The Financial Conduct Authority believes trading volumes in London are up to three times higher in value than previously recorded once dark trading activity is factored in.
Dark trading refers to private deals arranged through banks and other financial forums, using prices set on the London Stock Exchange as a benchmark rather than trading directly on the exchange.
The FCA’s analysis suggests that significant trading activity has been taking place outside official channels, meaning data collected from exchanges has been consistently underestimating the real value of the market.
Executives at the LSE noted in May that the proportion of trading taking place directly on exchanges was the lowest of any major global market, raising concerns about London’s competitiveness.
The regulator now believes there is considerably more liquidity, meaning cash flowing around markets, than previously understood, which could reframe the debate around London’s standing as a financial centre.
The findings arrive as fresh research aims to ease long-running concerns about the City’s capital markets and discourage companies from relocating to New York in search of better investment conditions.
Several high-profile firms, including Wise, chip designer Arm, and building materials group CRH, have already turned their backs on London in favour of US listings.
The FCA has set a target of providing greater transparency on share trading by 2028, though the London Stock Exchange Group has raised concerns that proposed consolidated tape plans could hand an advantage to investors who withhold data.
Separately, confidence in London markets has received a further boost from takeover activity, with data showing more London-listed companies received public bids at a premium of 20 per cent or more above their share price between March and June than across any other major market.
UK firms received a total of £44bn in public bids, referred to as bear hugs, with overseas buyers acquiring listed groups such as Segro and Beazley, while easyJet has been pursued by Castlelake and Apollo.
The wave of takeover interest reflects valuations that many overseas buyers regard as attractive, reinforcing the argument that London-listed stocks have been significantly underpriced.
Pressure is mounting on Chancellor John Healey to do more to boost momentum in financial services, an area that some observers feel has slipped down the government’s list of priorities.
Former Chancellor Rachel Reeves announced that newly-listed companies would receive a three-year holiday on the 0.5 per cent stamp duty on shares, a measure designed to make London a more attractive destination for initial public offerings.