Dark pools are trading venues where trading interests interact without full pre-trade disclosure, i.e. venues in which the players do not see the available liquidity or the limit order book. In other words, dark pools are (dedicated parts of) multilateral trading facilities or regulated markets that do not apply pre-trade transparency following the use of pre-trade transparency waivers.
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20 December 2022 Council agrees negotiating mandate on proposal to strengthen market transparency: - Regulation reviewing the Markets in Financial Instruments Regulation (‘MIFIR’) - Directive reviewing the Markets in Financial Instruments Directive ('MiFID II') The draft regulation clarifies the limitation on the dark trading, lifting the complexity and the burden of the system. The current double volume cap establishes that the amount of dark trading on an individual venue may not exceed 4% of total trading and the amount of dark trading in an equity instrument in the EU may not exceed 8% of total trading. The new single volume cap set out in the draft regulation relies solely on the EU-wide threshold set at 10%.
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Recital 7 of the European Commission Proposal of 25 November 2021 for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 600/2014 as regards enhancing market data transparency, removing obstacles to the emergence of a consolidated tape, optimising the trading obligations and prohibiting receiving payments for forwarding client orders (COM(2021) 727 final) contained the following wording:
'Dark trading is trading without pre-trade transparency, using the reference price waiver laid down in Article 4(1), point (a) of Regulation (EU) No 600/2014 and the negotiated trade waiver laid down in Article 4(a) point (a), point (i) of that Regulation. The use of both waivers is capped by the double volume cap (‘DVC’). The DVC is a mechanism that limits the level of dark trading to a certain proportion of total trading in an equity instrument. The amount of dark trading in an equity instrument on an individual venue may not exceed 4% of total trading in that instrument in the Union. When this threshold is breached, dark trading in that instrument on that venue is suspended. Secondly the amount of dark trading in an equity instrument in the Union may not exceed 8% of total trading in that instrument in the Union. When this threshold is breached all dark trading in that instrument is suspended. The venue specific threshold leaves room for continued use of those waivers on other platforms on which trading in that equity instrument is not yet suspended, until the Union wide threshold is breached. This causes complexity in terms of monitoring the levels of dark trading and of enforcing the suspension. To simplify the double volume cap while keeping its effectiveness, the new single volume cap should rely solely on the EU- wide threshold. That threshold should be lowered to 7 % to compensate for a potential increase of trading under those waivers as a consequence of abolishing the venue specific threshold".
The document of 20 December 2022 reflecting the Council's negotiating mandate on this proposal modified last two sentences of Recital 7 as follows:
"To simplify the double volume cap while keeping its effectiveness, the new single volume cap should rely solely on the EU-wide threshold set at 10 % in respect of the reference price waiver. Thus, the limitation on the dark trading remains yet the complexity and the burden of the system would be lifted".
Regulatory chronicle
20 December 2022
Council agrees negotiating mandate on proposal to strengthen market transparency:
- Regulation reviewing the Markets in Financial Instruments Regulation (‘MIFIR’)
- Directive reviewing the Markets in Financial Instruments Directive ('MiFID II'
The draft regulation clarifies the limitation on the dark trading, lifting the complexity and the burden of the system. The current double volume cap establishes that the amount of dark trading on an individual venue may not exceed 4% of total trading and the amount of dark trading in an equity instrument in the EU may not exceed 8% of total trading. The new single volume cap set out in the draft regulation relies solely on the EU-wide threshold set at 10%.
Links
Double volume cap (DVC) transparency regime under MiFID II