Pending Mifid II specs fail to halt dark trading

ITG, the broker and technology provider, says that analysis of so called ‘dark trading’ in equity on multilateral trading facilities (MTFs) shows an increase in value by some 45% in the year to December 2015.

The volume of shares traded this way increased 25%, it said, despite pending EU regulations that are intended to limit the ability for fund managers to trade shares other than on recognised stock exchanges.

The standards are expected to come into force by early 2018, in line with Mifid II technical standards, which were published in September 2015. According to the new rules, ‘caps’ will apply to so called ‘dark pool’ capital of 4% for individual dark pools and 8% across all Europe. This means that if dark trading in a particular stock exceeds 4% of the total volume of trading over a 12 month period on a single MTF, the stock will not be permitted to trade on it for a six month period. If aggregate dark trading across Europe exceeds 8%, then such trading will be similarly halted across Europe.

Rob Boardman, EMEA CEO 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.”

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