European Equity Markets 101

What is a stock exchange?

A stock exchange is a marketplace where participants meet to buy and sell shares of stock. It provides a single, neutral location for investors to come together to execute trades. In today’s market, virtually all trading occurs electronically across a number of different stock exchanges, all of which facilitate the matching of buyers and sellers in order to execute trades.

Who are the customers of a stock exchange?

Exchange customers are registered broker-dealers. Individual investors and institutions, such as mutual fund companies, do not connect directly to stock exchanges, but rather trade through their brokers, who connect to our exchange (Cboe Europe) and other exchanges to execute trades.

How does equity trading work in the European market across the different countries?

Historically, European investors bought and sold stocks only in their home countries’ markets. In the mid-2000s, new European Union legislation sought to harmonise stock markets across Europe and encourage competition. Today, there are generally two different models for trading on an exchange – a traditional exchange or a pan-European exchange or trading platform.

With the traditional exchange model, orders are sent to the local exchange where trading, clearing and settlement is handled in a vertical (closed) manner (see Figure 1), which can be costly and inefficient for investors. Only stocks listed on that market are able to trade on that particular exchange. For example, only stocks listed on the London Stock Exchange trade on that exchange.

With a pan-European exchange like Cboe Europe, investors are able to trade 6,000 securities across 18 major European markets all from one platform. Cboe Europe is the largest among only a few exchanges in Europe to offer pan-European trading, which is more efficient and cost effective for investors.