16/02/18

EU authorities dash hopes of U-turn on Mifid II dark pool caps

(Financial News) -- European authorities have moved to quash rumours they could scrap restrictions on so-called dark trading — a flagship initiative in the region's new securities rulebook that came into force only six weeks ago.

The caps on trading shares in venues known as dark pools are included in the European Union's revised Markets in Financial Instruments Directive, a sprawling piece of regulation aimed at increasing transparency in trading across multiple asset classes.

But the plans have already hit a snag, with regulators delaying the introduction of the caps because of problems with the data needed to calculate whether or not to enforce them.

This has led to "increasing noise" that they could be scrapped altogether, according to a senior executive in Europe's equities markets working at a large investment bank. A number of other senior figures — including traders and exchange executives — told Financial News they had heard speculation of a change in political sentiment around the caps.

But a spokesman for the European Securities and Markets Authority, the regulator responsible for enforcing Mifid II, said an intention to publish calculations for the caps in March "still stands". The European Commission also said it "remains committed" to the initiative.

Markus Ferber, a member of the European Parliament and one of the architects of Mifid II, said: "The double volume cap mechanism is part of an EU regulation and therefore it is binding. It is not discretionary for Esma to perform and publish the necessary data, it is an obligation. Therefore, the discussion about scrapping the double volume cap is somewhat detached from reality."

Alasdair Haynes, the chief executive of Aquis Exchange, said the dark pool caps "may at some point be abolished but I just can't see that they [Esma] would do it straight away".

He added: "It would be very strange for a rule that has been discussed for such a long time to be dropped so quickly. I think it's wishful thinking in the industry."

Rob Moulton, a partner at law firm Latham & Watkins, said: "Esma’s massive policy U-turns on matters such as the mandatory trading obligation" opened the possibility that "the dark pools delay may be more than a delay". But he added that he thought the caps would likely be introduced eventually.