The Structural Challenges of Europe's Capital Markets
Europe’s capital markets have long struggled with fragmented financial infrastructure across member states. A recent report reveals 36 central securities depositories and 13 central counterparties operating in isolation, mostly confined to national borders. This fragmentation drives up cross-border transaction costs and slows settlement cycles, undermining capital efficiency.
Legal and Tax Disparities Deepen the Divide
Beyond infrastructure, inconsistent tax regimes and divergent legal frameworks complicate cross-border investing. The study found unanimous agreement among market participants that harmonizing legal standards, tax treatment, and corporate actions should be the top priority for integration.
Why Tokenization Stands Out
While overall support for distributed ledger technology remains moderate, tokenization of securities and collateral has emerged as a favored solution—cited by 36% of respondents, triple the interest in AI-driven post-trade automation (12%). This reflects a clear market preference for tangible tools that reduce operational friction and unlock liquidity.
- Enables near-instant settlement, moving toward T+0 clearing
- Enhances liquidity by fractionalizing traditionally illiquid assets like real estate or private equity
- Automates corporate actions such as dividends and voting via smart contracts
Regulatory Preference: Direct-Applicable Rules Over National Transposition
Significantly, market players favor binding EU-wide regulations over directives requiring national implementation. This shift signals a demand for faster, more consistent regulatory outcomes. A unified digital asset framework at the European level could therefore accelerate the adoption of tokenized markets and reshape capital market architecture.