Looming MiFID II caps fail to quench buy-side thirst for dark trading
The value of dark equity trading jumped last year despite pending European regulations which will limit a fund manager’s ability to trade shares away from stock exchanges, according to research from equities broker ITG.
From December 2014 to December 2015, value traded in dark MTFs (Multilateral Trading Facilities) increased by 45%, while the volume of shares traded increased by just 25%.
The findings follow the MiFID II technical standards published in September 2015. Recent delays in the implementation timetable mean the new rules will likely to come into force in early 2018. The standards include dark pool caps of 4% for individual dark pools and 8% across all venues in Europe, subject to some exceptions for block-sized trades. If dark trading in a particular stock exceeds 4% of total volume of trading for the previous 12 months on a single venue the stock will not be permitted to trade on that venue for six months, while all dark trading in a particular stock will be halted across Europe if aggregate dark trading in the stock exceeds 8% of total volume of trading for the previous 12 months.
Commenting on the findings, Rob Boardman, EMEA chief executive of ITG, said: “Despite the impending caps, the increase in dark trading in 2015 demonstrates that the buy-side finds significant value in dark liquidity, and we expect that this demand will continue even after the implementation of the MiFID II rules. This increasing demand among institutional investors suggests that new regulatory thresholds are too restrictive, particularly for large-cap stocks.”