EUROPEAN UNION: ESMA Report on Multi-Venue Trading Increase in Liquidity in EU Equity Markets

Tuesday June 7 2016

The European Securities and Markets Authority (ESMA) has issued an economic report on order duplication and liquidity measurement in EU equity markets. Order duplication means that traders replicate the same order on multiple trading venues at the same time. The report, which takes into account high-frequency trading (HFT), finds that overall multi-venue trading has increased the liquidity in EU equity markets. But the report also shows that 20% of orders across European venues are duplicated and 24% of duplicated trades are immediately cancelled if unmatched. 

ESMA found that order duplication and immediate cancellation is used by traders to ensure execution across multiple trading venues. This strategy is commonly used for market makers’ activities and by institutional investors seeking liquidity and it contributes positively to liquidity. However, for measuring liquidity the ESMA report found that duplicated orders and immediate cancellation lead to the overestimation of available liquidity in fragmented markets. This means that a certain percentage of the liquidity visible in order books is ultimately not available to the markets.

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