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which are then printed on venue . In Europe , trades take place on national exchanges , while in Germany regional exchanges remain predominant . The question is who will be the providers of tomorrow ’ s retail liquidity that could help bridge the gap in the market between institutional and retail flow ?
Market makers are also playing an active role in restitching the retail landscape by aggregating the bid positions they get from retail into a central risk book . Then they can interact with institutional investors in block liquidity either directly through Indication of Interest ( IOIs ) or indirectly via block venues . Recent data from Alphacution evidences the growing role market makers play in retail liquidity . In November 2020 , market makers represented 90 % of the payment for order flow ( PFOF ) market in the US , up from 60 % in 2011 .
The opportunity to better leverage retail flow is multi-faceted ; at a time where intraday liquidity is drying up , asset managers need to find the other side of their trade . Liquidity providers that can bridge the gap in the market and remove the wall between institutional and retail liquidity will offer their clients improved access and opportunity to deliver best execution . This matters given the focus in the UK and Europe to channel more investments into small and mid-caps . Lack of liquidity in these stocks has long acted as the biggest deterrent for asset managers . The ability to access any retail interest in these names could help provide the liquidity asset managers need to be able to invest .
The use of PFOF continues to be heavily debated to ensure retail investors understand the lifecycle of their order and obtain the best possible outcome . While this remains predominantly a US phenomenon , European regulators should take notice ; retail flow constitutes an undeniable part of capital markets and whether it is PFOF , retail service providers or neo brokers entering the European retail market , the market is in need of innovation to remove the remaining barriers between institutional and retail flow . It is only when multiple liquidity sources can interact together through better use of technology that capital markets will be able to support the real economy efficiently .
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