The EU yesterday reached a preliminary deal to limit the volume of trading in a particular stock on dark platforms.
The plans, part of the broader Markets in Financial Instruments Directive (MiFID), propose capping anonymous trading in a stock at eight per cent of its total volume traded across Europe.
Trading on a single platform will also be limited to four per cent and if the trading breaches that limit trading will be banned for the next six months.
Tabb Group senior analyst Rebecca Healey, who has been researching the issue, told City A.M.: “86 per cent of the buy side we’ve spoken to don’t want volume caps.
“It will not be beneficial for the end investor and the irony is the European regulators believe they will deliver greater transparency but in reality all this will do is reduce buy side autonomy, increase dependence on the broker, make trading more opaque and delay the shift to free and fair markets.”
Dark pools are trading platforms in which buyers and sellers are anonymous and prices are not widely known, making it different to a socalled lit stock trading exchange.
Companies say the EU should be focusing more on establishing rules which increase the accuracy of trade data – notoriously unreliable – rather than trying to police the system.
“You cannot manage what you can’t measure,” Fidessa director of group strategy Steve Grob said. “A lot of the regulatory momentum has been that lit platforms favour the retail investor but that’s a gross oversimplification at best. The regulator should be focused on trading data not knee jerk caps on dark pool trading.”
EU politician Markus Ferber, who is leading the negotiations for the EU said: “There are still some questions open. The whole system has to be made functional.”
He added a full deal on the MiFID reforms would be in place by Christmas.