EUROPE /UK - Stock exchanges seem to be better regarded in Continental Europe than they are in the UK, according to a recent survey of opinion, entitled “Improving Trading Efficiency In European Equity Markets” amongst European broker-dealers and institutions, published by London-based Westminster and City Programmes.

Asked how relevant stock exchanges will be for trading blue chip stocks five years from now, 74% of “sell-side” traders in Continental Europe answered “relevant” or “very relevant”. Similarly, 70% of institutional “buy-side” traders rated the future of stock exchanges as relevant or very relevant.

Amongst UK traders only 39% of the sell-side thought stock exchanges would be relevant for trading blue chips in five years time and 33% thought they would either be “not very relevant” or “not relevant at all.”

This scepticism about the role of exchanges was echoed amongst UK buy-side institutions. Just 42% expect European bourses to be relevant for trading blue chips five years from now and 36% say they will not be very relevant, or not relevant at all.

The disparity in attitudes between traders in the UK and Continental Europe surfaces again when they are asked more generally about market structure. A significant 41% of the UK sell-side said that market structure was not meeting their needs compared with only 7% who answered in the negative from the Continent.

The relative difficulty of market making after the introduction of electronic order book trading also showed the UK traders less happy, with 33% of the UK sell-side saying market making was more difficult today compared with 24% who thought the same amongst Continental European traders.

The prevalent negativity in the UK might be explained by the fact that, “the order driven market has long been the environment for equity trading on the Continent, while the traditional environment in the UK has been quote driven”, say the authors of the report.

The survey also confirmed that buy-side trading costs have generally gone down, but more particularly in Continental Europe than in the UK. In Continental Europe 50% of the buy-side said trading costs were lower for blue chips and 80% thought they were lower for mid-cap stocks. For the small caps, the responses were evenly split between lower (50%) and the same (50%). In the UK, however, 19% of the buy-side said trading costs were today actually higher for blue chips and 27% thought they were also higher for mid and small cap stocks.

On both the Continent and the UK, attitudes about soft commissions are predominantly “neutral” and “negative” with the sell side being more negative than the buy side. Negativity is also expressed towards directed commissions in the UK where the number of “negative” and “very negative” responses totaled 39% (sell side) and 42% (buy side).

The impact of hedge fund trading on market quality drew a generally consistent response from the Continent and the UK with respondents’ answers roughly split between “positive” and “negative”. Negativity towards hedge funds, however, was greater in the UK, especially on the buy side, where 54% replied either “negative” or “very negative”.

The Report’s authors conclude that the responses are not a resounding acclamation of the quality of the European equity markets.
“The results suggest that market structure requires strengthening, particularly for small and mid cap stocks.”

The report is available, priced £495 (e792), from Westminster and City Programmes Limited, 231 Kennington Lane, London, SE11 5QU.
Tel: (+44) 0 20 7582 6516. Fax: (+44) 0 20 7582 7245