Why is the European stock market no longer attracting IPOs?

Operators of Europe's major stock exchanges are under pressure from some investors and brokers to reduce and simplify their fees to create a broader capital market that challenges Wall Street's attractiveness for new company listings.
The European Union has long sought to make its fragmented capital markets more efficient, with the United Kingdom also looking for new ways to attract large IPOs after Brexit.
Illustrating the problems facing Europe, the Association for Financial Markets in Europe (AFME) said IPO issuance in the region fell 72% year-on-year, hitting a record low in the first half of 2023, and it is expected to hit its lowest annual volume since 2011.
The UK's largest chip company, ARM, chose to list in New York this year after construction company CRH (CRH.N) moved its main listing in the United States.
Meanwhile, a study by BMLL Technologies shows that nominal trading volumes in the United States grew more than 2.5 times the European rate between 2018 and 2023.
Market liquidity is a critical consideration when choosing a venue for IPOs but complex fees are “big disincentives to investing for many middle- and working-class Europeans,” said Samuel Gregg, a political economy researcher at the American Institute for Economic Research.
Euronext (ENX.PA), which operates exchanges in Paris, Amsterdam, Brussels, Lisbon, Dublin, Oslo and Milan, has already made progress in simplifying fees, according to Simon Gallagher, head of global sales for Euronext and managing director of Euronext London .
Commissions during closing auctions, a key trading window that only major exchanges can handle, are particularly under scrutiny.
These bring together buyers and sellers in the last five minutes of the day, establishing a final price for the shares.
Aquis Exchange (AQX.L) estimates that around 2 trillion euros ($2.2 trillion) of trades occur annually in Europe during closing auctions, which are particularly profitable for major exchanges.
While popular among ETFs and other investors who need official closing prices to rebalance and evaluate portfolios, higher fees are making some high-volume, low-margin hedge fund strategies increasingly unsustainable on some European markets.
Data from Rosenblatt Securities showed that a record 17.4% of total European stock trading occurred during the closing auctions in September, while intraday volumes are declining, accounting for around 33% of volumes.
A paper published in June by the University of Melbourne said closing auction fees on major exchanges ranged between 0.2 and 0.95 basis points.
Even if they do not impose surcharges for closing auctions, LSEG and Deutsche Boerse (DB1Gn.DE) could offer clearer structures to attract more investors and shore up liquidity, the sources said.
While others like Aquis and the Chicago Board Options Exchange (CBOE.Z) have launched alternatives to closing auctions, liquidity and execution can be less predictable.
Users of these alternatives, known as Multilateral Trading Facilities (MTFs), could pay fees of between 0.075 and 0.3 basis points or a monthly subscription, the University of Melbourne study found.
While MTFs have grown rapidly since the pandemic, they still only accounted for between 5.5% and 8.5% of on-premise trading activity during the shutdown, said Will Hadfield, European market structure analyst at Rosenblatt Securities .
European trading costs are often higher and more complex because exchange groups and clearing houses face duplicate regulatory, real estate and technology costs in the countries where they operate making change more difficult.
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