The European equity markets fragmentation has penalized small investors:

Less transparency and no real "best execution" of trades

Findings from new research conducted by Equiduct for EuroInvestors

Brussels, 03/02/2011 - The European MiFID* Directive in force since November 2007 has facilitated the fragmentation of the European equity markets into multiple "trading platforms": regulated markets (RMs), multilateral trading facilities (MTFs) and "Systematic Internalisers" (SIs), not to mention a growing, diverse and opaque over the counter (OTC) market and dark pools now offer trading in European equities. 

Less transparency
An unfortunate consequence of this market fragmentation for small investors - besides increased complexity - is that they no longer get comprehensive trade data, either "pre trade" (i.e. best bids and offers at a given time) or "post trade" (i.e. last trades' prices and volumes), as they are forced to mostly rely on the "Home Market**" data. The problem is that Home Market (HM) data now covers only a part of the actual orders and trades as the market share of these HMs has dropped significantly (down to less than 50% sometimes) . The asymmetry of trade information has increased significantly, to the detriment of small investors.

No such thing as "best execution" assurance
Another unfortunate consequence is the lack of systematic "best execution" of retail investors' trades, despite best execution being an important requirement of MiFID. Retail investors' orders are still mostly executed on the "HMs". The attached research shows that up to 19% of trades executed on HMs in the most liquid stocks miss the best price available on other markets. Over the last year, the cost to retail investors in only one given listed share can amount to millions of Euros.

The European Federation of Investors asks the European Authorities to amend the MiFID Directive, as a matter of consumer protection, to better take the interests of small investors into account and in particular to amend the current transparency and best execution provisions to place a greater emphasis on providing the best available information and price to retail investors. This should be a fundamental rightfor the retail investor who suffered significantly as a result of the financial crisis. The full analysis conducted by Equiduct and the requests from EuroInvestors to the European Commission on the MiFID review is attached.

*Markets in Financial Instruments Directive
**The traditional exchanges where the stocks were traded before the application of MiFID

 EuroInvestors (the European Federation of Investors or EFI) was created in 2009, following the financial crisis which demonstrated the limits of the almost exclusive dialogue between regulators and the financial industry, largely ignoring the user side. EFI aims at representing and defending at the European level the interests of financial services users in order to promote training, research and information on investments, savings, borrowings and Personal Finances of individuals in Europe. Already Euroshareholders and about 45 national organizations of investors and other financial services users have joined us, and EFI already represents about two million European citizens. 

Equiduct

Equiduct is a technology and transactions services provider specialising in offering low latency market data and trading platform solutions.

Contacts:

- EuroInvestors: tel: +32 2 514 37 77 - info@EuroInvestors.org
- Equiduct: +44 20 3102 4080 - info@equiduct.com

Annexes:

- Retail trades "best execution": cost of opportunity analysis by Equiduct for EuroInvestors
- Access to real time data: 2 examples highlighting the difference between the information provided to the retail investors and the existing data available across Pan European venues
- EuroInvestors Reply Summary to the European Commission consultation on the revision of the MiFID Directive (full reply available on the EuroInvestors website here).