BETTER FINANCE welcomes ESMA’s Call for Evidence on the market structure of European equity markets. While the questions are technical in nature, the key issue for retail investors should not only be whether markets offer more apparent execution channels, lower explicit transaction costs or wider access through digital brokers. It is also whether current market conditions, and possible distortions within them, support broader / more direct access to EU markets that are fair, transparent and capable of delivering verifiable execution outcomes, while preserving robust public price formation in the long run. This includes limiting hidden implicit costs and also consider avoiding adverse effects on actual trading mathods and access. This also matters for the attractiveness of EU public markets and IPOs, which ultimately depend on visible liquidity, reliable price discovery and trusted secondary markets.
In its report, ESMA’s evidence shows a structural shift in EU equity trading: lit continuous trading on regulated markets fell from around 35% of turnover in 2022 to 27% in 2025, while non-intragroup SI trading rose from 5.1% in Q1 2022 to 10% in Q4 2025. OTC trading also remains material, at around 7-8% of turnover, while CLOB + closing-auction activity on primary markets declined from around 72% in 2022 to 64% in 2025. At the same time, closing auctions, frequent batch auctions, systematic internalisers and other ‘bilateral’ or reference-price-based mechanisms have gained importance. In plain terms: more trading appears to take place away from the main lit / price-forming markets, while still relying on the prices those markets generate. Although addressable liquidity appears broadly stable, this may conceal a more qualitative concern: more execution may take place in mechanisms that rely on prices formed elsewhere, while contributing less directly to public price formation.
Two fragmentation dynamics should be acknowledged: cross-market fragmentation, where liquidity is dispersed across national / EU trading venues and remains difficult to access seamlessly across borders; and intra-market fragmentation, where liquidity within the same instrument is increasingly dispersed across execution models. From a retail perspective, the core concern is the latter: part of the current market structure shifts liquidity away from open, lit and multilateral markets towards more proprietary / bilateral execution systems (often managed by investment banks or specialised firms). While the current envisaged MISP reforms, including the Consolidated Tape and related trading / post-trading measures, provide important tools to support market integration, they do not fully address the inherent distortions created by intra-market fragmentation, where alternative execution systems compete with regulated markets while relying on prices formed elsewhere. Such instances of “bilateralisation” may divert liquidity away from lit regulated markets, which are essential to orderly trading, neutral price formation and fairer access to liquidity. A connected issue is that liquidity executed in dark pools, SIs or other less transparent mechanisms may be less visible to end-investors and may weaken confidence in the wider equity market. Reported exchange volumes may therefore understate the overall level of trading in European stocks, while visible lit liquidity may appear thinner than it should. This can also affect IPOs and issuer confidence: if secondary trading is quickly absorbed by internalisation or bilateral execution channels, issuers and retail investors may perceive weaker market depth, poorer market sentiment and less reliable price discovery.
For these reasons, BETTER FINANCE’s overall call is to re-open the market-structure discussion and ensure a better level playing field between internalisers and regulated markets. Alternative / bilateral execution models should remain possible, but their use cases should be justified by meaningful price improvement, transparency and appropriate safeguards, rather than being normalised as default retail execution channels. Under the MISP reform, retail investors should expect better market conditions and stronger consolidation of lit liquidity pools, including improved cross-border access and reduced intermediation. Ultimately, market integration should support a price-discovery-first structure, where competition improves retail outcomes without weakening the lit markets on which fair execution, issuer confidence and long-term EU market attractiveness depend.
In conclusion, retail participation in EU capital markets will only be strengthened if lower explicit costs are accompanied by implicit ones that result from orderely markets relying on robust public prices and safeguards against ‘hidden’ implicit costs. European equity markets must remain orderly, transparent, competitive, resilient and verifiable for end-investors – whilst much must be achieved to rectify current imbalances and fragmentation.
In detail, on selected items, we argue:
- On market structure / addressable liquidity: ESMA should distinguish more clearly between addressable liquidity, price-forming liquidity and retail-accessible liquidity. A transaction may be “addressable” in technical terms, yet remain unavailable / invisible / difficult to verify for the retail investor whose order is routed by a broker or further intermediaries. Conversely, liquidity reported as available may not necessarily contribute meaningfully to public price formation.
On SI-OTC / XOFF reporting: transactions reported as XOFF by firms that also act as SIs deserve closer scrutiny, as they may blur the boundary between bilateral SI execution, OTC execution and non-addressable liquidity. Where EU retail flow is involved, it should be clear whether execution was exposed to competitive liquidity or internalised by a broker / affiliated liquidity provider.
On the decline of lit continuous trading: the reduction of CLOB / lit trading should be treated as a market-quality and investor-protection concern, not merely as a normal evolution in execution choice. Lit, multilateral markets remain the main mechanism through which buying and selling interests interact transparently, continuously and, in principle, on a non-discriminatory basis.
On price formation / reference-price dependency: where a decreasing share of trading contributes to lit price formation while a growing share references those prices, the robustness of price discovery may deteriorate. Retail investors may still receive executions that appear marginally better than the displayed best bid / offer, but the benchmark itself may become less reliable if lit depth, spreads or time at EBBO worsen.
On SIs / internalisation: BETTER FINANCE does not oppose SIs as such, but their growth should not be driven by regulatory advantages, weaker transparency, tick-size flexibility, midpoint / off-tick execution or broker routing incentives. Where retail flow is internalised or routed to a single liquidity provider, price improvement should be genuine, meaningful and verifiable – not merely rely on nominal (often virtual) or sub-tick.
On explicit vs implicit costs: lower commissions, digital access or narrower displayed spreads should not be treated as sufficient proof of better outcomes. Retail execution quality also depends on implicit costs, effective spreads, routing concentration, execution certainty, market impact, conflicts of interest and the robustness of the underlying price-formation process over the long run.
On lit-market alternatives: where brokers rely on bilateral / internalised / single-venue execution models, retail investors should have access, in principle, to at least one meaningful lit-market execution alternative. This would support practical choice, verifiability and exposure to genuine market competition, while mitigating routing dependency and “trade halt”-like risks in quasi-bilateral channels and bypass conflict of interest that may arise.
On less liquid instruments / SMEs: we find dispersion of liquidity to be particularly harmful where instruments are less liquid, such as SMEs’ shares. Retail investors may be locked into the “securities on offer” and execution arrangements of a given broker, while issuers may face weaker visible liquidity and less reliable secondary-market depth.
On issuer confidence / IPO attractiveness: a healthy listing environment depends on a liquid, transparent and trusted secondary market. If secondary trading is absorbed by bilateral or less transparent channels, issuers and investors may face less visible liquidity, weaker valuation signals and poorer market sentiment, ultimately affecting IPO attractiveness.
On FBAs, dark trading and benchmark mechanisms: ESMA should look beyond headline dark-trading figures and also monitor any substitution effects, including movement from formal dark pools into FBAs, SI midpoint execution or benchmark mechanisms.
On closing auctions: official closing auctions should remain robust, transparent and supported by meaningful order interaction, given their importance for funds, ETFs, benchmarks and end-of-day valuation. Alternative trade-at-close / guaranteed-close models should be clearly distinguished from mechanisms that actually form the closing price.
On member preferencing: we are doubtful of any practice that undermines price priority and/or equal access, especially where transparency or fair execution may be affected; such practices should be restricted / calibrated. Yet, this should be assessed across the whole execution landscape, so that transparent venues are not constrained while bilateral / single-market-maker models retain broader discretion. The aim should be to preserve fair and orderly markets without weakening lit venues’ ability to compete with less transparent execution models.
On the Consolidated Tape: the CT should support retail and supervisory verification of execution routing and best-execution outcomes. Post-trade CT data is paramount and should become a standard reference point to compare brokers’ execution practices. Pre-trade data with venue attribution may also be useful, not as a retail trading tool, but to assess how bilateral models rely on reference prices and whether they contribute to, or merely use, lit market price formation, potentially creating further imbalances. In this context, we support full SI reporting, especially for retail-related trades. Finally, to make such checks operational for retail investors / supervisors, brokers should provide accurate timestamps, venue information and relevant reference prices.
On the level playing field: ESMA should tackle current unintended advantages for certain bilateral execution models (including through tick-size treatment, midpoint execution, pre-trade transparency, reporting practices, access conditions or post-trade flagging). Whilst the objective is not to prescribe one trading model, it should to ensure that competition improves retail outcomes without weakening public price formation.
On the broader SIU / MISP objective: market integration should not make bilateral execution more scalable by default, but should facilitate the operation and consolidation of lit trading. Retail investors should benefit from broader cross-border access, reduced intermediation, more visible liquidity and more verifiable execution outcomes, with lit / multilateral markets remaining the anchor of EU price discovery. This should ultimately strengthen the competitiveness of EU public markets / IPOs, rather than create further advantages for proprietary or internalised execution models.