges it operates.
