The Impact of Regulation on European Equities Markets
This study investigates the impact of regulation on European equities markets from different perspectives and by using various methodologies. Four research questions aim to shed light on how regulatory objectives impact on securities trading and post-trading.
The question whether the lawmaking European institutions are capable to introduce competition into European equities markets and to achieve their regulatory intentions in terms of financial market integration is examined by means of a literature review. The impact of new competition on the liquidity of European securities markets is empirically analyzed by means of two different event studies: one concentrating on the market depth as a liquidity measure and the other employing market resiliency as an indicator for market quality. The impact of regulatory changes on risk management in the European post-trading industry is analyzed by means of a Delphi study.
While the a priori perspective hints at the danger of imminent order flow fragmentation and potential negative effects of competition induced by regulation, we find empirical evidence for the legislators’ success in fostering competition between European equities markets. Moreover, we introduce a new measure for a systematic comparison of market quality other than the long-established liquidity measures.