European capital markets are being asked to become larger, more integrated and more competitive without losing the benefits that come from having multiple market infrastructures. That makes financial market infrastructures an important part of the wider competitiveness discussion. The European Commission says EU financial markets remain significantly fragmented and smaller than major peers, with differences in national requirements and market practices continuing to hinder cross-border activity. In 2024, EU stock-market capitalisation stood at 73% of EU GDP, compared with 270% in the US.
The challenge is that competition between infrastructures does not automatically create an integrated market. Europe has established common frameworks for trading, clearing and settlement, but infrastructure is still shaped by national systems, legal rules and operating practices. The ECB says securities settlement and asset servicing remain largely organised along national lines, with these differences increasing costs and complicating cross-border activity. It also notes that this fragmentation can restrict competition between central securities depositories rather than strengthen it.
That creates a more complicated question for European financial markets. The objective is not necessarily to replace competing infrastructures with a single system. It is to make it easier for different infrastructures to operate across borders and for market participants to access them without unnecessary friction. The European Commission’s current market-integration measures reflect that approach, including proposals to simplify cross-border CSD processes, improve connections among EU settlement systems and make access to multiple trading venues easier.
Competition Needs a Connected Market
Competition has a legitimate role in financial-market infrastructure. Multiple providers can give banks, brokers, issuers and investors greater choice and create incentives to improve technology, service quality and efficiency. EU rules for central securities depositories explicitly seek to support competition while also removing barriers to cross-border settlement. ESMA’s framework gives CSDs access rights and establishes conditions intended to support cross-border provision of services.
The difficulty begins when market participants cannot use that choice efficiently across jurisdictions. A provider may offer a competitive service, but differences in settlement processes, legal requirements, tax arrangements or market conventions can make cross-border use more complicated than domestic activity. The ECB’s latest assessment says these national differences continue to constrain CSD passporting and cross-border issuance, even after the introduction of common European settlement infrastructure.
This is why the debate over market infrastructure cannot be reduced to competition versus consolidation. A fragmented market can have plenty of competing providers while still imposing additional operational costs on users. Conversely, excessive concentration could weaken choice and reduce the pressure to innovate. The policy challenge is therefore to create enough connectivity for competition to function across a wider European market.
Europe’s approach to market data illustrates the same principle. The European Commission describes the EU trading landscape as fragmented across hundreds of execution venues and is developing consolidated tapes that bring prices and volumes from those venues into a single information stream. The objective is not to remove competition between venues, but to give investors a more complete view of the market while allowing trading to respond to differences in price and liquidity.
That distinction matters. financial market infrastructures can compete at the level where differentiation creates value, while common standards and connectivity can address the fragmentation that prevents those competing services from operating as part of a genuinely integrated market. The question for Europe is increasingly how to make those two objectives work together rather than treating them as alternatives.
Interoperability is Where the Balance Gets Complicated
The case for greater collaboration becomes clearer when the focus shifts from individual infrastructure providers to the connections between them. Europe has already invested heavily in shared market infrastructure, but common platforms do not automatically eliminate fragmentation. TARGET2-Securities (T2S), for example, provides a single securities settlement platform for Europe, yet most settlement activity still takes place within individual CSDs rather than directly between them. In 2025, T2S processed a record 235.2 million transactions worth €280.9 trillion, while settlement efficiency remained high at 93.5% by volume and 98.0% by value.
Direct Cross CSD Activity Remains Limited
Key Takeaway: Direct cross CSD settlement remains a small share of T2S activity, showing that shared settlement infrastructure has not by itself removed the barriers to deeper European market integration.
The figures need some qualification. Cross-CSD activity does not capture every cross-border settlement transaction because CSDs can participate directly in one another’s systems, with those transactions recorded as intra-CSD activity in T2S. Even so, the data demonstrates that technical connectivity and actual cross-infrastructure usage are not the same thing. The ECB also notes that new functionality introduced in 2025 expanded options for cross-CSD settlement but had not yet produced a notable increase in activity.
The reason extends beyond technology. National legal frameworks, tax arrangements and market practices continue to shape how securities are issued, traded and settled. That means infrastructure can be technically connected while the underlying processes remain different. The European Commission’s market-integration package therefore goes beyond connectivity, proposing measures to simplify cross-border CSD processes and improve connections between EU settlement systems.
The same principle applies to trading infrastructure. Europe does not necessarily need fewer trading venues to create a more integrated market. It needs market participants to be able to compare and access liquidity across those venues more effectively. Consolidated market data is one example of this model: competition remains between execution venues, while common information mechanisms can make that competition more transparent and usable across the market.
Collaboration, however, introduces another consideration: interdependence. The closer infrastructures become, the greater the need to understand what happens when one part of the network experiences financial or operational stress. This is especially relevant to clearing. Under the EU’s EMIR framework, CCPs involved in interoperability arrangements must identify and manage credit and liquidity risks, as well as interdependencies that could affect clearing-member concentrations and pooled financial resources.
ESMA is also strengthening the regulatory assessment of interoperability arrangements, with guidance intended to make national authorities’ assessments more consistent and effective.
This makes interoperability a structural issue rather than simply a technical one. The objective is not to connect every system to every other system regardless of cost or risk. It is to remove unnecessary barriers while maintaining the safeguards that allow different infrastructures to coexist. For European capital markets, that distinction matters because financial market infrastructures must become more connected without sacrificing the competition, resilience and choice that multiple providers can bring.