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“ Our survey results show a disconnect between policymakers and industry participants -especially the buy-side - on key market structure reforms .”
ANISH PUAAR , MARKET STRUCTURE ANALYST FOR EUROPE , ROSENBLATT SECURITIES
price waivers to large orders . The proposed changes would serve to further restrict dark activity for smaller trades , despite widespread support from a majority of 75 % of buy-side respondents in Rosenblatt ’ s poll that the caps be removed in their entirety .
“ Our survey results show a disconnect between policymakers and industry participants – especially the buy-side – on key market structure reforms ,” Anish Puaar , market structure analyst for Europe at Rosenblatt Securities , told The TRADE . “ ESMA has , for example , recommended tighter dark pool rules while the majority of respondents to our poll would like to see the volume caps removed completely .”
Dark trading has steadily increased since the first set of DVCs expired in September 2018 , despite early and dramatic declines following the introduction of MiFID II . ESMA stated in its MiFID II review consultation that the DVCs have had positive , but limited effects on market liquidity since they were implemented , and these benefits need to be balanced against the complexity of the DVC system .
While acknowledging that MiFID II had failed in its chief objective to increase transparency by restricting dark trading , ESMA proposed various modifications to the DVCs in its consultation . These included extending the scope of the system , adjusting waivers or removing the DVCs completely in favour of another method to curb dark trading .
Market participants have generally criticised the move by regulators in Europe to restrict dark trading to drive volumes onto lit venues , arguing that dark trading allows for minimal market impact and in some cases can offer the best price for clients . Some have argued the DVCs are arbitrary and not based on concrete analysis , while others have previously described them as a political compromise .
“ What was the rationale for the 4 % and 8 % levels selected originally and what evidence do we have that extending them would help
investors ?” said Janus Henderson ’ s response to the MiFID II review consultation , penned by head of EMEA equity trading , Richard Worrell .
“ Have we seen greater depth to order books since the DVC ’ s were introduced for example ? The basis of much of this paper is that the DVC ’ s haven ’ t succeeded in what ESMA seemingly wanted , so continuing to use them let alone extending them without evidence seems slightly mystifying .”
Alongside the apparent disconnect on dark trading rules , Rosenblatt ’ s snap poll also shows varying views between buy-side market participants and the regulator on changes to periodic auctions .
12 // TheTRADE // Fall 2020