Europe’s stock markets lag behind their US counterparts in terms of trading activity, with shares of European companies changing hands at roughly half the rate of similar US firms. This reduced liquidity leads to slower transactions, less precise price discovery, and wider bid-ask spreads, diminishing investor interest and discouraging companies from listing on European exchanges.

One significant factor contributing to this underperformance is market fragmentation. European firms can be listed on up to 35 different exchanges and traded across more than 40 venues. While professional traders can access these markets through consolidated screens, the existence of numerous separate exchanges imposes operational complexity and additional costs. This week, Euronext’s chief executive Stéphane Boujnah reiterated support for consolidation in the industry, expressing openness to a major merger with Deutsche Börse.

Though merging exchanges does not inherently generate increased liquidity—since it simply pools existing trading volumes—it can expand the reach of analysts and investors accustomed to national markets, potentially encouraging greater investment and more listings. The disparity in stock market participation is stark: US households allocate more than 2.5 times the proportion of their wealth to equities compared to their European counterparts.

Larger exchanges formed through consolidation could also channel greater resources into technological improvements, helping them remain competitive against alternative trading venues like Cboe Europe and facilitating private block trades between banks and clients. Such alternatives currently account for about 70 percent of all European stock trading, significantly higher than the estimated 45 percent in the US, according to consulting firm Oliver Wyman.

To fully realize these benefits, trading systems must achieve true integration extending beyond mere trading platforms to include harmonized clearing and settlement infrastructures. At present, Europe operates nearly as many post-trade systems as trading venues, resulting in higher costs and inefficiencies. For example, a German investor buying Italian stocks typically pays more for clearing than when buying domestically listed shares. A recent analysis by think tank New Financial found European post-trade expenses to be as much as double those in the US.

While the broader goal of establishing a comprehensive “capital markets union,” which would unify securities issuance and trading standards across the European Union, remains distant, even partial consolidation could represent a meaningful step forward. By reducing the number of separate exchanges and integrating related systems, Europe can enhance market liquidity and competitiveness, offering a more streamlined environment for investors and issuers alike.