Europe's stock market boom is a mirage — And "Dark" trading is to blame

Bloomberg Opinion’s Chris Hughes argues Europe's rising trading volumes mask a deeper problem: liquidity has shifted off exchanges into dark pools and bilateral deals with banks and trading firms like Jane Street and Optiver. This fragmentation makes it harder for smaller listed companies to attract institutional investors, feeding Europe's IPO drought — seen this week in Amsterdam's KNDS pulling its listing. For BizNews readers, it's a cautionary tale relevant to the JSE too: as global capital increasingly chases scale and transparency, exchanges that lose "lit" trading volume risk losing listings — a pressure South Africa's own market knows all too well..By Chris Hughes.Stock trading is booming in Europe and there are many more ways of dealing shares than there were 20 years ago. Why doesn’t this feel like progress? Perhaps because so much of the buying and selling has shifted from exchanges to investment banks and electronic trading platforms. Out of the light, and into the dark.Bloomberg Intelligence’s latest European Institutional Equity Trading Study found that the biggest challenge faced by senior dealers in asset-management firms was sourcing liquidity. In other words, equity investors aren’t confident they can always find someone to buy from or sell to without moving the price of the stock against them. This is despite last year’s increase in the daily value of stocks traded continuing into 2026.The results also dovetail with Europe’s fragile market for initial public offerings. A prevailing fear is that shallow liquidity dooms any European IPO that doesn’t start out with a chunky market capitalization. The news is relentlessly negative. Amsterdam-based tank maker KNDS pulled its planned listing this week while citing poor market conditions, just after Milan-based tech firm Bending Spoons SpA carried out a successful IPO in the US. No wonder Europe’s leaders are so anxious about its capital weaknesses compared to America’s strength.How can trading be so good and perceptions so bad? Market structure may be the answer. Europe’s capital markets have always faced a disadvantage relative to the US, characterized by rival national stock-exchanges with distinct regulatory frameworks and pools of local investors. Over the past two decades, alternative trading facilities, encouraged by regulators, have provided yet more choice. The cost has been further fragmentation.Respondents to the BI survey cited “bilateral liquidity” as the most notable feature in the evolution of the market. This refers to the ability to deal directly with a trading desk — at an investment bank or specialist firm — which can offer you a price by dealing on its own account, rather than simply matching buyers and sellers without risking the intermediary’s capital.This on-demand liquidity service is no longer the sole preserve of Wall Street mainstays like Goldman Sachs Group Inc. and Morgan Stanley. An array of dedicated trading firms have gained prominence, such as Jane Street, XTX and Optiver, stuffed with computing power and math wizards able to profitably price the risk of taking the other side of a client’s idea.Whether bulge-bracket investment banks or upstarts, these so-called systematic internalizers could scarcely be more removed from the coffee-house stock exchanges of yesteryear. And regulators and exchanges are worried that the shift comes with a loss of transparency. On a traditional exchange, bids and offers are clearly displayed in real time — not so when dealing off-exchange.“Unfortunately, the UK now sits near the bottom of international league tables for the proportion of trading that happens on so-called ‘lit’ exchanges,” Julia Hoggett, boss of the London Stock Exchange, wrote in a recent blog.She’s concerned that this masking of liquidity in dark pools damages confidence in the wider stock market. The claim deserves attention. If reported exchange volumes are understating trading in European stocks as a whole, there are indeed real-world consequences.Institutional investors may be blocked from owning a stock whose exchange-traded volumes are below a certain threshold even though there’s plenty of trading happening elsewhere. So the listed company loses an investor it might otherwise have had, making it harder for it to raise capital. You can see how this could deter debutant companies from pursuing an IPO.Reforms underway include plans for a “consolidated tape” that pulls together market quotes from the various venues into a single feed and provides more comprehensive data on both pricing and volumes. A European version is due to be launched soon; a UK equivalent remains a work in progress.The LSE and the trading desks are already at odds over design, with the London exchange arguing that these alternative trading facilities won’t share their own quotes with the system while benefiting from the information disclosed by others, and may even find ways to exploit micro differences in the speed of the various data feeds. It reckons it’s best to start off with a post-trade tape only. Even though that wouldn’t be as revealing as pre-trade disclosures — which could indicate the sizes and prices where people are willing to buy and sell — it would be useful, showing the full extent of liquidity in stocks.The Association for Financial Markets in Europe, a lobby group for big banks and others, counters that a post-trade tape on its own would not provide the information the market really needs. But it has also suggested that getting trading desks to add pre-trade quotes to the tape could be prohibitively expensive, and that the benefits aren’t worth it..Read more:.Why the US's current IPO mania could signal top of stock market.The European stock market clearly isn’t working well for everyone. Complexity and fragmentation favor the best resourced investors and trading firms. Plugging into multiple systems to slice and dice orders and avoid costly market impacts is easier if you’re a fund goliath like BlackRock Inc., Millennium Management or Citadel than if you are a regular midsized asset manager.There are no easy solutions. But as policymakers grapple with trading regulation, they should remember who the real casualties are of the current situation: European companies struggling to raise capital..© 2026 Bloomberg L.P..Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox every morning on weekdays. Register here.Support South Africa's bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here.

Europe's stock market boom is a mirage — And "Dark" trading is to blame

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