The Financial Conduct Authority (FCA) is preparing to launch a significant initiative to gather and publicly disclose comprehensive data on share trading activity in London. This move aims to challenge the widespread perception that liquidity in UK public markets is inadequate compared to international competitors.
Addressing Market Misconceptions
Simon Walls, interim director of markets at the FCA, emphasised the regulator's position in a recent interview with the Financial Times. "The truth is we have way more liquidity here than is often reported, and that is just silly," Walls stated. He revealed that the FCA is currently engaging with numerous market participants to explore how the regulator can intervene to resolve this reporting issue, acknowledging that this involves "a little bit of risk to ourselves."
Current Data Limitations
Existing liquidity assessments primarily rely on the London Stock Exchange's central limit order book, which provides an incomplete picture of actual trading activity. This conventional approach fails to account for several important elements of market transactions.
Firstly, it overlooks periodic auction trades on the LSE, where companies must wait until scheduled auction periods conclude before transactions are finalised. Secondly, and perhaps more significantly, it excludes trading activity occurring in dark pools.
Dark pools represent private trading venues that enable large institutional trades to be executed without revealing information publicly before completion. This mechanism helps minimise market impact for substantial transactions but creates gaps in publicly available trading data.
The Scale of Under-Reporting
Between January and September last year, official LSE data recorded 270 million transactions. However, FCA analysis suggests the actual number of trades could be approximately four times larger than this figure, highlighting the substantial gap between perceived and actual market activity.
Impact on Corporate Decisions
Numerous companies have cited perceived liquidity shortcomings as a factor in their decisions to change listing locations. In 2024, Flutter Entertainment referenced access to "the world's deepest and most liquid capital markets" in New York, while travel company Tui revealed that less than a quarter of its share trading occurred in London compared to Frankfurt, where it maintains a secondary listing.
"People in the market know this under-reporting is a problem," Walls acknowledged. "But it does dog us because sometimes when an issuer has historically chosen to move from the UK to the US, one of the thoughts is that liquidity is lower in the UK and often it's not true."
Regulatory Response and Context
The FCA's data publication plans will serve as an interim solution until the introduction of the regulator's 'consolidated tape' of trading data next year. This more comprehensive system will amalgamate information from multiple trading platforms to provide a complete picture of market activity.
Over the past year, the FCA has been circulating a 'myth-busting' document asserting that actual liquidity across FTSE indices compares favourably with major US indices including the S&P 500 and Nasdaq 100.
This initiative represents the latest in a series of efforts to revitalise the UK's public markets following a challenging period. During 2024, approximately 88 companies either completely delisted or shifted their primary listing away from the United Kingdom, highlighting the competitive pressures facing London's financial markets.
The FCA's data transparency push aims to provide market participants with more accurate information about trading volumes and liquidity conditions, potentially influencing future corporate decisions about listing locations and investment strategies.
