The European Commission commissioned Oxera to study the functioning of primary and secondary equity markets in the EU. The main objectives of this study are to contribute to the evidence base needed to further advance the Capital Markets Union (CMU), with policies that provide a better environment for listing of companies of different sizes by addressing potential economic and technical barriers related to the EU primary and secondary equity markets. Moreover, the study assesses the prospects for market development and considers the future architecture of EU equity markets.

For the study, Oxera collated original data, held and recorded structured interviews with a wide range of relevant stakeholders, analysed this material and identified its implications for a CMU, before developing a set of policy recommendations for the Commission.

Public equity markets provide substantial social benefits, offering an effective way to share risk and allocate capital efficiently between savers and borrowers. They discipline firms’ valuations and organisational behaviour. Initial public offerings (IPOs) enable firms to raise funds as they grow, and offer an exit route for early-stage investors. However, our analysis shows that Europe’s public equity markets have fallen behind in global terms. Its markets are much smaller than those in the USA, despite having a similar-sized economy, and are smaller than Asia’s markets when measured by market capitalisation relative to gross domestic product (GDP).

Given all this and the relative decline of public equity markets in the EU, we identify policies that can help their development, while remaining vigilant to the possibility that private markets could be more efficient in some cases. Most importantly, we identify the need to develop markets policy in the round rather than issue by issue. This is because measures designed to pursue one goal might impede pursuit of another goal. There are many trade-offs to consider and there are dependencies between primary and secondary markets. After analysing the primary and secondary markets in-depth, we suggest strategic paths for how the Commission might best deliver a CMU.

Read the executive summary or download the full report below.