The EU institutions are concerned that public markets will become less efficient and share prices less accurate if dark pools grab a sizable share of equity trading. Indeed, stock trading grew faster in European dark pools last year than it did on public exchanges. According to broker and equity-market operator Investment Technology Group Inc., public exchanges saw a 28 percent increase in 2015 whereas dark pools enjoyed a 45 percent boost in the value of trading.
“It’s a continuation of a trend that we’ve seen since these platforms launched,” said Rob Boardman, chief executive officer of ITG’s European arm. “The buy-side finds significant value in dark liquidity, and we expect that this demand will continue.”
Via a package of new regulations under MiFID II, the EU will introduce a limit to the amount of off-exchange trading in any individual stock. Each dark pool will only be allowed to handle 4 percent of overall trading in an individual security. Total dark trading will be restricted to 8 percent of volume per stock. Breaching the caps will lead to trading being suspended.
“It’s not surprising that there hasn’t been a decrease in dark trading,” said Anish Puaar, European market structure analyst at Rosenblatt Securities Inc. “Nobody is going to change now for a rule that’s probably not coming until 2018.”
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