After years of enviously looking at the US, panellists at TradeTech urgently called for changes to tax rules and investor education, to unleash a wall of retail equity flow.
Panellists at this year’s TradeTech Europe conference called for an end to over-protective regulation of retail. “One of the things that I often hear is that retail should only be playing trading simple products, and that they weren’t sophisticated enough”, said Emma Lokko, head of European market structure for market maker Susquehanna. “I think it’s really important that self-directed retail investors should be allowed to trade what financial instruments they see it is appropriate for them, given their risk appetite and their hedging requirements”
Others put forward a series of changes that should be made to European markets to encourage greater retail investment – something which is already on the rise, according to Emilie Rieupeyroux, head of market strategy, for cash equity and data services at Euronext.
She noted that retail weight on the platform has increased by 20% in the last two years, with the number of end retail investors monitoring the firm’s market data feeds doubling each year for the past four years. Recent volatility has further boosted retail interest in European stocks as confidence in the US market has become shaky, Rieupeyroux added.
Huw Gronow, head of dealing at Newton Investment Management, prioritised the need for education, advocating for personal finance to be added to the national curriculum. He also suggested that industry, government and regulatory bodies bring in incentives to encourage retail participation. “Anything that encourages an investment culture is good,” he said.
Elsewhere, changes to tax programmes were strongly advocated for. Alex Dalley, head of European cash equities at Cboe Europe , called for a European tax-efficient savings product to be mandated, while transaction exemption tax and the elimination of stamp tax – which has already been introduced in the UK and Switzerland – were suggested by Rupert Fennelly, EU head of equities electronic trading and sales at Barclays.
Although retail interest is growing, overprotective regulation and a lack of incentives are still preventing retail investors from fully engaging in the equity markets, panellists said, a discouragement of risk-taking behaviour driven by post-2008 regulations.
“You can’t protect everyone,” argued Simon Gallagher, CEO of Euronext London and head of global sales. “you have to accept that 1/10 investors will lose. Regulators need to let that happen. We need to bring more risk into the system.”
Batting away responsibility, Jon Relleen, director of infrastructure and exchanges, supervision, policy and competition for markets at the Financial Conduct Authority suggested that encouraging risk is not just the role of regulators – tax regimes and exemptions need to be taken into account, along with listing rules and the prospectus regime for companies going public in European markets. Governments and exchanges also have a role to play.
“We need to give people the right kind of advice, encourage them to take those risks. That’s a difficult thing to do. Regulation is not a single bullet – we need to look at this holistically, bringing in market venues and the sell side,” he said.
Fennelly agreed here, arguing that governments don’t need to bring in reforms, but instead must push for a more pro-investment culture. He drew attention to the public float of British Gas in the 1980s, and advocated for a similar, sustained campaign to change the current landscape.
While confidence in the US markets is not quite as strong as it was last year, Robert Miller, head of market structure and liquidity solutions at KCx, observed that the reduction of friction when investing cross-border means that European investors are still more likely to invest in household-name US stocks than domestic. The tendency to ‘outsour
ce’ retail investment to pension funds and the like in Europe, Simon McQuoid-Mason, head of equity product and quant research at SIX Swiss Exchange, added, means that end retail clients are not familiar with successful domestic companies.
In countries like the US and China, where pensions are not provided by the state, the general public are incentivised to invest in equity markets –
doing so is a cultural norm, and not doing so could result in a lack of security later in life.
Relleen advocated for a more US-type structure to be adopted, with a reduction in investor protections – to a safe degree.
Without a major cultural change in attitudes to retail investment, along with structural changes to support them, retail investment may stagnate.
