European banks urge regulators not to intervene in equity markets

LONDON, June 30 (Reuters) - Europe’s largest banks have urged regulators not to intervene in equity markets, saying there is no evidence that a decline in trading on traditional stock exchanges has harmed price-setting.

The Association for Financial Markets in Europe (AFME), representing banks including Deutsche Bank, Credit Agricole and Santander, as well as trading firms including Citadel Securities and Jane Street, warned on Tuesday that tightening rules on off‑exchange trading could backfire, damaging liquidity and leaving investors worse off.

The European Securities and Markets Authority (ESMA), the EU’s securities watchdog, in April published the findings of a study on equity markets and raised the prospect of legislative or regulatory measures to curb the continued decline in equity trading on stock exchanges.

In Europe and the UK, the proportion of shares traded throughout the day on exchanges has been falling for several years, as investors increasingly use alternative mechanisms such as closing auctions and off-exchange transactions where prices are not always publicly displayed.

ESMA said in its paper that the trend was not necessarily alarming on its own, but warned that if it persisted it could point to growing reliance on less transparent or less accessible trading mechanisms, potentially weakening how prices are set and reducing the reliability of benchmark prices for investors.

The following month, Europe’s six largest economies proposed steps that regulators could take to curb the growth of trading within investment banks and proprietary trading firms.

Their finance ministries said that, to level the playing field, banks and trading firms should face stricter transparency requirements and only handle retail orders if they can offer better prices than those on public exchanges.

In its response, AFME cautioned against reducing investor choice regarding where trades are executed, and said any future action should be evidence‑based.

Peter Tomlinson, head of equities trading at AFME, told Reuters: “Both Brussels and London are focused on making markets more globally competitive and simplifying regulation. Adding more rules or restricting how and where investors trade is unlikely to support those goals.”

(Reporting by Phoebe Seers; Editing by Edmund Klamann)