Background and rationale

The CfE responds to mounting concerns regarding shifts in European equity market microstructure, in particular, the marked increase in dark trading, a corresponding decrease in lit continuous trading, and a rise in bilateral trading arrangements such as those involving Systematic Internalisers (SIs).

The publication follows two earlier major studies on the subject: one conducted by ESMA and the other by the European Commission, which reached diverging conclusions on the state of liquidity in EU equity markets. ESMA's stated objective is to provide an independent, transaction-data-based assessment of how liquidity is evolving and how it is distributed across different execution venues and methods.

Key findings

ESMA's headline finding is that European equity markets continue to function well overall, with addressable liquidity remaining stable at around 85 per cent of total trading volume and on-book trading accounting for approximately 75–80 per cent of volume over the period. However, beneath this aggregate stability, the CfE identifies several notable structural shifts:

• Regulation enabling dark trading. The CfE identifies that dark trading primarily operates under two waivers provided for under EU Regulation 600/2014 on markets in financial instruments (MIFIR), namely, the large in scale waiver (article 4(1)(c) of MiFIR) and the reference price (RP) waiver (article 4(1)(a) of MiFIR). The trading venues applying those waivers allow the execution of trades without pre-trade transparency when certain conditions are met.
• Decline in lit continuous trading. Lit continuous trading on central limit order books (CLOBs) has decreased over the observation period, with the reduction being counterbalanced by growth in other on-book trading mechanisms, notably closing auctions and frequent batch auctions (FBAs).
• Growth of closing auctions. Closing auctions on regulated markets and intra-day auctions increased from an average of 18 per cent to 19.3 per cent of trading volume between 2022 and 2025. ESMA is separately undertaking an analytical study on the impact of evolving closing auction mechanisms on price formation, with results expected within the year.
• Doubling of FBA volumes. FBAs have doubled their relative share of trading volume, from 3.1 per cent in 2022 to 6.2 per cent in 2025. ESMA presents preliminary evidence suggesting that dark orders may be migrating from the RP waiver venues to FBA trading systems following the introduction of the Single Volume Cap (SVC).
• Impact of the Single Volume Cap. The SVC limits trading volume under the RP waiver to 7 per cent per ISIN across the EU. ESMA's data shows that the use of the RP waiver decreased following the first SVC suspension but returned to previous levels after the second suspension, indicating that the cap's disciplining effect may be limited.

Deep dives: SIs, benchmark trades, and member preferencing

The CfE dedicates substantial analysis to three areas that raise novel regulatory questions:

• Systematic internalisers. ESMA examines the diverse business models of SIs in the context of the revised MiFID II definition, which took effect in September 2025 and replaced the prior quantitative test with a qualitative opt-in framework under Article 4(20). ESMA also flags the enhanced quoting and transparency obligations for SIs that commenced on 23 November 2025 and seeks views on whether further regulatory intervention is warranted.
• Benchmark transactions. ESMA raises technical questions around the classification and transparency treatment of benchmark trades under the post-trade transparency framework, including whether such trades should be considered as addressable liquidity or price-forming.
• Member preferencing. ESMA defines member preferencing as the practice whereby an order submitted to a multilateral execution mechanism, such as an auction or continuous order book, is matched with a preferred member's order, bypassing time-priority or even price-priority rules. ESMA acknowledges that the practice is "relatively widespread" and may have legitimate operational justifications, but raises concerns regarding the potential for unfair treatment of non-preferred participants, its anti-competitive nature, and its resemblance to internalisation rather than genuine on-venue trading. ESMA is seeking evidence on whether legislative or regulatory intervention is warranted in this area.

Relevance to MIP negotiations

ESMA expressly notes that stakeholder feedback gathered through this CfE may inform the co-legislators' discussions in the context of the Market Integration Package (MIP) negotiations, including on the applicability of the tick-size regime to periodic auctions. The repeal of the existing Q&A on tick-size applicability to periodic auctions is a deliberate step by ESMA to level the playing field across jurisdictions ahead of those negotiations.

Practical implications

The CfE does not propose specific rule changes at this stage, but its scope and the granularity of its questions signal that ESMA is laying the groundwork for potential regulatory adjustments. Market participants, particularly trading venues, investment firms operating as SIs, and asset managers reliant on closing auction pricing, should consider responding to the consultation by the 30 June 2026 deadline. ESMA expects to publish a feedback statement in the second half of 2026.

ESMA’s news release can be found here and the Call for Evidence here