European traders expressed concerns about the lack of liquidity, according to a survey by SIX Swiss Exchange. Nearly half of respondents (47%) identified liquidity availability as the biggest trading challenge, followed by lack of volatility (24%). In such a low-volume environment, traders are likely to use all mechanisms at their disposal to find liquidity and manage market impact.

Venues that offer a variety of order books and execution mechanisms are therefore in a stronger position than venues that only offer lit book trading. According to the survey, decreasing liquidity in continuous on-exchange trading is most likely to flow into dark pools (31%), followed by closing auctions (27%). 

Offering Additional Solutions

Tony Shaw, Executive Director, London Office and Head of Sales, UK & Ireland at SIX Swiss Exchange, comments the results: “As liquidity shifts away from continuous lit trading, stock exchanges need to innovate and offer its members additional solutions. The Swiss stock exchange anticipated this need and introduced alternatives to interact with our unique liquidity. Our non-displayed pool SwissAtMid that includes block functionality, our additional session Trading-At-Last or our Auction Volume Discovery order type satisfy the traders’ need for flexibility and have all seen growth since their respective launch.”

Closing auctions currently account for over a third of overall volume across all European venues. Interestingly, the survey hightlights that only 6% of traders see liquidity moving to periodic auctions – another type of trading mechanism where securities are traded at specified intervals, rather than throughout the trading day.

What has been your greatest trading challenge in 2023?

Where is liquidity in on-exchange trading mainly shifting to?

Volume Attracts Volume

“Volume attracts volume when it comes to European equity markets. As a single event which the entire market is focused on, end of day auctions increase the chances of traders finding much sought after liquidity,” Shaw added. “Our most recent innovation, the Auction Volume Discovery (AVD) functionality – featuring a hidden order type that enables traders to execute larger orders without disclosing the size of the trade – helps to stitch sidelined liquidity together and bring it back onto the exchange.”

However, the survey also showed that traders believe the trading activity is shifting away from exchanges to either Systematic Internalisers (SI) or over the counter markets (OTC), with 15% and 14% of traders’ responses, respectively.

Growing interest in these alternative trading mechanisms follows the European Union’s second Markets in Financial Instruments Directive (MiFID) regime enforced back in 2018 – which aims to shift trading flow onto transparent venues.

Other findings showed that 45% of traders claimed the FCA’s post-Brexit removal of ESMA’s double volume caps, designed to control the amount of equity trading taking place away from public exchanges, has had little impact on dark trading either way.

How do you view the increase of trading activity in periodic auctions?

What impact has the UK's removal of the EU's double volume caps had on dark trading performance?

Persisting Demand for Dark Trading

According to Shaw, the surveyed traders seem agnostic as to whether the double volume caps are in place or not, regardless of the political rethoric. ”Whether it's closing auctions, SI’s, block trading venues or periodic auctions, mechanisms have been in place well before Brexit to meet the persisting demand for dark trading within the industry.”


Highly Liquid Trading Segments and Leading Technology

SIX Swiss Exchange runs one of the most advanced and stable trading platforms in the world, offering the perfect balance between speed and capacity. Coupled with our superior liquidity, this empowers participants, traders and investors to flexibly respond to market developments and implement instant investment decisions.

Any questions?

Please do not hesitate to contact Jürg Schneider.

About SIX
SIX provides and operates stable and efficient infrastructure for the Swiss and Spanish financial centers, thus ensuring access to the capital markets and the flow of information and money between financial market players. As a global provider of financial information, SIX delivers high-quality reference, pricing, corporate actions, and ESG data and provides regulatory services and indices to clients around the world. The company is owned by its users (more than 120 banks) with a workforce of 4,160 employees and a presence in 19 countries.