The value traded in dark multilateral trading facilities increased by 45% over a year to December 2015 despite the pending Markets in Financial Instruments Directive (MiFID II), which will limit fund manager’s abilities to trade shares away from stock exchanges.
According to research from equities broker ITG, in the same period the volume of shares traded openly only increased by 25%. Dark trading is not visible to other market participants.
MiFID II contains rules that will cap dark trading to 4% for individual dark pools and 8% across all venues in Europe, subject to some exceptions for block-sized trades.
Under the MiFID II rules, subject to come into force in early 2018, If dark trading in a particular stock exceeds 4% of total volume of trading for the previous 12 months on a single venue the stock will not be permitted to trade on that venue for six months, while all dark trading in a particular stock will be halted across Europe if aggregate dark trading in the stock exceeds 8% of total volume of trading for the previous 12 months.
“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,” said Rob Boardman, Europe, Middle East and Africa, chief executive officer of ITG.
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