Before Europe Rewires Equity Markets, It Needs to Define the Problem

What You Need to Know:

• European regulators should define the problem before reforming its equity markets.
• Market complexity can support choice, competition and execution quality.
• Evidence should guide decisions on dark trading, transparency and price formation.
• A consolidated tape could improve visibility, but data quality will be critical.
• Reform should strengthen market quality, investor confidence and global competitiveness.

This article was previously published in The Trade on August 24, 2026. It is published here with permission.

As regulators across Brussels, London and the exchanges converge on European equity market structure, James Baugh, managing director, head of European market structure at TD Securities, argues that before Europe rewires its markets, it must first agree on what problem it's actually solving.

European equity market structure is back under scrutiny, with the industry once again revisiting topics that have persisted for the past two decades. Where does liquidity form? How transparent is the market? Are the rules being applied consistently? And is the current structure helping or hindering Europe’s broader capital markets ambitions?

Those questions were also central to a recent discussion at the Quorum 15 event on the future of European equity markets that I recently moderated. Bringing together perspectives from across the market, it underlined for me that this is a necessary debate. The market cannot stand still when trading behaviour, technology and investor needs are changing.

Recent policy developments point in the same direction. The European Commission’s Market Integration and Supervision Package (MISP), Euronext’s March 2026 paper, Euronext’s position on the Market Integration Package: building liquid and efficient European markets, and ESMA’s call for evidence on the market structure of European equity markets all suggest that Europe is entering a more active phase of market-structure review. The same direction of travel is reflected in the statement from the finance ministers of the six largest EU economies, while the UK is part of the wider reassessment through the FCA’s consultation on equity market transparency and structure. Whether or not anyone calls this a Mifid III moment, the issues now being considered go well beyond minor technical adjustments. They touch on transparency, systematic internalisers, dark trading, periodic auctions, tick sizes, price formation, consolidated data, competition and the balance between exchange-based and bilateral liquidity.

Before Europe makes further changes, it needs to be clear about the problem it is trying to solve. The opportunity is to make a fragmented market more transparent, measurable and accountable, rather than to assume it needs to be simplified.

Complexity can support choice, if the market can see how it works

Trading activity in European equities is spread across lit books, dark books, systematic internalisers, periodic auctions, closing auctions, multilateral trading facilities and bilateral channels. As a result, the market is harder to analyse and explain, particularly for those trying to judge whether it is working well.

This structure does not automatically mean weakness. Since Mifid, investors have gained more choice in how they execute. Different mechanisms serve different purposes, and that diversity can support competition, innovation and better execution quality. The harder question is whether we can see enough of the market to judge that ecosystem properly.

For the firms using the market every day, this is not an abstract policy question. It affects how orders are routed, how liquidity is accessed, how execution quality is measured and how firms demonstrate value for clients. A market can be complex and still work well, but only if participants can see enough of it to assess market quality.

The real test is whether the current structure is supporting or weakening market quality, and whether there is enough evidence to make that judgement. This is where the FCA’s consultation on UK market structure appears to offer a more pragmatic approach, recognising that the evolution of market structure has not, in itself, been shown to have had negative impacts.

Evidence before intervention

ESMA’s call for evidence is useful because it focuses attention on trends that deserve scrutiny, including the increase in dark trading, the decline in lit continuous trading and the rise in bilateral trading. Those trends may point to pressure on market quality, or they may reflect changes in execution behaviour as participants use the tools available to manage cost, impact and risk. That conclusion may differ depending on the instrument, the type of flow and the market conditions, which is why the evidence needs to come first.

Price formation follows the same logic. Lit markets remain critically important because they provide visible reference prices and confidence across the wider market. If too much trading moves away from transparent, price-forming venues, there are legitimate questions about the quality and resilience of the reference price that other mechanisms rely on.

At the same time, price formation today is more distributed than the traditional model of a single primary order book suggests. The practical question is how each mechanism contributes to market quality, and whether that role is properly understood before decisions are made about how it should be regulated.

The level playing field debate also needs careful handling. Fair competition, appropriate oversight and meaningful transparency matter, but a level playing field should not automatically mean identical treatment for mechanisms that perform different functions. The objective should be proportionate regulation: comparable activity treated consistently, genuine differences recognised, and market users given enough transparency to understand how each mechanism affects execution. The consolidated tape should help, but it should not be seen as a complete answer on its own. A properly functioning tape should improve visibility across European markets and make it easier to understand liquidity, execution quality and which parts of the market are genuinely accessible. Its value, however, will depend on the quality, consistency and usability of the data feeding into it.

Reform should support outcomes, not just simplify structure

Market-structure reform also sits within Europe’s broader competitiveness agenda. Europe wants deeper, more integrated and more efficient capital markets. It wants to attract liquidity, support investment and give global participants confidence that its markets are accessible and competitive. Greater integration, however, does not have to mean less diversity. It should mean a framework that is easier to understand, access and supervise, while preserving the choice and innovation that support investor confidence and execution quality.

Competitiveness also has a forward-looking dimension. Europe is not reviewing market structure in a static environment. While it considers existing issues around systematic internalisers, dark trading, auctions and transparency, other models are developing quickly. Tokenisation, digital assets, prediction markets and new forms of data-driven risk transfer are challenging assumptions about trading, liquidity and price signals.

Not all of those developments will translate directly into European equities, and some may remain more relevant to other asset classes or market segments. But they are a reminder that the market does not stand still. Europe needs to address the real issues in today’s market without becoming trapped in yesterday’s arguments.

This is not an argument against reform. There are legitimate questions to ask about transparency, price formation, data quality and the balance between different forms of liquidity. But the next phase of reform will be stronger if it starts with a shared understanding of the problem.

The industry also needs to be clear about what it wants reform to achieve. Policymakers, regulators, venues, banks, brokers, liquidity providers and the buy side will not always see the market in the same way, but each has a part of the picture. If Europe wants deeper, more competitive and more transparent equity markets, the priority should be to build that picture properly: what is working, what is not, where the evidence points and what investors need from the market.

From there, the task is not to preserve the current structure for its own sake, or to simplify it for the sake of simplicity. It is to make sure any changes support market quality, investor confidence and the choice and innovation that have improved execution over time – recognising the need for Europe and the UK to compete on a global stage.