Raising the Bar on Retail Best Execution in Europe

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Best execution for retail stock trades has had a foothold in the U.S. since the tail end of last century, when buzzy IPOs, soaring internet stocks and clever discount-broker commercials captured the imagination of a new vanguard of individual market participants.

That same trend is now afoot in Europe, thanks to the stay-home pandemic years of 2020-2021 that piqued many regular folks’ interest in the market.

Mark Davies, S3

“In the U.S. there was the late-1990s boom with Ameritrade, Datek, E*Trade, and Schwab moving from full service to an online broker,” said Mark Davies, S3, an Austin, Texas-based provider of compliance and trade analytics software. “Europe is now experiencing this shift where the younger generation is starting to want to trade more, and trade more directly.”

The average retail trader isn’t overly interested in their broker’s best execution data – s/he cares more about speed of execution, zero commissions, and the functionality of the brokerage app. But for brokers, properly analyzing trade data and delivering best execution provides a competitive advantage while meeting regulatory requirements.

“S3 has been doing retail analytics in the US for almost two decades and has adapted with the changing regulatory requirements and marketplace,” Davies said. “EMEA is experiencing the shift to retail trading and the impact of trading US stocks, including in fractionals rather than whole shares, at the same time.”

The share of total trading in Europe by retail investors increased from 2% in 2019 to almost 7% in 2020, before leveling off to about 5% in 2021, according to Euronext data. That number has weakened amid this year’s market slump, but market observers say the big-picture trend remains strong.

Davies cited the Sept. 29 IPO of Porsche, an exciting and culturally relevant name, as a short-term catalyst for retail trading interest. Longer-term, as newer traders return upon market stabilization, European brokers need to do more than just adapt their analysis of institutional metrics, as institutional best ex is vastly different from retail.

For starters, institutional best ex analyzes trading on the individual order level, whereas in retail, a broker looks at how a venue executes orders in aggregate, which is important in comparing venues across different asset classes and symbols. Also, Davies explained there are fundamental differences in timing – institutions can take hours or even days to properly work a block order, and much institutional trading is targeted toward the open or the close of the trading day; retail investors want their trades executed immediately, no matter the time of day.

Further, “many metrics (e.g. VWAP) hold virtually no meaning for analyzing execution quality for a trade that may represent as little as a fraction of a share,” Davies said. “Unique-to-retail metrics, factoring in smaller order sizes and notional order amounts rather than share quantity, must be used.”

“On the other hand, with thousands of trades available, determining how to achieve best execution is often clearer than with larger orders; patterns emerge in retail that are not as easily seen with larger client orders,” Davies continued. “Some metrics (e.g. comparisons vs arrival quote) become very much more applicable, but those quotes must be differently understood.”


Wail Azizi, Chief Strategy Officer at Equiduct, a pan-European exchange for retail brokers, characterized the continent’s landscape for retail best execution as “mayhem,” as without a market-wide NBBO (National Best Bid and Offer) framework as there is in the US, standardization is lacking.

Wail Azizi, Equiduct

“Brokers prove best execution by their own means, so it’s a mix and match in terms of techniques and TCAs and contradicting reports and timestamp issues,” Azizi said. “It’s not as straightforward as what you see in the US. Everybody uses their own tools and claims best execution, but there’s no harmonization.”

On the Equiduct exchange, average daily volume in retail trading is running about €300 million, down from €400 million during COVID in 2020-2021 and a peak of €875 million earlier this year, which coincided with the onset of the war in Ukraine.

Just last month, Equiduct, launched the trading of US equities in Apex, the on-exchange best execution service. The launch enables more than five million retail investors to buy and sell 21 large-cap US stocks including Alphabet, Amazon, Meta and Tesla – all priced in Euros.

“Retail equities is a very cyclical business,” Azizi said. “We think it’s going to improve. COVID helped raise the profile of retail investing worldwide, but especially in Europe where the regulators are catching up to all kinds of conversations about retail.”

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