Latest Mifid hiccup: Esma delays revealing stocks affected by volume caps

In the latest wobble in a massive regulatory shake-up, the European regulator has delayed revealing a list of stocks which will be affected by new dark pool volume caps.

The European Securities and Markets Authority (Esma) blamed exchanges for suppling "incomplete data", and said it hoped they would remedy this so a list could be published in March.

"Based on the analysis performed, ESMA realised that the publication would have resulted in a biased picture covering only a very limited number of instruments and markets," the regulator said in a statement.

The dark pool volume caps were scheduled to kick in on 12th January, and still will despite Esma's delay. Market commentators have said this is when Mifid II, which mostly came into force on 3rd January, will truly begin to bite.

What is the dark pool volume cap?

Dark pools, where investors can trade without having to reveal what they are buying or selling, were originally designed so that large deals could be executed without immediately affecting the market price of the stock.

But in recent times, dark pools have been increasingly used for smaller trades by asset managers and investors simply seeking privacy.

The second Markets in Financial Instruments Directive, or Mifid II, put a cap on the amount of a stock which can be traded "in the dark". If more than four per cent of a stock is traded in the dark on any particular venue on a 12-month rolling period, or eight per cent market-wide, trading in that stock will be suspended.

Under the new rules, firms which do actually want to trade large volumes of stock can seek a waiver from the regulator, so it will not count towards the volume cap.

They can also use systematic internalisers – investment firms and banks which can execute client orders on their own account – as a more private alternative to "lit-book" trading venues.

Mifid II came into force on 3rd January, with a few wobbles as certain big-name exchanges were granted a last-minute reprieve from "open access" rules.

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