Discussion paper

DP18127 Retail Trading in European Equity Markets

Recent growth in retail trading in global equity markets has drawn considerable attention to the execution of retail flows. European market operators offer diverse retail trading mechanisms: both retail-specific mechanisms and all-to-all trading mechanisms that allow the interaction of all trader types. Retail-specific trading mechanisms are categorized into Single Market Maker and Competing Market Maker mechanisms. Markets also differ on other dimensions such as the way market makers compete, the number of reference markets, order flow segmentation, explicit costs, and Payment for Order Flow (PFOF). Using the findings from the existing literature this paper argues in favor of competition between market makers, the use of a consolidated market view as the reference price and less segmentation. It also raises questions about potential conflicts arising from low or zero explicit costs and PFOF. The paper also recommends that policy makers can improve retail execution quality by requiring additional transparency around retail trades and implementing a consolidated tape.


Aramian, F and C Comerton-Forde (2023), ‘DP18127 Retail Trading in European Equity Markets‘, CEPR Discussion Paper No. 18127. CEPR Press, Paris & London. https://cepr.org/publications/dp18127