Despite the attempts to channel equity trading to the “lit” markets, more than half of European stock is bought and sold through “dark pools”. BETTER FINANCE has long criticised its negative effects on transparency and pricing, promoting the need to restore confidence in financial markets. Attempts to regulate the financial markets and instruments have already been made by the EU, firstly by launching MiFID I, whose goal was to break the monopoly of national fairs. However, allowing banks and brokers to match orders from their customers internally had negative effects on transparency and correct pricing.
Such issues were supposed to be fixed with MiFID II, which came into effect last year and was intended to ban the internal matching of share orders and increase transparency on capital markets. Nevertheless, figures show that MiFID II backfired with a 14-fold increase in the number of SIs, leaving investors with insufficient transparency. In fact, according to Guillaume Prache, managing director of BETTER FINANCE, internal trades are unfairly matched. Besides, they have no restrictions on the regulated markets and do not contribute to price discovery and formation-setting by skimming the regular market prices.
For more information, see here.