FESE Response to the IOSCO Consultation Report on the evolution of market liquidity during the trading day

FESE responded to the IOSCO Consultation Report "Regulatory Considerations and Good Practices on the Evolution of Market Liquidity During the Trading Day", highlighting the increasingly important role of closing auctions in European equity markets. Closing auctions play a vital role in aggregating liquidity, facilitating transparent price discovery and producing reliable closing prices that serve as key benchmarks across financial markets. FESE points out that the growth of trading activity at the market close is driven by structural market developments, including the expansion of passive investment strategies and regulatory and market structure changes.

At the same time, FESE draws attention to the growing use of execution mechanisms that allow investors to trade at the closing price without participating in the primary closing auction. To monitor the potential impact of these developments on price formation, FESE calls for greater transparency around such transactions, including through the introduction of a dedicated post-trade flag.

More broadly, FESE emphasises that transparent multilateral markets and closing auctions remain the primary source of price discovery. As market fragmentation increases, policymakers should continue to monitor the growing reliance on prices generated by transparent lit markets by execution mechanisms that do not actively contribute to price formation, to ensure the long-term sustainability of European capital markets.