Wim Zwanenburg: Integration of European stock exchanges is essential
This column was originally written in Dutch. This is an English translation.
The fact that an increasing number of European companies are opting for a primary listing on the NYSE or Nasdaq rather than on the London Stock Exchange or another European stock exchange points to a fundamental problem.
By Wim Zwanenburg, investment strategist at Stroeve Lemberger, written in a personal capacity
European stock markets have been losing ground to US stock markets for years. The difference in scale, liquidity and appeal has now become so great that more and more companies are moving to the US stock market and opting for a primary listing there. They also hope to achieve a higher valuation there, more in line with their US sector peers. This trend exposes a fundamental problem: the deep fragmentation of European capital markets.
Whereas the United States effectively has two major stock exchanges, one central counterparty and one central securities depository, Europe still has more than 35 stock exchanges, 17 clearing houses and 28 central securities depositories. These institutions are often still subject to divergent national regulations and different supervisory authorities. This patchwork quilt leads to higher costs, inefficiencies and lower liquidity. The result is that European markets are less attractive to companies seeking to grow, as well as to institutional investors looking for scale and depth. For retail investors, European stock exchanges are also less transparent.
The contrast is starkly visible in market valuations. The combined value of the Magnificent 7 now exceeds the total market capitalisation of all European stock markets combined. It is therefore not surprising that various European companies are making the move to Wall Street, such as the British firm ARM Holdings previously and, more recently, Sunbelt Rentals (formerly Ashtead). Amsterdam, too, is at risk of losing iconic companies: a potential merger between Akzo Nobel and Axalta, for instance, would mean a move to the US. Aegon is also leaving Amsterdam for the US. And JDE Peet’s was taken over by an American company.
The increasing volume of trading outside traditional stock exchanges is exacerbating the problem. The stock exchange’s role as a central, transparent marketplace is therefore coming under increasing pressure. Less than a third of trading in Europe now takes place on national stock exchanges; in the UK, the figure is even less than a quarter. The growth of less transparent trading platforms further undermines the liquidity of primary markets, whilst stock exchanges are precisely dependent on that liquidity for fair price formation. This applies not only to equity markets, but also to markets trading in government bonds and corporate bonds.
A widely supported policy analysis – articulated, among other places, in Mario Draghi’s 2024 report – points to the urgent need to harmonise and integrate European capital markets. Draghi advocates reducing national regulation and strengthening a single European capital market. Political leaders, including German Chancellor Friedrich Merz, also support this direction.
Although some experts emphasise that European stock exchanges are already linked through advanced order routing systems, it is widely recognised that structural integration is inevitable. For stock exchange operators such as the London Stock Exchange Group and Euronext – which, in terms of turnover, are now primarily data-processing companies – consolidation delivers economies of scale, lower costs and greater competitiveness.
The conclusion is clear: Europe must bring its fragmented stock exchanges together into a single integrated, competitive electronic trading platform and ecosystem. Only then can it offer companies sufficient risk-bearing capital, finance innovation and remain attractive as a location for both business establishment and listing. Without consolidation, the European capital market risks falling structurally behind, resulting in a lasting loss of companies and economic clout. Europe needs its own Nasdaq!
Read the full article in Financial Investigator magazine