MiFID Dark-Pool Caps Curb Trading in Hundreds of Stocks

(Bloomberg) -- Hundreds of European equity products exceeded MiFID II’s limits on dark-pool trading, triggering restrictions on how they’re dealt.

The affected assets will be suspended for six months from being bought and sold in dark pools, which investors use to avoid tipping their hand to the markets. Italian bank UniCredit SpA, asset manager Amundi SA and subprime lender Provident Financial Plc are among firms whose shares are covered by the suspension, which takes effect on March 12.

“Traditional stock exchanges and new platforms run by banks and high-speed traders will probably gain business as a result of ESMA’s decision,” Alasdair Haynes, chief executive officer at Aquis Exchange, said before the data was published on Wednesday.

Europe’s markets regulator is clamping down on dark pools as it tries to increase transparency in equities dealing. About 10 percent of trades of the region’s stocks took place on the venues in the final months of 2017, indicating that fund managers had not yet changed their strategies ahead of MiFID II’s start date in January.

The restrictions on dark pool trading had been temporarily delayed that same month, a setback to the revised Markets in Financial Instruments Directive, which is designed to help prevent future financial crises. The data is still not complete but it’s of “utmost importance” that the measure takes effect, the European Securities and Markets Authority said.

More than 700 products breached the limits in January and more than 600 did so in February, ESMA said on Wednesday. The cap was set as 8 percent of trading volume over the previous 12 months and curbs were also placed on trading on each dark pool.

Post-MiFID Trading

There are signs investors are beginning to embrace new ways of dealing. Cboe Europe, a unit of Cboe Global Markets Inc., said it has seen a major increase in trading on its periodic-auction service since MiFID’s first day.

The Dark. And the Lit

Traders who want to keep trades hidden will still have options. They can deal massive blocks of stocks that qualify for an exemption from the ban, use a new breed of venues called systematic internalizers, or use “periodic auctions,” which hide orders until there is enough volume to trigger a trade.


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